Kickabout Productions Ltd v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Sir David Richards,Lord Justice Arnold,Lord Justice Peter Jackson |
| Judgment Date | 26 April 2022 |
| Neutral Citation | [2022] EWCA Civ 502 |
| Docket Number | Case No: A3/2020/2117 |
| Court | Court of Appeal (Civil Division) |
[2022] EWCA Civ 502
Lord Justice Peter Jackson
Lord Justice Arnold
and
Sir David Richards
Case No: A3/2020/2117
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
Mr Justice Zacaroli and Judge Jonathan Richards
Royal Courts of Justice
Strand, London, WC2A 2LL
Jonathan Peacock QC, Georgia Hicks and Harry Sheehan (instructed by Radcliffes Le Brasseur) for the Appellant
Akash Nawbatt QC, Christopher Stone and Marianne Tutin (instructed by the General Counsel and Solicitor for HM Revenue and Customs) for the Respondents
Hearing dates: 1 and 2 February 2022
Approved Judgment
This judgment was handed down by the Court remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 10:30 on 26 April 2022
Introduction
This appeal concerns the application of legislation, commonly referred to as the Intermediaries Legislation or IR35, which will, if certain conditions are satisfied, treat a person whose services are provided through a service company as an employee for the purposes of PAYE and National Insurance contributions.
In the present case, the services of Mr Paul Hawksbee were provided by his personal service company, the appellant Kickabout Productions Limited (KPL), under contracts with Talksport Limited (Talksport) as a presenter on Talksport Radio's “Hawksbee & Jacobs Show”, a three-hour radio programme broadcast every weekday from 1pm to 4pm. The Commissioners for Her Majesty's Revenue and Customs (HMRC) determined that IR35 applied to these arrangements and that KPL was accordingly liable to pay income tax under the PAYE system and NI contributions in respect of the earnings under those contracts as if Mr Hawksbee had been employed by Talksport. These decisions related to the four tax years 2012/13 to 2014/15. The aggregate amounts involved were £89,758 PAYE and £53,368 NI contributions.
The First-tier Tribunal (Judge Thomas Scott and Mr Charles Baker) (the FTT) allowed KPL's appeal against these determinations, but the Upper Tribunal (the UT) allowed HMRC's appeal. KPL appeals to this court with permission granted by Newey LJ who, in giving permission, said that the arguments advanced by KPL had sufficient substance for the appeals to have a real (rather than merely fanciful) prospects of success, and that, given the evidence that similar contracts are commonly used in the radio industry, the appeal raises an important point of principle or practice (so meeting the test for a second appeal).
IR35
The statutory provisions relevant to the present appeal are contained, as regards PAYE, in the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) and, as regards National Insurance contributions, the Social Security Contributions (Intermediaries) Regulations 2000. Although not expressed in identical terms, it was common ground that there was no difference in their effect for the purposes of this appeal.
Section 49 of ITEPA provides, so far as relevant:
“(1) This Chapter applies where —
(a) an individual (“the worker”) personally performs, or is under an obligation personally to perform, services for another person (“the client”),
(b) the services are provided not under a contract directly between the client and the worker but under arrangements involving a third party (“the intermediary”), and
(c) the circumstances are such that —
(i) if the services were provided under a contract directly between the client and the worker, the worker would be regarded for income tax purposes as an employee of the client or the holder of an office under the client…
(4) The circumstances referred to in subsection (1)(c) include the terms on which the services are provided, having regard to the terms of the contracts forming part of the arrangements under which the services are provided.”
There was no dispute that the conditions in paragraphs (a) and (b) of section 49(1) were satisfied. Mr Hawksbee personally performed services for Talksport, under arrangements with KPL rather than under a direct contract with Talksport.
As regards the application of the condition in section 49(1)(c), it has been common ground between the parties that the following three stage process provides a helpful structure:
(1) Stage 1. Find the terms of the actual contractual arrangements (between KPL and Talksport on the one hand and between Mr Hawksbee and KPL on the other) and the relevant circumstances within which Mr Hawksbee worked.
(2) Stage 2. Ascertain the terms of the “hypothetical contract” (between Mr Hawksbee and Talksport) postulated by section 49(1)(c)(i) and the counterpart legislation as applicable for the purposes of NICs.
(3) Stage 3. Consider whether the hypothetical contract would be a contract of employment.
If the answer at stage 3 was that the hypothetical contract was a contract for services, or a contract of self-employment, then it was common ground, both before us and before both Tribunals below, that HMRC's assessments and notices of determination should be set aside. If, by contrast, the answer at stage 3 was that the hypothetical contract was a contract of service, or a contract of employment, it was common ground that HMRC's assessments and notices of determination should stand as issued.
The facts in summary
The FTT made findings of fact as regards the circumstances for the purposes of stage 1 of its analysis, none of which was challenged before the UT. At [8] of its Decision, the UT helpfully summarised the findings relevant to the appeal:
“(1) By the time of the FTT hearing, Mr Hawksbee and Mr Jacobs had been presenting the show for a period of 18 years.
(2) For the three years 2012–13 to 2014–15 under appeal, the income that Mr Hawksbee, through KPL, obtained from Talksport was approximately 90% of his total income for those years.
(3) Mr Hawksbee did not work as a radio presenter, in those tax years, for anyone other than Talksport.
(4) Mr Hawksbee and Mr Jacobs have, within certain constraints, the freedom to decide on the format and content of each episode of the Show and, subject to availability, the guests who are to appear on the Show. The constraints derive largely from OFCOM regulatory requirements. For example, the Show must comply with OFCOM guidelines, must have a certain amount of news content, and must run travel bulletins twice an hour. The Show also needs to run commercials at set intervals.
(5) While the Show is created and hosted by Mr Hawksbee and Mr Jacobs, who also generate its content, a production team is needed to enable the Show to be broadcast. When the Show is being broadcast, subject to the constraints outlined in paragraph (4) above, control over what is said and when rests very much with Mr Hawksbee and Mr Jacobs. Therefore, while the production team might tell the presenters during a broadcast that an advertising break is due, they will wait for the presenters' cue before cutting to that break.
(6) The Show is broadcast as “live” but, as with many live shows, a short delay of around 14 seconds is built in. The presenters of the Show and the production team have access to a “dump button” which prevents material recorded within that period of delay from being broadcast. This facility could be used if, for example, something was said during the Show that breached the station's OFCOM guidelines, if foul language was used, or if defamatory comments were made.”
In the period under appeal, there were two contracts in place between KPL and Talksport, referred to below as “Contract One” and “Contract Two” respectively. Contract One was signed on 1 January 2012. It was replaced by Contract Two with effect from 1 January 2014. The effect of some, though not many, of the provisions forming part of Contract One and Contract Two was in dispute.
Contract One
Contract One consisted of a Letter of Engagement to which were appended some general terms and conditions. Although stated to be a letter from Talksport to Mr Hawksbee, it has at all stages been common ground that it was intended to be, and should be read as being, a letter to KPL.
Clause 1 of the Letter of Engagement stated: “We [Talksport] engage you and you agree to provide to us the services referred to in Clause 3 on an exclusive basis on the terms and conditions set out in this Agreement.”
Clause 2.1 provided that the engagement was for a term of two years from 1 January 2012 (the Term), unless terminated by either party by not less than four months' notice given at any time during the Term. It further stated: “You will be required to work for a minimum of 222 days per year, of the Term, and days not worked must be agreed with the Programme Director, but would normally occur if and when the services of the presenter were not required.”
Clause 2.2 provided that, not less than six months before the end of the Term, the parties enter into good faith negotiations regarding an extension of the term.
Clause 3 set out the services that were to be provided. Clause 3.1 required Mr Hawksbee to be available to present (or co-present) a radio programme of three hours (or such other duration as Talksport might require) for live or pre-recorded transmission between 1:00pm and 4:00 pm on Mondays to Fridays inclusive (the “Programmes”) or on such other days and times as Talksport might require, at its 18 Hatfield studios or at such other location and station as it might require from time to time.
Clause 3.2 provided that if any Programme was cancelled on the day of broadcast for any editorial reason and Mr Hawksbee was not required that day, the applicable fee for the day would remain payable and count...
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