Red, White and Green Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 21 February 2020 |
| Neutral Citation | [2020] UKFTT 109 (TC) |
| Date | 21 February 2020 |
| Court | First Tier Tribunal (Tax Chamber) |
[2020] UKFTT 109 (TC)
Judge Harriet Morgan
Mr Robert Maas, of Carter Backer Winter LLP, appeared for the appellant (“RWG”)
Mr Adam Tolley QC and Mr Christopher Stone, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents (“HMRC”)
Income tax and National insurance – Intermediaries legislation – IR35 – Personal services company – Hypothetical contract – Whether contract of employment – Yes – Appeal dismissed.
The First-tier Tribunal (FTT) dismissed the appeal against PAYE and NIC determinations raised by HMRC in respect of a succession of contracts over the 2011–12 to 2014–15 tax years, entered into between the appellant and ITV for the services of Eamon Holmes as a TV presenter on its This Morning show.
The appellant, Red, White and Green Ltd (RWG) was a personal services company in which Eamon Holmes was the sole director and majority shareholder. The other shareholders were Mr Holmes' children. The company was set up as a vehicle through which he provided his services to ITV Studios Ltd (ITV) as a presenter on its show This Morning. RWG had incorporated in 2001 and Mr Holmes started acting as a presenter on the programme in 2006 and continues to do so.
During the period in question, RWG contracted with ITV through 4 separate contracts, each ending in late July with the next commencing in early September. During each of the gaps between these contracts (roughly 6 weeks) Mr Holmes continued to work on This Morning through another personal services company, Holmes and Away Ltd.
The question at stake was whether, during the relevant period, the hypothetical contract between the person performing the work (Mr Eamon Holmes) and the client for whom that work was performed (ITV) was one which amounted to employment, rather than self-employment, and in consequence whether the income received by the third party (RWG) should be treated as employment income under the intermediaries legislation commonly referred to as IR35.
The FTT broadly 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. It was common ground that Mr Holmes had no right of substitution and that he was required to give personal service throughout. The terms of the contracts required that he should render his services “on an exclusive basis”, so there was no further need for discussion on this point.
With regard to mutuality of obligations, the FTT quoted from Cotswold Developments Construction Ltd v Williams [2006] IRLR 181 that “mutuality of obligation” may be used in different senses and “it is important to know precisely what is being considered under that label and for what purpose”. In order for any sort of contract to exist, there must be mutuality throughout the term of the contract. Mr Holmes was to provide his services to ITV on specified days for a fixed fee per programme and so it was held that the test was satisfied and that there was therefore a binding contract in place. The fact that there was no guaranteed renewal at the end of each contract did not affect mutuality during the term of each agreement. However, it was noted that in practice Mr Holmes continued to provide his services to ITV during gaps between the contracts under an arrangement through a different personal services company (Holmes and Away Ltd) which indicated that a pattern of work had continued throughout that time.
There was considerable discussion in respect of the control test. ITV specified the time and place and (amongst other things) what to include, the order in which items were broadcast, what guests were invited and when to take advertising breaks. On the other hand, Mr Holmes asserted that he was “answerable to no one but himself … a gun for hire” and had “total control” whilst on the air. He was creative with the autocue and did not stick rigidly to a script or timings whilst presenting.
Whilst there was an obvious practical inability for ITV to control decisions of Mr Holmes or the words spoken by him whilst actually on air, this was argued by HMRC to be analogous to any other skilled employee such as a footballer or surgeon and did not prevent employment. ITV had the right to control how Mr Holmes performed his duties even if that right could not be exercised until after a programme ended. That ITV had not done so in practice was merely a reflection of Mr Holmes' skill and experience so that it did not ever need to be exercised. HMRC also noted that Mr Holmes contentions on control were similar to those put forward by Ms Christa Ackroyd in Christa Ackroyd Media Ltd [2018] TC 06334 in which it was found that, notwithstanding the importance of her role and the degree of autonomy she had, the BBC nevertheless retained the contractual right of control.
In addition, Mr Holmes was not permitted to wear branded items (clothing, ties, watches etc) nor to advertise or endorse any products or services or refer to any charity. He was also subject to health and safety guidelines and more importantly, by programme guidelines laid down by Ofcom. Although in practice the arrangements were operated flexibly and decisions were in general collaborative, this did not detract from ITV's underlying contractual right to control where and when Mr Holmes performed his services, to some extent how those services were performed and to some extent restrict his other activities. The level of autonomy Mr Holmes retained was simply because of ITV's confidence in him as a skilled and experienced presenter.
Overall, the FTT held that there was a sufficient overarching framework of control for a contract of service to exist.
Casting the wider net to look at other factors to see if they were consistent with employment, the FTT held that Mr Holmes did not display the characteristics of being in business on his own account in his work for ITV. His travel and clothing expenses were met by ITV, as was insurance. ITV provided a car to bring him to and from the studios. There was no way for Mr Holmes to increase his profit as he was paid a fixed fee, and similarly he suffered no economic risk.
Given the framework of control, the requirement for personal service and that none of the other provisions of the contracts were found to be inconsistent with an employment relationship, the FTT held that in principle IR35 applied to the arrangements in all of the years under consideration. The appeal was dismissed.
In many respects this case echoed the findings in Christa Ackroyd Media Ltd [2018] TC 06334. It also reiterates the principle established in Autoclenz Ltd v Belcher [2011] UKSC 41; [2011] 4 All ER 745 that the fact that a right in a contract is not exercised or is not enforced does not necessarily mean that the right does not exist.
[1] RWG is what is commonly known as a “personal services company” (“PSC”). It was formed by Mr Eamonn Holmes and acted as the vehicle through which his services were provided to ITV Studios Limited (“ITV”) as presenter on its show This Morning under a series of contracts between the parties.
[2] RWG appealed against determinations and notices issued by HMRC for income tax and national insurance contributions (“NICs”) asserted to be due under the Pay as You Earn System on income paid to it by ITV under the contracts for the provision of the Mr Holmes' services as regards the tax years 2011/12 to 2104/15 (under regulation 80 of the Income Tax (Pay As You Earn) Regulations 2003/2682 and s 8 of the Social Security (Transfer of Functions, etc) Act 1999). The tax and NICs are asserted to be due under provisions which are commonly referred to as “IR35” (under s 48 to s 62 of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”) and regulation 6 of the Social Security Contributions (Intermediaries) Regulations SI 2000/727).
[3] In outline, IR35 applies where an individual provides services to a client under arrangements involving a third party, such as a PSC, broadly, if the individual would be regarded for income tax purposes as an employee of the client if the services were provided under a contract directly between the client and the individual. In that case, the income received by the third party for the individual's services is treated as employment income. The tribunal is asked only to consider whether there is in principle any such liability and not to consider the amount of the liability.
[4] The conditions for IR35 to apply are set out in s 49 ITEPA as follows:
49(1) This Chapter applies where–
- an individual (the worker) personally performs, or is under an obligation personally to perform, services for another person (the client),
- 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
- the circumstances are such that 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 …
The circumstances referred to in subsection (1)(c) include the terms on which the services are provided, having regard to the terms of the contract forming part of the arrangement under which the services are provided.
In this Chapter “engagement to which this Chapter applies” means any such provision of services as is mentioned in subsection (1).
[5] The conditions for the corresponding NICs provisions to apply are broadly the same as those in s 49 ITEPA except that the provision corresponding to s 49(1)(c) provides that:
the circumstances are such that, had the arrangements taken the form of a contract between the worker and...
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