IR35 ruling- Christa Ackroyd Vs HMRC
The Christa Ackroyd v HMRC tax case is a typical IR35 case and sets a precedence, as this is the first ruling under this legislation in seven years.
In this case, HMRC claimed that the IR35 regulation applied and that a BBC presenter should be treated as an employee of the BBC, even though she provided her services through a personal service company. The former ‘Look North’ presenter lost her appeal covering tax years 2006/07 to 2012/13 and owed tax amounting to £419,151.00. However, she highlighted the fact that the amount she owes is lower, if HMRC considers the tax that has been already paid by her.
Ms Ackroyd provided her services to the BBC through her personal service company, Crista Ackroyd Media Limited (CAM Limited). Ms Ackroyd said that her decision to operate through a limited company was because the BBC insisted upon it. She received advice from her professional advisors about the terms. The use of personal service companies is widespread across the industry, as it provides flexibility for both individuals and organisations.
An independent review conducted in 2012 suggested that the BBC had offered presenters the option of working for them under employment contracts or through personal service companies but had not expressed a preference as to which one should be used. The First-Tier Tribunal (“FTT”) has subsequently found that IR35 regulation is engaged and the BBC presenter should be treated as an employee of the BBC and CAM Limited should account for income tax and national insurance.
The First Tier Tribunal summarised as follows:
“If the services provided by Ms Ackroyd were provided under a contract directly between the BBC and Ms Ackroyd, would Ms Ackroyd be regarded for income tax purposes as an employee of the BBC?”
So, the terms of the contract were considered against a ‘hypothetical contract’ to check if the facts made it an employment situation or not:
1. Ms Ackroyd was required to work for the BBC for at least 225 days per year, and the BBC was required to pay the fees set out in the contract monthly.
2. Ms Ackroyd accepted that the BBC ultimately had the right to specify the services to be provided by CAM Limited.
3. The BBC had control over the content owing to its editorial responsibility.
4. Ms Ackroyd had no right of substitution, in fact this was specifically excluded.
5. Ms Ackroyd was restricted from providing her services to other organisations, without express consent from the BBC.
6. Finally, the existence of a seven-year contract meant that Ms Ackroyd’s work at the BBC was pursuant to a high degree of continuity and represented a highly stable and regular arrangement.
The First Tier Tribunal concluded that, based on the above facts, Ms Ackroyd had a contract of service with the BBC and should be treated as an employee. According to IR35 regulations, CAM Limited owed the tax and national insurance on her deemed employment.
What does this mean?
Ms Ackroyd believes that she has been made a ‘scapegoat’, the decision will be seen as a setback for approximately 100 similar cases that are currently under consideration. This is an industry-wide issue. Contractors could now easily find themselves within the scope of IR35 regulations.
There are numerous commercially legitimate reasons for providing your services through a personal service company, however the terms of such contracts should always be considered carefully.
If you or your clients have had a negative IR35 determination please talk to us for advice, we may be able to help.