Despite fielding three barristers in their fourth attempt to win the IR35 appeal by Atholl House Productions Limited involving broadcaster Kaye Adams, HMRC has failed again to prove they were correct in claiming her engagements with the BBC were caught by the Intermediaries Legislation. The fourth decision released by Judge Tony Beare on 29 November 2023 upheld her appeal again, confirming herself self-employed status.
HMRC's initial enquiry into Ms Adams's BBC work began when they first wrote to her in July 2014 claiming her BBC work between tax years 2013/14 to 2016/17 was "deemed employment". They subsequently dropped the claims for years 2013-15. Adams appealed to the tax tribunal, winning in April 2019, but HMRC repeatedly refused to accept the decision, leading to three more hearings. Almost ten years after the enquiry opened, with five different judges having heard the case, none of the four tribunals hearings have concluded that HMRC was correct to claim that Ms Adams was a "deemed employee" with the BBC.
Dave Chaplin, CEO of IR35 tax advisory firm IR35 Shield, who has been supporting Ms Adams on her case since Jan 2019 and assisted at all four hearings, says: "In my view, it was never in doubt that Ms Adams operated in business on her own account and was not an employee of the BBC. Multiple judges have told HMRC in multiple hearings that they are wrong, which should hopefully now be the end of the matter."
In a statement released to ContractorCalculator (full copy below), Kaye Adams said: "I am delighted that the First Tier Tribunal has confirmed my self-employed status for the third time, but there is no jubilation for me in this result. Over the nine years of this investigation, the mental stress has been close to unbearable at times, and the legal costs I have incurred far outweigh the tax at stake."
A legal analysis of the Atholl House case can be found on IR35 Shield, including lessons for the media sector.
Atholl House's 9-year litigation nightmare
The key facts from the 9-year Atholl House case:
- Four separate tribunal hearings.
- Judges told HMRC they were wrong on status three times.
- Kaye was stuck on the tribunal merry-go-round as her costs rose above the tax at stake.
- HMRC sought to stop evidence from being heard and attempted to adjourn the hearing
- HMRC solicitors tried to withhold costs payable to Atholl House
- HMRC's estimated costs are around £250,000 despite chasing £70,000 in tax.
- HMRC sought to leverage her father's hospitalisation to win their case.
- Ms Adams often suffered unbearable stress.
Initial enquiry: July 2014
The Atholl House case concerned a headline tax figure of £124,000, which would likely have been reduced to around £70,000 once taxes already paid were considered. Like most businesses, Atholl House had tax investigation insurance, and because she disagreed with HMRC's view on her status, she instructed her advisors to defend the case.
Ms Adams's advisors exchanged countless letters with HMRC, but by 16 February 2018, HMRC refused to back down, forcing Atholl House to make an appeal application to the tax tribunal in March 2018.
First-tier tribunal #1: April 2019
The two-day court hearing was in April 2019, where Ms Adams was represented pro-bono by barrister Rebecca Murray from Devereux Chambers. Still, the combined costs of the enquiry and hearing depleted almost all her insurance funds. The winning party cannot claim costs back at first-tier hearings except in exceptional circumstances.
The judge disagreed with the position put forward by HMRC's barrister and legal team and ruled in favour of Atholl House, upholding the appeal. HMRC was wrong.
HMRC refused to back down, claiming the tribunal judges had made errors in law. The tribunal granted permission for HMRC's appeal to the Upper-tier tax tribunal.
Upper-tier tribunal #1: November 2020
Almost a year and a half later, in November 2020, the two-day upper-tier hearing occurred, where HMRC used two barristers to argue their case with their legal team. Barrister Keith Gordon, from Temple Tax Chambers, represented Atholl House.
The decision was released in February 2021 by the tribunal, which agreed that mistakes in law were made, but the judges reached the same conclusion as the First-tier tribunal. HMRC was still wrong.
HMRC was directed to pay Atholl House their legal costs of just over £61,000. HMRC tried to avoid paying in full, offering only £15,000, claiming her costs were "unreasonable and disproportionate." However, Ms Adams politely informed HMRC that she was holding evidence that HMRC had spent more time defending a similar case and would be happy to share the information with the tribunal. HMRC immediately relented but offered £45,000, which was £15,000 short. She accepted rather than incur more costs by applying to a tribunal for the shortage. Had Ms Adams lost, she would have had to pay HMRC's costs, which were also likely to be around £50,000.
Despite winning for the second time, HMRC still refused to back down, claiming further errors in law were made again, and was granted permission to the Court of Appeal.
Court of Appeal: February 2022
Three judges in the Court of Appeal heard HMRC's appeal in February 2022 and released their decision in April 2022. Whilst they agreed some errors in law were made, they declined to pronounce on her status and remitted the case, stating new evidence may be adduced, thereby setting the stage for a fourth hearing at the first-tier tax tribunal again.
Despite no firm result in HMRC's behaviour, Ms Adams was forced to pay her own costs and HMRC's costs on top (circa £50,000). She also had to return the £45,000 she'd been refunded before - a financial disaster, despite still having never lost. Atholl had now spent around £95,000 more, defending a tax bill of £70,000 and was still stuck on the tribunal merry-go-round against HMRC, who had unlimited access to the public purse to try and carry on indefinitely.
Ms Adams's team prepared additional witness evidence and submissions, but HMRC tried to stop it from being used by Atholl House. Even though the Court of Appeal directed that more evidence could be heard, HMRC fought to prevent it from being used but failed.
The stage was set for a fourth hearing at the first-tier tribunal, where (a reminder) each party pays their own costs.
First-tier tribunal #2: October 2023
At the fourth tribunal, heard over three days in October 2023, HMRC fielded three barristers, backed up by a team of lawyers and HMRC staff. Atholl House's counsel were Keith Gordon and Ximena Montes Manzano from Temple Tax Chambers.
There was considerable debate about the scope of the hearing. Early on, HMRC suggested that if the judge disagreed with their view, he should make a ruling, adjourn the case, and allow HMRC to appeal the interim ruling. That approach would have delayed the case further, leading Judge Beare to decide to hear the entire case and explore the different opinions in his decision.
On another preliminary matter, Judge Beare also agreed with HMRC's request that the daily transcript of the hearings would not be shared with Ms Adams's team at the end of each day. HMRC argued that because they paid for them (likely costing only a few thousand pounds), Ms Adams's team should not benefit from them during the hearing. (Editors note: In the RALC Consulting case in Oct 2019, HMRC paid for transcripts, which were distributed to all parties at the end of each day.)
Frustratingly for Ms Adams's defence team, at the start of the last day of the hearing, HMRC also presented the tribunal with an unexpectedly long document submission, which, due to time constraints and concerns over potential conflicts with oral submissions, Ms Adams's counsel suggested should be disregarded. Instead, for fairness, the tribunal accepted the document and gave Ms Adams's team seven days to review and respond to the document. Upon Ms Adams submitting their response, HMRC attempted to advance further written submissions, contrary to the tribunal's directions – the further submissions were not accepted.
There was considerable debate about the level of time commitment involved with Ms Adams presenting for the BBC. During the hearing, HMRC's counsel, Adam Tolley KC, stated: "As I say, I do not want you to get the wrong impression and that there is any magic in percentages in terms of income or time. There is no hard and fast rule about where the line ought to be drawn."
In a snippet of HMRC's written submissions, of which ContractorCalculator has had sight, HMRC argued: "However, KA did not work full time during the relevant years. Her own evidence was that in the afternoons, after completing the radio show she sat with her father in hospital."
Judge Beare released his decision one month later, on 29 November 2023, indicating that the appeal was again upheld in favour of Atholl House Productions Limited. After weighing all the relevant factors, the tribunal said the position was "finely balanced", but they believed the factors pointing towards employment were outweighed by the factors pointing toward self-employment. Notably, the tribunal also reflected that the BBC did not treat Ms Adams as an employee in any way. On the time commitment factor, whilst the tribunal considered the degree of commitment was a pointer towards employment, there was still a "meaningful" amount of working time available for her other engagements.
Why did HMRC spend more on the Atholl House case than the recoverable tax?
The Atholl House case concerned a headline tax figure of £124,000, which would likely have been reduced to a net tax figure of circa £70,000 once previously paid taxes were offset.
The net tax amount of £70,000 contrasts significantly with the likely litigation costs spent by HMRC on the case. HMRC lost the first hearing with one barrister, lost the second with two barristers, fielded another two barristers at the Court of Appeal, and then lost again at the fourth hearing with three barristers. Lawyers and HMRC staff would have supported all barristers, adding further cost.
Chaplin has conducted some estimates, factoring in the significant discounts HMRC enjoy when hiring legal counsel, and provides an estimate: "By my calculations, HMRC has spent around £250,000 of taxpayers money on this case, to chase a net tax bill of £70,000. Why?
"After HMRC's failures on their main grounds at the Court of Appeal, HMRC appeared desperate to win the case. No one fields three barristers at a first-tier hearing to win a £70,000 case. The attempts to adjourn the hearing spoke volumes, and the sheer pettiness of HMRC's argument over the transcripts was startling. As for HMRC trying to use her father's hospitalisation to argue her available working time was reduced, readers can form their own views."
Does HMRC's Litigation and Settlement Strategy provide a clue?
A reason why HMRC chose to spend more money on the Atholl House case than the recoverable tax may be found in HMRC's Litigation and Settlement Strategy (LSS), which is the framework within which HMRC resolves tax disputes through civil law processes and procedures in accordance with the law.
Whilst the LSS states that "HMRC seeks to secure the best practicable return for the Exchequer", it also says that "The objective of securing the best practicable return for the Exchequer requires consideration of not only the tax at stake in the dispute itself but also – in circumstances where a precedent may be set, or where HMRC is seeking to influence customer behaviour – potential tax liabilities of the same or other customers [Emphasis added]."
Will HMRC appeal again?
HMRC has 56 days to submit permission to appeal or to accept the tribunal's decision. Still, Chaplin thinks it's unlikely HMRC will appeal: "Given the rules associated with appealing First-tier decisions, HMRC does not appear to have any options. The Court of Appeal has already resolved all the previous errors in law, and HMRC does not argue cases based on the facts, as Jim Harra, the Head of HMRC, confirmed to Parliament on 21 February 2021:
"We do appeal where we think that the tribunal has got a matter of law wrong, and in particular if we feel that it leaves a lack of clarity for people. We do not appeal if it is on the facts, basically. If a tribunal has determined that the facts are not quite as HMRC understood them, then that is generally the end of the matter."
HMRC's Litigation and Settlement Strategy also states that 'where HMRC believes that it is unlikely to succeed in litigation, it will, in the majority of cases, concede the issue.'
Chaplin says: "I can't see anyone producing an argument that passes the 50% threshold of prospects of success. Is a barrister going to try claiming five different judges across four courts were wrong?!"
Their own litigation rules may also hamstring HMRC from pursuing the case further. The Atholl House Court of Appeal ruling revealed HMRC's reasoning for not opposing the appeal for tax years 2013/14 and 2014/15. HMRC formed the view that "…it would not be an appropriate use of resources to continue to oppose the appeals in respect of those years". Chaplin asks: "Is it still an appropriate use of resources? HMRC would likely lose another trip to the tribunals, which would cost them at least another £100K."
Chaplin shares his view: "Kaye Adams is not a tax avoider; she is a victim of HMRC intransigence after being used as a pawn in HMRC's policy game to try and force many media freelancers onto payroll. The media sector should thank her for staying the course and not buckling to the immense pressure the HMRC litigators put her under."
Is there an impact on other IR35 tribunal cases?
Commenting to Parliament on 21 February 2022 in response to Q24, whilst awaiting the outcome of the Atholl House Court of Appeal ruling, HMRC said: "If we were to lose that case [Atholl House] - I do think it has some wider implications in terms of, especially, those who are portfolio earners."
At the time of writing, there are currently four other IR35 cases that HMRC lost at the First-tier tax tribunal, which are lined up to be heard at the Upper-tier, which involve portfolio workers. Chaplin suggests: "HMRC may need to reflect on the Atholl House outcome, and re-run the necessary checks and balances in their Litigation and Settlement Strategy, to establish whether the cases still warrant further spending from the taxpayers' purse."
The complete statement by Kaye Adams to ContractorCalculator:
In a statement released to ContractorCalculator, Kaye Adams said:
"I am delighted that the First Tier Tribunal has confirmed my self-employed status for the third time, but there is no jubilation for me in this result. Over the nine years of this investigation, the mental stress has been close to unbearable at times, and the legal costs I have incurred far outweigh the tax at stake.
"I accept that HMRC has a duty to ensure that everyone pays the correct tax, and I wholeheartedly support it in that endeavour. To that end, I have fully cooperated with this inquiry for nearly a decade. However, this is the third court which has concluded that I am a self-employed individual, and HMRC has not once proven otherwise."
"I was 51 when this all began, and now, at the age of 60, I would really like to be released from my financial limbo and be able to plan for my future. Having scored a hat-trick of wins, I would politely request that HMRC accepts the emphatic judgment of our courts and desists from appealing yet again.
"There are hundreds of thousands of self-employed freelancers like me in the country. If IR35 is deemed too problematic to apply, it is surely time for HMRC to work with our legislators to address the flaws rather than picking off decent, hard-working, law-abiding people one by one in the hope that others will buckle under the pressure."