What an HMRC appeal of Kaye Adams’ IR35 case might mean for contractors

We are not entirely shocked to hear that HMRC may be seeking to appeal the decision in Atholl House Productions Limited -- the ‘Kaye Adams case.’ When the decision was handed down last year we were a little surprised with the tribunal’s conclusion, writes David Harmer, associate director of contractor solutions at Markel UK.

Adams usually would have been caught

While the First Tier Tribunal went to great lengths to distinguish this case from the decision in the Christa Ackroyd case,  the remainder of the judgement confirmed that Personal Service and Mutuality of Obligations were present, and that a right of Control seemed to exist (albeit that the BBC exercised a “light touch”). These findings, in ordinary circumstances, would render a ‘caught’ decision as all the fundamentals of IR35 are seemingly present.

But the FTT took a wider view on IR35 with an approach akin to the Lorimer case. In fact in Hall v Lorimer, a case involving a vision mixer, the courts applied a more pragmatic approach focussing on “in business factors”, financial risk and length of engagements.

Where the tribunal was persuaded

Given that the Kaye Adams case focussed on a fairly long engagement with the BBC and there was a significant lack of Financial Risk in respect of this particular engagement, it was a little surprising to see this approach applied by the tribunal, and for it to conclude that the engagement was outside IR35. Essentially, it seems that they were persuaded by how Kaye Adams managed her business as a whole, rather than solely how services were provided under this specific engagement.

If HMRC do proceed with an appeal, it would likely be on the basis of a perverse judgment being that the FTT erred in law in reaching its conclusion and that no other reasonable tribunal would have concluded the same.

Light touch? It still implies some touch of control

The main thrust of HMRC’s appeal, we suspect, will be on Control. The FTT’s decision skirted around the edges of how much right of control existed and were swayed by the evidence provided by Kaye Adams as to her autonomy in running her business. In concluding their reasoning, the tribunal stated that the BBC exercised a “light touch”, and while they concluded that this allowed them to decide the engagement was outside of IR35, the very reference to this indicates that they acknowledge some right of control existed.

We expect HMRC will exploit this and attempt to demonstrate that the BBC’s right of control extended to the manner in which Kaye Adams provided the services and try to demonstrate the BBC had the ultimate right of control over her methodology.

Taxman’s court and enquiry weightings may be at odds  

Interestingly, we suspect HMRC may also argue that in-business factors alone are not sufficient to determine IR35 status, and that the irreducible minimum should take precedence i.e. Personal Service, Mutuality and Control were found which should determine that IR35 applies. If this is the case, then this would be somewhat of departure from their usual approach to IR35 enquiries (where they seemingly give in-business factors equal weighting).

While we will watch with great interest if this appeal does go ahead, we do not see that there will be anything too ‘ground-breaking’ in HMRC’s submissions on appeal. However, if the Revenue is successful, it may reduce the scope for the ‘brand’ argument of the Lorraine Kelly judgment. Watch this space!

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Written by David Harmer

David began his career with Markel Tax at 18 and has since spent 10 years with the business, completing a law degree and working his way through the ranks of tax consultant to director. Defending tax payers against HMRC challenges on all areas of contentious tax law including IR35, self-employed status, CIS, agency legislation etc., his tribunal victories include the well-known Sherburn Aero Club case.
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