Television presenter Helen Fospero has become the latest broadcaster to defeat HMRC at an IR35 tax tribunal, in a case that will raise further questions over the taxman’s indiscriminate pursuit of the media industry.
Fospero successfully appealed a deemed tax bill of £80,000 concerning engagements between her limited company, Canal Street Productions Ltd, and ITV during the 2012-13 and 2013-14 tax years.
In another comprehensive ruling, Tribunal Judge Ashley Greenbank concluded: “In the period in question, Ms Fospero was engaged, through Canal Street, 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.”
Chris Leslie of Tax Networks, which recently won the RALC Consulting case reiterates this point: “It’s hard to see how someone hired on a casual basis as an emergency fill-in for various programmes, with no guarantee of ongoing work, could be considered to be an employee."
HMRC fails to grasp being in business
Fospero won her appeal with her work outside of ITV proving a crucial factor. Despite HMRC’s attempts to argue that she was not in business on her own account in relation to her engagements with ITV, but rather part of ITV’s business.
“This is a nonsensical argument from HMRC, and demonstrates that it was really clutching at straws during this case,” comments ContractorCalculator CEO Dave Chaplin. “To have taken a case this far, you would expect the taxman to understand that being in business requires looking at the arrangements outside of those in question.”
Rightfully, it bore no effect on the outcome, with Judge Greenbank observing: “It seems to me that the agreements with ITV were just part of that wider business carried on by Ms Fospero through Canal Street in which Ms Fospero undertook various types of presenting work.”
Judgment typifies correct approach to IR35, says expert
As Martyn Valentine, director of The Law Place, highlights, the case bears similarities with the recent Kaye Adams case, where the presenter won her appeal on largely similar grounds:
“The judgment illustrates the importance of the overall circumstances of the engagements under investigation in determining employment status in addition to the main contract. The judge placed considerable reliance on the appellant being in business on her own account.
“In contrast to the facts of the Adams case, the appellant did not derive a significant portion of income from providing services to other clients and merely relied on her agents to secure additional work.
“For these reasons, this judgment may be appealed. Nevertheless, this judgment emphasises the importance for limited company contractors in seeking additional sources of income rather than relying exclusively on one particular client.”
Determinant factors raise further questions over CEST
Mutuality of obligation (MOO) was also once again a determinant factor, and once again, HMRC’s arguments displayed a questionable grasp of the key test of employment.
Whereas it was acknowledged during the case that ITV anticipated being able to offer a minimum number of days work during Fospero’s engagements, HMRC sought to elevate this statement to the level of a commitment on ITV’s part. However, Judge Greenbank concluded that there was no guarantee of any work, and that there was no obligation for Fospero to accept work.
The tribunal outcome will also heap questions on HMRC’s Check Employment Status for Tax (CEST) tool ahead of next year’s Off-Payroll private sector rollout, having been decided largely on two employment status tests which are omitted from the tool:
“CEST currently doesn’t cater for either MOO or being in business, and would have given Helen Fospero the wrong decision, but that would hardly be ground breaking news,” notes Chaplin.
“In any case, it’s far from a safe compliance solution for private sector firms. NHS Digital has been hit with a bill for £4.3m for relying on CEST, and we have just seen HMRC fight and lose a case where CEST had determined the contractor to be outside of IR35, despite its claim to stand by its results.”
HMRC urged to review approach to IR35 in wake of latest defeat
As leading tax barrister Keith Gordon, of Temple Tax Chambers, highlights, a succession of recent defeats have done nothing to deter the taxman from pursuing contractors through the courts, neither have they encouraged HMRC to revise its evidently flawed approach to IR35:
“The regularity with which HMRC lose IR35 cases in the Tribunal suggests that there is a very wide gulf between HMRC’s perception of the way that the rules should work and how the Courts apply them. Indeed, HMRC frequently cite Tribunal ‘success rates’ in excess of 80% - with the underlying message that they must know best. However, they seem to lose over 80% of IR35 cases.
“Given that so many cases are going against the department, one would expect them to have a detailed review of their approach and announce an immediate moratorium on such cases in the meantime. However, I am not aware of any such plans within HMRC.
“Accordingly, taxpayers continue to face the uncertainty and the costs of fighting HMRC simply because HMRC have the power and resources to maintain this unnecessary war of attrition.”
Gordon concludes: “HMRC’s regular defeats in the Tribunal should also raise questions about the decision to transfer the burden of applying IR35 to the end users. Those changes were justified on the basis of alleged widespread non-compliance with the IR35 rules. However, the rush of recent cases demonstrates that HMRC’s perception of non-compliance with the IR35 rules merits further review.”