HMRC’s use of barristers in IR35 cases hit by a victorious Helen Fospero
Two classic IR35 status factors clearly convincing a judge that HMRC was wrong to put another TV host inside IR35 is calling into question why the Revenue keeps using barristers.
Had the case of presenter Helen Fospero been closer to call, without MOO and Control being so decisive in her win, HMRC using a QC at taxpayer expense might not be as galling.
But that is exactly what it is to Kate Cottrell, an expert at assessing IR35 status who once worked at the Revenue when, she implied yesterday, it was fairer, just and more accountable.
“In the old days, it was the HMRC Status Inspector or the HMRC Compliance Officer who defended their views at tribunal,” she said.
“But with the current approach of engaging a barrister, which should not be necessary at the FTT, there is absolutely no incentive [for the HMRC officers] to work the case correctly.”
'All of these factors'
The Bauer & Cottrell co-founder’s reading may explain why in outlining why Ms Fospero should not have been put inside IR35, judge Ashley Greenbank cited a long list of reasons.
“In the period in question, Ms Fospero was engaged…in a separate business, she worked under a series of short-term engagements for ITV, she had no guarantee of further work outside those engagements and ITV had no obligation to provide any work.
“All of these factors point towards Ms Fospero being regarded as self-employed,” the judge said. “And not an employee even if she had been engaged directly by ITV.”
'Treated very differently to staff'
Similarly, while her primary client ITV had presenters on the payroll as direct employees, such permanently employed individuals were treated by the broadcaster “very differently”.
The judgment in Canal Street Productions Ltd Vs HMRC adds: “Employed presenters were provided with laptops, had ITV email addresses, had workstations or rooms at ITV’s studios and were provided with more generous expenses allowances. Ms Fospero had none of these things.”
On the contrary, Ms Fospero and her PSC “incurred costs and expenses”.
'Variety of clients'
Helpfully for her case, these incursions were often due to her enlisting agents to source “a variety of work from a variety of clients” -- another strong signal she should never have been deemed inside IR35 by HMRC in the first place.
“HMRC must reconsider its approach to IR35,” says Daniel Fallows, a director at Gorilla Accounting. “This latest legal case is further proof that HMRC’s implementation of IR35 is deeply unsatisfactory.”
The Association of Independent Professionals and the Self-Employed believes it is the Revenue’s implementation of the new IR35, from April, that is the bigger concern.
“[The defeat for HMRC in the Fospero case] drives home the reality that IR35 legislation is so complex that even the UK’s tax authority cannot understand it.
“And if HMRC cannot grasp its own legislation, how can it expect businesses across the UK to when it changes IR35 in the private sector next April?”
'Pass the buck'
Although aspects of HMRC’s evidence in the Fospero case looked compelling (ITV had editorial control over her programmes, and the contractual rights to direct what she did), Ms Cottrell also believes that the Revenue is playing a game of ‘pass the buck.’
And the IR35 expert indicated, not just because it is increasingly HMRC status inspectors and compliance officers who start the case only to hand it to a barrister, but also because it is end-users who HMRC is soon going to make IR35 status decision-maker.
“Currently, there’s no responsibility for the outcome, so why should inspectors or officers bother to properly understand the status tests and the risks associated with being in business on your own account? This approach is wholly unfair to the taxpayer.
“But more worryingly perhaps, is the private sector-rollout,” the ex-inspector adds. “[Under that, it’s a case of HMRC] passing the buck of properly investigating to the end clients, based on HMRC’s perception of massive non-compliance.”
In the Fospero case, HMRC perceived the Sky News and Channel 5 presenter to owe a hefty £80,770 under IR35, for her stints at ITV for the 2012 to 2014 tax years (inclusive).
But dealing a fundamental blow to the Revenue’s claim, judge Greenbank found “insufficient mutuality of obligation to establish a contract of employment.”
Adam Tolley, the barrister for HMRC, also had his argument rejected that ITV “controlled all relevant aspects of the performance of the services”.
'No one seems to be listening'
And Ms Fospero’s absence of a substitution clause was explained away by the tribunal, as owing to the nature of the contract, and the fact that the broadcaster wanted her and her alone.
“Despite their claims to be the status experts,” Ms Cottrell reflected last night, “clearly HMRC got it wrong [here] and are continuing to get it wrong with IR35. Sadly though, no one seems to be listening.”
Asked about the Fospero case, and its engagement of a barrister -- in the case and generally, an HMRC spokesperson would only say: “We are considering an appeal.”