IR35: In business on own account, a guide

When looking at an engagement to establish self-employed or IR35 status, the courts will scrutinise the presence or absence of “in-business” factors, writes Nikola Nowak of Markel.

These factors help determine whether the individual in question is engaged as an employee, or is ‘in business on their own account’ (IBOYOA). If in-business, they will have the ability to profit from sound management of their affairs.

Where does ‘in business on own account’ come from?

IBOYOA factors stem from judge McKenna J’s three-part test established in the Ready Mixed Concrete case -- from which the trinity of Personal Service, Control and Mutuality of Obligations was conceived.

The third arm of the RMC test states that for a contract of service to exist, in addition to the fundamental tests:

“The other provisions of the contract are consistent with its being a contract of service.””

What are five in-business factors?

IBOYOA factors are the factors that you wouldn’t expect to feature in an employment contract (i.e. they are not consistent with a contract of service), such as:

  • being responsible for the provision of your own equipment
  • holding your own business insurances
  • raising invoices for any works rendered
  • shouldering liability for any defective services
  • being free to engage in other business

Case-specific, sector-specific...

There is no finite list of in-business factors. For example to the above list, we could add ‘having a website, or stationery/marketing materials.’ In fact, it has been commented in case law already that it is unlikely an exhaustive list could be produced. In short, what is or is not relevant to ‘in-business’ will ultimately be heavily influenced by the facts of a specific case.

We can go further. Typically, IBOYOA factors need to be considered within the industry of the services in question.

For example, it is common for contractors to use the client’s equipment especially where equipment is extremely heavy or requires specific permits. In the case of Hall v Lorimer (1993) heard at the Court of Appeal, the contractor (Mr Lorimer, a TV producer) had to use his client’s mixing equipment, as such machinery would be far too expensive for him to purchase himself. But this did not point away from him being self-employed.

The Hall v Lorimer case produced one of HMRC’s preferred quotes which states that no one singular factor can be relied upon to determine status; rather, one has to “paint a picture” using all the relevant details and stand back to appreciate the situation as a whole.

High-profile IR35 cases have much to say about ‘in business on own account’

However, recent IR35 cases involving TV/Radio presenters and commentators have seemingly followed a trend of bringing IBOYOA to the forefront of determining IR35.

In the most recent of these, Atholl House Productions Ltd, Ms Adams was providing presenting services to the BBC through her limited company. Mainly, Ms Adams worked on the radio on the Kaye Adams Programme. Unfortunately, this case made its way to the Court of Appeal before it was ultimately remitted to the First Tier Tribunal, where it was decided that Ms Adams was outside IR35.

The main deciding factors in this case came about from a  consideration of the intention of the parties, alongside the fact that Ms Adams had a long standing career (over 20 years) of freelancing. These two factors swayed the balance in her favour.

Who else famous has showed ‘in-business’ badges, despite being accused of inside IR35?

The case of Basic Broadcasting Limited (BBL) was somewhat similar. BBL was the personal service company of TV’s Adrian Chiles, through which he provided his services as a presenter to the BBC.

Even though personal service, control and mutuality of obligations were satisfied, the judge found IR35 not to apply to the engagement with the BBC. This was because Mr Chiles was able to demonstrate he was ‘in business on his own account.’ Among other factors, it was found that:

  • Mr Chiles had approximately 40 engagements with 25 different clients during the period under enquiry by HMRC.
  • The scope of the engagement included writing newspaper articles, appearing in commercials, presenting awards and professional speaking – not just presenting.
  • Mr Chiles engaged a personal assistant.
  • Mr Chiles had a management company to manage and further his career (to which he paid 15% of his total income).

As a brand, Lorraine Kelly was ‘in business’ – unlike IR35-caught Alan Parry and Neil McCann

Further high profile case law informs what it means to be in-business. In the IR35 case of breakfast tele’s Lorraine Kelly, the tribunal placed heavy emphasis on the self-created “brand” of Lorraine Kelly. This further supported the independent manner in which Kelly conducted business.

We absolutely endorse looking at ‘in-business’ factors to keep IR35 at bay, to ensure that you operate as a legitimate business. In borderline cases, this ‘fourth test’ (given the trinity is separate) may be crucial in coming to a decision.

But frustratingly for your IR35 defence, not always!

In the Alan Parry and Neil McCann IR35 decisions, their in-business presence was not considered strong enough to place them outside IR35. In each case, the tribunal considered they were, in effect, dependent on one particular contract.

Can being in business on your own account be relied on to beat IR35?

As the above hopefully makes clear, IBOYOA cannot be solely relied on.

Take the case of Mr Dave Clark who provided presenter services to Sky TV through Little Piece of Paradise Ltd. Mr Clark faced a PAYE liability in the region of £281,000 for incorrectly deeming himself outside IR35. Of course, the end-client here is different to the successful cases of Ms Kelly, Ms Adams and Mr Chiles and therefore so too are the contract and specifics of the engagement. But this is why everything in the factual matrix has to be weighed up as part of “painting a picture.”

What these cases emphasise is that IBOYOA can help to determine a case, and the courts in upholding these decisions are essentially holding that the intention of the parties to be independent is present. Which follows the often quoted passage from the Express & Echo case “one starts with the common intention of the parties”. It is likely the successful IR35 victories would not have succeeded if their contractual arrangements had been framed as employment terms.

Finally, a warning…

While it is understandable that contractors may look to these recent cases as providing stronger reliance on the IBOYOA tests and a shift in IR35 decision making, we would air a word of caution. These cases are of limited applicability and somewhat unique to that particular industry – for typical contractors, while IBOYOA is certainly worth evidencing we would always champion the fundamentals of Personal Service, Control and Mutuality of Obligations as your optimum shield of defence against HMRC attack.

Thursday 29th Feb 2024
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Written by Nikola Nowak

Nikola started her journey with Markel Tax in 2017 as an office administrator working within numerous areas of Markel’s business including dealing with client schemes, contract reviews and the Survive35 TaxSafe product. Nikola joined the contractor solutions team in 2019, where she gained a deep understanding of the contracting industry - specifically IR35 legislation, employment status and the agency legislation. She currently deals with all types of IR35 issues, CIS and handles HMRC enquires, and now advises all types of clients and accountants in these areas.

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