Former BBC presenter Christa Ackroyd is facing a tax bill of over £419,000 after a tax tribunal ruled in favour of HMRC, in the culmination of a five-year dispute surrounding her contractual arrangements and employment status.
As the first IR35 victory for the Revenue in nine years, the case will likely have implications for similar cases as well as future expansion of the legislation.
In her role as presenter of the BBC’s Look North programme, which she held for over a decade, Ackroyd said she was “encouraged by the BBC” to receive her salary via her personal service company (PSC), Christa Ackroyd Media Ltd (CAM).
Under this arrangement Ackroyd was classed as a self-employed contractor and circumvented paying income tax and National Insurance Contributions (NICs).
HMRC contended that Ackroyd was in fact an employee, and thereby CAM was liable to pay tax accordingly. The court agreed, on the principle that Ackroyd was effectively under a “hypothetical contract” which “would have been a contract of service rather than a contract for services.”
Some of the main indicators that she was an employee rather than self-employed were that the role was continuous and steady (225 days per year in a seven year contract), that the BBC had ultimate say over what services CAM Ltd would provide, and that her contract restricted her from providing services to other companies.
Ackroyd was adamant that she was not responsible for any wrongdoing as she had “signed a BBC freelance contract in good faith.”
Judge Jonathan Cannan appeared to accept her position, stating: “We do not criticise Ms Ackroyd for not realising that the IR35 legislation was engaged.”
The BBC said the use of personal service companies was “standard industry practice” at the time.
The use of such companies came under scrutiny in 2012 following the release of a Deloitte report which found that a number of prominent individuals within the broadcaster were using PSCs when they should have been employees. As a result 85 individuals transitioned into official employee roles, of which Ackroyd was not one.
Is IR35 legislation fit for purpose?
The prevalence of these types of arrangements led to HMRC introducing IR35 legislation in the early 2000s, further expanding it in a crackdown in the public sector 2016.
Mike Tremeer, senior associate at Fladgate LLP explained: “IR35 effectively operates to shift the obligation to make deductions of tax and national insurance from the client to the intermediary company.”
“However, since April 2017 public authorities must consider whether IR35 applies to a working arrangement with the contractor, not the intermediary company. If it does, payments to the intermediary company must be made after deductions of tax and national insurance as appropriate.”
Ackroyd’s case sheds a light on some of the confusion surrounding IR35 legislation, which David Redfern, tax expert, explained is open to misinterpretation.
He said: “I have been a firm critic of HMRC’s IR35 legislation due to its complex nature, potentially leaving thousands of freelance and self-employed workers at risk of severe financial penalties and unpaid tax bills. This latest case took five years to adjudicate, demonstrating just how complicated and unwieldy this legislation is.”
Although the judge accepted Ackroyd had not intentionally avoided tax, she faced extreme consequences following the infraction, including losing her job and being slapped with a tax bill worth hundreds of thousands.
He added: “Considering that Ms Ackroyd isn’t the first BBC star to fall foul of these regulations, with all of expert advice that the BBC is able to offer its presenters and actors, this suggests that the legislation is far too complex for your average freelancer or subcontractor to be able to navigate alone and should therefore be revisited and possibly revised for clarity”.
Implications for similar cases and the private sector
Following its clampdown on the public sector in 2016, Tremeer explained that a “consultation to consider whether a similar regime should apply in the private sector is due to take place in 2018.”
This would have wide-ranging implications for the sector, as “if implemented, any private business which currently engages individual contractors via intermediary companies will need to assess whether those individuals are likely to be found to be employees of the intermediary company (or of the client itself).”
Tremeer warned: “Reviewing those work practices and contingency planning should take place sooner rather than later as such arrangements might not be possible for much longer.”
Bill Longe, head of employer solutions at audit, tax and consulting firm RSM said that although not a “lead case”, the ruling will likely have implications for the other 100 investigations into BBC stars by HMRC.
He said: “This decision will nevertheless be seen as a setback for other appellants taking similar cases to the tribunal.”
“Clearly these types of arrangements pose further reputational risk to the BBC and a huge financial risk to contractors.”
An HMRC spokesperson said: “Employment status is never a matter of choice; it is always dictated by the facts and when the wrong tax is being paid we put things right.”
Ackroyd contends that she is liable for only £207,000 rather than £419,151. The tribunal said both parties must reach an agreement over the amount to be repaid within 42 days or notify the tribunal of the need for a further ruling.
This is the latest development in continued scrutiny into the broadcaster’s pay policies. Last year some of the company’s highest paid staff were informed that they would be taxed as BBC employees and pay the 45% PAYE rate instead of being taxed as self-employed and paying a 20% corporation tax rate.
A report by PwC also found that there was no evidence of gender bias in pay policies at the BBC.