Revenue and Customs Commissioners v Atholl House Productions Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 18 February 2021 |
| Neutral Citation | [2021] UKUT 37 (TCC) |
| Year | 2021 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2021] UKUT 37 (TCC)
The Honourable Mr Justice Marcus Smith, Judge Jonathan Richards
Upper Tribunal (Tax and Chancery Chamber)
Income tax and National insurance – Intermediaries legislation – IR35 – Personal services company – Hypothetical contract – Whether contract of employment – No – Appeal dismissed.
The Upper Tribunal dismissed HMRC's appeal against the FTT's prior decision to overturn PAYE and NIC determinations raised by HMRC under the intermediaries legislation (IR35) in respect of two successive contracts over the 2015–16 and 2016–17 tax years, entered into between the appellant and the BBC for the services of Kaye Adams as a radio presenter on “The Kaye Adams Show”.
Atholl House Productions Ltd was a personal service company (the Company) used by Kaye Adams through which to supply her services as a radio presenter to the BBC.
HMRC considered that the hypothetical contract between the person performing the work (Kaye Adams) and the client for whom that work was performed (the BBC) was one which amounted to employment rather than self-employment, and therefore the income received by the Company should be treated as employment income under the intermediaries legislation (commonly referred to as IR35) and accordingly raised PAYE and NIC determinations. The Company appealed and the First Tier Tribunal (FTT) found in its favour, overturning HMRC's determinations. HMRC now sought to appeal against the FTT's decision and have the determinations reinstated.
Interestingly, the Company had also been party to two “materially identical” contracts in 2013–14 and 2014–15, yet HMRC had already conceded that IR35 did not apply to these contracts and withdrawn its challenge prior to the original First Tier Tribunal (FTT) hearing.
In each of the two successive contracts under scrutiny, the Company was committed to a minimum of 160 programmes in return for a payment of £155,000, with potential for further payments if additional programmes were needed. There were written agreements in place which set out the terms of engagement, though whether those written agreements were reflective of the actual terms in practice was contentious.
Under the written agreement, the BBC had first call on Kaye Adams' services and she was not permitted to work for other parties without prior agreement. However, in practice Ms Adams services were not exclusive to the BBC and the presenter was able to (and did in fact) take on other contracts. The FTT concluded that, using the approach set out in Autoclenz v Belcher [2011] UKSC 41, the true agreement between the parties did not give the BBC first call over Ms Adams's services and did not require her to seek prior written consent before taking on other engagements.
Similarly, the written agreement explicitly provided that the company had a right to supply the BBC with a substitute, should Kaye Adams not be available and if reasonable prior notice was given. Again, in practice this was doubtful and two witnesses gave evidence that the Company had no right to provide a substitute, even in exceptional circumstances.
Having determined (what it considered to be) the true terms of the agreement, the FTT then applied the standard three-stage process as set out in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [2010] BTC 49, to decide whether the hypothetical contract between Ms Adams and the BBC was one of employment.
Using those principles, a contract of service exists if these three conditions are fulfilled:
- The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master. (the mutuality of obligations test)
- He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other's control in sufficient degree to make that other master. (the control test)
- The other provisions of the contract are not inconsistent with its being a contract of service.
It was common ground that the first of these tests (mutuality of obligation) was met. In respect of the second (control) test, the FTT did not draw a final conclusion and instead noted that even if this test had also been met, whilst the first two tests are necessary for employment to exist, they are not sufficient in themselves – the third test, that the other factors should not be inconsistent with employment, was persuasive in this case and cited a number of factors in support of that view.
These were that the BBC did not have first call on Ms Adams time or control over her other engagements. Ms Adams had no right to use BBC equipment when not in the studio and had no access when at home. The agreement contained no rights in respect of holiday or sick pay, nor any maternity leave or pension entitlement. Ms Adams was treated differently to BBC employees in that she was not subject to periodic performance reviews, was not required to attend training or periodic medicals and in essence, was not “part and parcel” of the BBC's organisation (the so-called “integration” test). Finally, it was clear from the written agreement that neither party had intended for an employment relationship to exist.
Taking the factors as a whole, the FTT decided that the overall picture was of a contract for services rather than one of service.
Although ultimately upholding the decision of the FTT, the UT decided that the way in which the FTT had arrived at its decision was potentially unsound. In particular, the FTT had misdirected itself in the application of the Autoclenz approach to determination of the true contractual terms.
The decision of the Supreme Court in Autoclenz established the principle that it is permissible to depart from the written words of an agreement, where it can be shown from the way in which the parties to the agreement conducted themselves in practice and what their expectations of each other were, that either the written agreement was a “sham” or that there was a mistake as to what had actually been agreed which needed “rectification”. In this case, there was neither a sham nor a mistake which needed rectifying. The fact that the parties did not necessarily follow the written words of the contract did not mean that those clauses were not valid – simply that the parties chose not to apply them.
The BBC and Kaye Adams enjoyed a “harmonious and reasonable working relationship” and there had been no occasion when either needed to insist upon the strict contractual terms. There had been, as the UT put it no “flashpoint”, but that did not mean those terms did not exist and could not be enforced should such a flashpoint arise.
For example, the UT disagreed with the FTT and found that although it had not been exercised, the BBC did have the right to restrict Ms Adams' other engagements and to require her to attend at such times and in such places as the BBC reasonably required. The BBC could also place an obligation on Ms Adams' to adhere to editorial policies and OFCOM guidelines.
In correspondence with HMRC, when asked if she was able to supply a substitute, Ms Adams had replied “… of course not …”. The UT felt that this simply demonstrated that Ms Adams was not familiar with the terms of the written agreement, and though nevertheless the UT concluded that the Company did not have a genuine right to provide a substitute, it did so for different reasons from the FTT.
Having concluded that the FTT's approach to the Autoclenz principle had been incorrect and could have been considered legally unsound, the UT then decided to remake the decision rather than refer the case back to the FTT, and so looked at the case afresh applying the three-stage process set out in Ready Mixed Concrete.
It remained common ground that the first test (mutuality of obligations) was met so the UT moved on to look at the second test (control) on which the FTT had not arrived at a conclusion. The UT summarized this test as being the “what, where, when and how” aspects of the work to be performed.
The BBC had obvious control over the “where” and “when” but significantly it also had the right to determine the form and content of the show. It was accepted that the BBC gave Ms Adams considerable latitude and a high degree of autonomy over “how” the work was performed as she was an expert with a proven track record, but the BBC still had the right to control the “what” should it have chosen to do so.
Overall, the UT decided that there was a sufficient framework of control for the second test to be met.
Having established that the first two tests of the Ready Mixed Concrete three-stage process were met and that the essential conditions for a contract of employment were in place, it remained to consider the third test: whether the other provisions of the hypothetical contract were sufficiently inconsistent with employment as to displace the prima facie conclusion that Ms Adams would have been an employee.
Some of the other factors were given very little weight. For example, the absence from the written agreement of employment rights such as sickness and holiday pay were considered to be of little relevance and the UT pointed out that the reason for the absence was obvious; the written agreement was between the BBC and Ms Adam's personal company, so it could not therefore have embodied actual employment rights.
The factor which proved conclusive for the UT was that (in agreement with the FTT) it considered Kaye Adams to be in “business on her own account”.
The UT took note of the “ebb and flow” of the freelance presenter's role and the uncertainty of the industry in which she worked. Whist accepting that contracts with other parties (which were in the nature of contracts for services) did not necessarily mean that contracts with the BBC...
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