R & C Commissioners v Kickabout Productions Ltd (Talksport, or Paul Hawksbee)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 28 July 2020 |
| Neutral Citation | [2020] UKUT 216 (TCC) |
| Date | 28 July 2020 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2020] UKUT 216 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Mr Justice Zacaroli, Judge Jonathan Richards
Christopher Stone and Marianne Tutin, instructed by the General Counsel and Solicitor appeared for HM Revenue & for the appellants
Georgia Hicks and Harry Sheehan, instructed by Radcliffes LeBrasseur appeared for the respondent
Income tax and National insurance – Intermediaries legislation – IR35 – Personal services company – Hypothetical contract – Whether contract of employment – Yes – Appeal upheld.
The Upper Tribunal (UT) upheld HMRC's appeal against an earlier FTT decision, finding that there was sufficient control and mutuality of obligations for a hypothetical contract of employment to exist.
The respondent, Kickabout Productions Ltd (KPL) was a personal services company in which Paul Hawksbee was the director and shareholder. The company was set up as a vehicle through which he provided his services to a radio station, Talksport Limited (Talksport) as a presenter on its “Hawksbee & Jacobs Show”, a daily three-hour programme broadcast every weekday. Mr Hawksbee had been presenting the show for 18 years by the time of the FTT hearing and the contracts with Talksport accounted (through KPL) for approximately 90% of his income during the period of the appeal.
For the period in question (2012–13 to 2014–15), KPL contracted with Talksport through consecutive 2-year contracts, the first ending 31 December 2013 and the second commencing 1 January 2014. One of the contracts was expressed to be between Talksport and Mr Hawksbee directly, however the FTT found that this was an administrative error and that the true contracting parties were Talksport and KPL.
It was common ground that Mr Hawksbee had no right of substitution and that he was required to give personal service throughout. The terms of the contracts required that Talksport would also have “first call” (under the first written contract) on his services or “reasonable call” (under the second contract).
The question at stake was whether, during the relevant period, the hypothetical contracts between the person performing the work (Paul Hawksbee) and the client for whom that work was performed (Talksport) was one which amounted to employment, rather than self-employment, and in consequence whether the income received by the third party (KPL) should be treated as employment income under the intermediaries legislation, commonly referred to as IR35.
In the original decision, the FTT had considered that there was insufficient “mutuality of obligations” and that the framework of “control” was too narrow to indicate a hypothetical employment contract and consequently held that IR35 did not apply. The FTT (Judge Thomas Scott and Mr Charles Baker) was divided in opinion on both these points and the decision was carried on the casting vote of Judge Scott.
HMRC appealed against the FTT decision and cited 8 grounds in which it said the FTT had either erred in law or taken into account irrelevant considerations. Of these, the UT found that the first was of critical importance and was sufficient to set aside the FTT decision:
(1) The FTT erred in law and/or reached a perverse conclusion in finding that under the actual contracts between KPL and Talksport, Talksport had no obligation to provide any work to KPL.
The UT had firstly to decide whether the FTT had erred in law. This is because the UT was not entitled to overturn a decision of fact unless the FTT had ignored relevant considerations, taken into account irrelevant considerations or its findings were perverse (none of which was so in this case). Looking at the grounds for appeal, the uninitiated could be forgiven for assuming that a decision as to whether there was, or was not, an obligation to provide work was a decision of fact. However, the UT determined that it was a decision of law, citing Carmichael v National Power plc [1999] AC 1226:
If parties intend all the terms of their contract (apart from any implied by law) to be contained in a document or documents, the meaning of those documents, and so the interpretation of the contract, is a pure question of law.
The UT decided that all of the terms of the contracts in this case were entirely in writing and therefore interpretation of those contracts was a matter of law. Having so decided, it went on to disagree with the FTT's interpretation of the contract in respect of both the “mutuality of obligations” and “control” tests.
With regard to mutuality of obligations, both contracts between KPL and Talksport required Mr Hawksbee to work for a minimum of 222 days per year, subject to either termination of the contract with 4 months' notice or suspension in the case of circumstances preventing the show from being broadcast or during investigations into any suspected misconduct. The FTT had found that this indicated that there was no obligation on Talksport to actually provide the work, but merely for Mr Hawksbee to perform it when offered. The UT decided that this was erroneous and that taking the contracts as a whole, it was clear that Talksport had an obligation to provide 222 days' work unless it exercised its right of termination or suspension. Had there not been such an obligation, there would have been no need for the right of suspension or termination to exist; Talksport could have simply chosen not to offer any work. The existence of those rights meant that there must have been an obligation to provide at least some work. The FTT had therefore been wrong (in law) in its interpretation of the contracts and the original decision should be set aside.
Having set aside the original decision, the UT then chose to remake the decision rather than refer it back to the FTT for reconsideration.
The FTT had (correctly) followed the standard approach as set out in the case of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [2010] BTC 49 and considered the principal tests of mutuality of obligations and control before looking at whether the other factors were inconsistent with the existence of an employment contract. The UT followed the same path, but came to different conclusions.
After looking at mutuality of obligations (as above) and deciding that the “irreducible minimum of mutual obligation necessary to create a contract of service” (Carmichael v National Power plc) was present, the UT looked at “control”.
The control test can be said to consist of the questions “how”, “what”, “where” and “when” the work should be performed. In relation to a radio show, clearly the “where” and “when” are fixed, so the FTT focussed on the “what” and “how” and in particular the practical limitations on the ability to interfere with the real-time performance of a task. Mr Hawksbee had a high degree of autonomy and the FTT interpreted this to mean that the framework of control operated by Talksport was too narrow to decisively indicate employment.
The UT disagreed and referring to both Wright v Aegis Defence Services (BVI) Ltd [2018] UKEAT 0173/17/DM and R & C Commrs v Professional Game Match Officials Ltd [2020] BTC 546, held that the control test should focus on the right of control and not how, or even if, that right was exercised in practice. Furthermore, the narrowness of control does not necessarily prevent the sufficient control framework from being present. This is especially true in cases of skilled employees where the range of tasks performed have a narrow compass.
Turning to the third strand of the approach set out by Ready Mixed Concrete, that is, whether the “other factors” were inconsistent with the existence of an employment contract, the FTT had originally continued to include both the narrowness of control and the perceived lack of mutuality at this stage which consequently gave more weight to the arguments pointing against employment status. HMRC contended that the FTT was wrong to have taken these factors into account again at the third stage, having already looked at each separately in the first two stages. The UT partly side-stepped this question and chose instead to simply hold that, contrary to the FTTs opinion, neither factor pointed against employment. This shifted the balance decisively in favour of employment as none of the remaining factors pointed in either direction with sufficient weight to affect the overall picture.
Accordingly, HMRCs appeal was allowed. Under the hypothetical contracts Mr Hawksbee would have been an employee of Talksport and thus IR35 applied. The FTT's decision was remade so as to dismiss the original appeals against the PAYE assessments and Notices of Determination for National Insurance.
This case brought out the interesting principle that where the terms of a contract consist not only of written documents, but also in oral exchanges and the conduct of the parties towards each other, then interpretation of that contract is a matter of fact (and that whether the parties intended written documents to be the sole source of the terms of the contract is also a matter of fact). However, interpretation of a contract where the terms were intended to be contained entirely within written documents is a matter of law.
In other respects this case echoed the recent findings in other IR35 cases concerning TV presenters, such as Christa Ackroyd Media Ltd [2018] TC 06334 and Red, White and Green Ltd [2020] TC 07603 and reiterates the principle established in Autoclenz Ltd v Belcher [2011] UKSC 41; [2011] 4 All ER 745 that although a right in a contract is not exercised or is not enforced, it does not necessarily mean that the right does not exist.
[1] The respondent company, (“KPL”) is a personal service company owned by Mr Paul Hawksbee, a radio presenter and script-writer. During the tax years 2012–13 to 2014–15, KPL entered into contracts with Talksport Limited (“Talksport”)...
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