HMRC has won an IR35 case against three BBC presenters, who have been told they must pay hundreds of thousands of pounds worth of back taxes.
Tim Willcox, Joanna Gosling and David Eades were targeted by HMRC as part of a crackdown on freelancers using personal services companies to avoid certain taxes and are looking at paying £920,000 collectively, despite the court saying that the BBC had forced them into the wrong contracts.
The judges said: “The BBC were in a unique position and used it to force the presenters into contracting through personal service companies and to accept reductions in pay.”
Despite this, in a split decision they ruled that the three presenters had fallen on the wrong side of IR35 legislation, which aims to ensure that employees in all but name who are paid through a personal service company are liable to pay more tax.
Willcox, Gosling and Eades argued that they were self-employed, but the court ruled in favour of HMRC, who made the case that the presenter’s relationship with the BBC were ones of employment, as the BBC told them how, where and when to work.
This ruling will be of concern to several other BBC employees, with a further 100 presenters reportedly working through personal service companies and potentially subject to the same IR35 legislation.
Seb Maley, CEO of Qdos, said: “It’s of real concern that at present, these individuals look like they will be made to pay vast sums to HMRC, despite the judges finding they were ‘forced’ into working as self-employed by The BBC. The onus should be on the engager to settle, not the presenters, who it’s very difficult to label as guilty.
“With around 100 other BBC presenters in the same boat, we could see similar verdicts in time. However, each case needs to be examined on its own merit. And if it’s decided The BBC left someone with no choice but to work outside IR35, then these individuals must be helped financially.”
This case was being viewed as a test for many to see which side the courts would rule, and will come as a blow to the BBC and many of its presenters who could now be subject to similarly large retrospective tax bills.
The corporation has acknowledged its responsibility for the contracts, and it has said it will help the presenters resolve the cases, with two-thirds of the bill reportedly already settled, with the BBC under pressure to settle the remaining £200,000 of National Insurance.
The presenters were investigated under the private sector IR35 rules, that were originally enacted in April 2000. Since then, in April 2017, the new off-payroll tax legislation has been introduced to IR35, which will come into effect in the private sector in April 2020.
Under the new rules, employers are required to pay the extra tax bill, which means had the case been charged under the new rules, the BBC would have been required to cover the bill.
Reaction to IR35 ruling
Reactions to the news from the freelance and contractor community have, unsurprisingly, been negative towards both the BBC and HMRC.
Dave Chaplin, CEO of ContractorCalculator, said: “I have a great deal of sympathy with the presenters. This should not be a story of well-paid presenters trading through companies to avoid tax but about the BBC and other broadcasters pressing hundreds of existing presenters to form companies because it continued to give the broadcaster the flexibility it desired whilst circumventing its own future tax risk by passing it to the presenters.”
“The miserable truth about all this is that had the presenters been investigated under the new rules then the broadcaster would have had to pick up the extra tax bill they passed onto the presenters, by way of the employers NI they sought to avoid.”
Julia Kermode, chief executive of The Freelancer & Contractor Services Association (FCSA), said that the case highlighted the uncertainty and lack of clarity when it comes to IR35 employment determinations, which employers will be making as of April 2020 under the new legislation.
“Given that two tribunal judges took opposing views, it was decided on a casting vote of another judge,” she said. “Surely this just goes to illustrate how unfair it is to expect businesses to make IR35 determinations in the light of off-payroll legislation due in 2020 – if judges can’t reach an easy conclusion how on earth can firms without access to expertise be able to reach a conclusion?”
Joe Tully, managing director at Brookson legal, felt the same as Ms Kermode, and noted that HMRC will be encouraged by the judges ruling when it comes to reclaiming tax from others who are in breach of IR35 legislation.
“After some high-profile IR35 defeats for HMRC, it will likely feel encouraged by this latest ruling,” he said. “However, three High Court judges were unable to agree here, which shows how complex the IR35 rules are.
“It can be extremely difficult to interpret the legislation. It is significant that the casting vote was decided on two key employment status tests: the mutuality of obligation between employer and contractor, and the framework of control within the relationships between the BBC and the presenters.”
There is a silver lining to the news, however, according to Mr Chaplin, who said: “The positive note for all contractors is that the presenters, who took proper advice, were not judged as being careless with their tax affairs, so the tax window extends back just 4 years, and not 6. Of further comfort is that the BBC has reportedly set aside money to partially pay the part of the presenter’s tax bills that arguably should have been theirs.
“But, HMRC still fails to grasp the simple concept that there is a freelance premium, and because of this, freelancers end up generating more in tax by operating this way compared to employment. HMRC should be thanking freelancers for their contributions, not victimising them as tax avoiders using this cruel legislation.”
Seeking specialist advice
For employers who will be responsible for determining the employment status of those that work for them from April 2020, it is important that they seek specialist advise, largely due to the questions hanging over the effectiveness of HMRC’s CEST (Check employment status for tax) tool.
Daniel Fallows, director at Gorilla Accounting, said: “IR35 is subject to a lot of change currently and is becoming more and more complex. The rules on who is classified as employed according to IR35 remain the same, but the responsibility and risk for making that assessment has changed. Those who are genuinely self-employed and are currently compliant have nothing to worry about, but they will need to review their status more regularly.
“There has been concern about the viability and effectiveness of the enhanced HMRC CEST tool, and therefore it is important that contractors and freelancers seek specialist advice to ensure they are correctly classified according to the IR35 criteria. Although HMRC will release further guidance on this new legislation, we advise that self-employed contractors or freelancers take specialist advice as soon as possible and ensure they have accountants that are experts in this ever changing area.
“Recent decisions of this kind have produced a range of outcomes so this case is a significant win for HMRC, and is likely to result in further scrutiny of the BBC’s hiring practices.”