'Frightening' HMRC loses IR35 case to an in-business Adrian Chiles
Being in business on his own account saved TV’s Adrian Chiles from IR35, in a “frightening” case showing the ‘scary’ lengths HMRC goes to against disguised employment.
In fact, four experts suggest the unique finding of Mr Chiles being “part and parcel” of his own business, Basic Broadcasting Ltd, has stopped a £1.7million IR35 tax bill from applying.
'Frightening IR35 case'
But not for lack of HMRC’s trying. “This frightening case shows the lengths HMRC will go to chasing big pots of money,” IR35 expert Kate Cottrell says, of the Revenue’s £1.2m income tax and £461k NICs demands to Mr Chiles.
“I feel desperately for him. Seven years under investigation, and not one but two FTT hearings over just eight days. The stress of this, let alone the costs, is unimaginable.”
A former tax inspector, Ms Cottrell added that people would likely be “amazed” that the ITV and BBC presenter’s significant ‘badges of business’ did not deter a dogged HMRC.
“Pay an agent 15% of all your income [Chiles paid £250k] and hire a PA to deal with your diary [Chiles paid £16k p/a], but still expect HMRC to contest your IR35 status,” she warned.
Having an agent and PA were ‘in business on your own account’ factors which did resonate with First-Tier Tribunal judge Jonathan Cannan, however.
'Chiles was in-business-on-his-own-account'
The judge even listed six more “principal factors which in our view establish that Mr Chiles was in business on his own account,” in the disputed period -- April 2012 to April 2017.
“The main reason given by the tribunal for Chiles winning the appeal was that he was ‘in business on his own account,’ confirms Rebecca Seeley Harris, a tax lawyer.
“Part of the reasoning was that he has a management company…[whereas, and more likely to strike a chord with contractors], the BBC made him form his own limited company.”
'Supply his own services as a presenter'
Set up in 2016, BBL was the company Mr Chiles used to “supply his own services as a presenter” to the BBC and ITV, which were the two engagers in the period, states the ruling.
But as well as hosting shows like Daybreak for ITV and The One Show for the BBC, BBL entered into 40 separate agreements with 25 third parties over the period, earning £350,000.
“The Chiles case focused on, and was won on In Business On Your Own Account – or IBOYOA,” Carolyn Walsh, an ex-tax official told ContractorUK.
“When a contractor enters into a contract as a ‘business’ as opposed to a ‘worker’ then IR35 generally won’t apply. And here, IBOYOA even beat Control which went against Chiles.”
'Part and Parcel of his own business'
With Control going in its favour, HMRC may have felt optimistic it could successfully argue that the 54-year-old had become “integrated” into BBC and ITV, according to Ms Cottrell.
But the co-founder of status advisory Bauer & Cottrell observes that the FTT actually found Mr Chiles was “integrated into the programmes, but not the businesses, of BBC and ITV.”
“Furthermore, the FTT found that Mr Chiles was ‘part and parcel’ of his own business [see .354 of the ruling]. This is an interesting point for anyone affected by IR35”.
'IBOYOA once again very much in focus'
Ms Cottrell continued: “Being IBOYOA has always been significant and helps to differentiate the typical ‘temp’ from the professional contractor. But it has been played down over the years.
“Now, [with the Chiles judgment returning it to being determinative], IBOYOA is once again very much in focus”.
Contractor accountant Alan Broome, boss at Acumenica reflected of Mr Chiles: “The ‘in business on his own account’ argument has had a strong bearing on the [FTT’s] decision.
“This [was] despite HMRC's repeated argument that all contracts -- whether hypothetical or real -- should be viewed separately.
“So, HMRC said that the number of clients a contractor has is unimportant; it's how each individual contract is arranged that matters. [But] the tribunal disagreed.”
Seb Maley, CEO of IR35 review firm Qdos is preparing an analysis on which parts of judge Cannan’s ruling should interest IT contractors who want to keep outside IR35.
Ahead of the analysis, due to published tomorrow exclusively on ContractorUK, Mr Maley acknowledged Mr Chiles was found to be in business on his account, with “multiple clients”.
But given it was the BBC which terminated his employment, only to then ask him to work “through a personal service company,” the IR35 contract reviewer says the Chiles case takeaways aren’t just for contractors.
“Businesses impacted by IR35 reform can learn a lot from this case,” says Mr Maley.
“Forcing individuals to operate under a particular working arrangement [for example], purely for the benefit of the [end-user] company, is short-sighted and could come back to haunt them.”
'Doomed to fall inside IR35'
Ex-inspector Ms Walsh, now boss at CWC Accounting said: “Workers who set up a PSC, told to or not told to, and who then don’t trade as a business are doomed to fall inside IR35.
“Genuine business owners should be safe [from IR35]. Yet you wouldn't think that given how many are now being deemed inside IR35 [by their clients under the new off-payroll rules].”
BBL’s first appeal hearing was held back in November 2019 (the “awful effects of the pandemic” said the FTT, to explain the long time Mr Chiles has had to wait for resolution).
That means his case was heard under the ‘old’ IR35 rules (of 2000), not the revised public sector rules of April 6th 2017, and not the revised private sector rules of April 6th 2021.
'Another blow to HMRC'
Nonetheless, Jack Sloggett of tax dispute firm WTT Consulting is another IR35 adviser who believes the Chiles win, and the HMRC defeat, has ramifications under the new rules.
The firm’s tax manager, Mr Sloggett posted: “This latest ruling is another blow to HMRC’s campaign to put contractors within IR35, and therefore taxed as employees.
“It further demonstrates the confusion facing businesses about whether to put contractors inside or outside IR35, as there is a myriad of factors that must be considered.”
'HMRC unlikely to give up'
Others caution that the victory for Mr Chiles isn’t guaranteed however.
Run by Ms Seeley Harris, law firm ReLegal Consulting says that due to the significant amount at stake -- more than a million-and-a-half-pounds, “HMRC are unlikely to give up.”
And although the judgment in his favour will not create case law precedent, Mr Chiles won’t be alone in hoping that after seven years, the Revenue lets the matter of his status rest.
'Don't be scared'
“Let’s all of us hope that HMRC finally admits the position and does not appeal,” Bauer & Cottrell’s Ms Cottrell, formerly of the tax authority, said last night.
“But the problem is HMRC’s pockets -- lined with taxpayers’ money -- are bottomless and they think nothing of engaging a QC to defend a case at the FTT, often where we see numerous taxpayers personally defending their cases themselves.”
Asked for her guidance for PSC contractors, she added: “For contractors, it is now a case of ‘watch this space’ for developments, make sure you look like a business, and don’t be scared by the appalling experience of Mr Chiles. Don’t forget, HMRC loses many more IR35 cases than it wins.”