After four hearings and 10 years of torment for Kaye Adams, HMRC has finally given up after wrongly issuing Kaye Adams with a tax bill under the IR35 legislation.
Despite fielding three barristers in their fourth attempt in October 2023 to try and convince judges, HMRC’s failure was highlighted again in the ruling released on 29 November 2023, leaving them 56 days to consider whether to appeal. With one day to go, HMRC threw in the towel, claiming it would not be “proportionate” to continue.
Reflecting on HMRCs statement, lead counsel for Atholl House, Keith Gordon from Temple Tax Chambers, said: “The truth of the matter is that HMRC are unable to find any error of law in the First-tier's decision. That is why they are right not to seek to appeal against it. To suggest that any appeal would be disproportionate smacks of disingenuity.”
Dave Chaplin, CEO of IR35 Shield, who has been assisting Kaye with her case for six years is equally perplexed by HMRCs claim: “The net tax at stake was £70,000 – so if proportionality was an issue, why did they even bother with the first hearing, let alone the second, the third and the fourth? Why did HMRC spend a small fortune on three barristers for the final hearing? HMRCs reason lacks substance – the reality is, they squarely lost, but cannot admit it.”
Kaye Adams, in her statement to ContractorCalculator, says for her the victory is a pyrrhic one, and expresses her concern for the powers HMRC welds: “They have the power to ruin good, honest hard-working people’s lives with no consequences.”
10-years of wasted time and money
Chaplin says: “HMRC dragged Kaye through litigation for 10 years, and at no point did the courts support HMRC’s view. The reality is HMRC issued Kaye with a large tax bill, which was never due, and were wrong to claim she was a deemed employee.
“Regrettably, as we have seen in almost all media cases, HMRC never back down, leaving the taxpayer no option but to pay up, or climb aboard the tax tribunal merry-go-round.
“Whilst HMRC claim publicly that they always seek to resolve disputes out of court first and only take action to litigate where this isn’t possible, in IR35 cases, the reality is very different. Resolution tends to mean the taxpayer pays up, with HMRC never backing down."
Why 10 years?
The Kaye Adams case was a fairly straightforward case, involving a broadcaster, who among many aspects of her long term career, created and delivered a radio show for the BBC.
Chaplin says: “The facts of the case were not complex, or unusual. One blindingly obvious fact was highlighted by the Court of Appeal when it said it would be “myopic” to ignore the fact Kaye was running her own business, and that “the fact that the person providing the work has an established career as a freelance” should be taken into account.
Binding precedent
In it’s press release, HMRC also referred to the fact that First-tier rulings do not set binding precedent, perhaps seeking to dimmish the powerful binding precedents the case set through it’s course of four hearings.
Keith Gordon clarifies the legal position for First-tier cases: “It is of course correct that the First-tier Tribunal does not make binding precedent. However, it is a good and persuasive indication as to what the law says in respect of any particular facts. Indeed, it is not unusual for HMRC, to urge the First-tier to follow earlier First-tier decisions on the basis of ‘judicial comity’
“It must also be remembered that HMRC tried to change the legal tests when this case was heard by the Court of Appeal. The Court resoundingly rejected HMRC's arguments. The Court's decision in the Atholl House case is binding authority.”
Chaplin says: “The importance of Atholl house cannot be underestimated, and has set considerable legal precedents at both the Upper-tier and Court of Appeal, which HMRC’s litigation teams are currently relying on in other cases being litigated. To ignore Atholl House, is to deliberately ignore the law.”
Chris Leslie, ex-HMRC inspector and tax defence specialist from Tax Networks agrees: “HMRC's refusal to acknowledge the interplay and significance of the upper courts' judgments, implying that the FTT did not establish a legal precedent, is reminiscent of intentional narrow-mindedness. After being labelled myopic by the Court of Appeal, which provided directions for a proper multi-factorial evaluation, and with the second first-tier hearing issuing its judgment in line with these directions, it seems HMRC could have benefitted from a visit to Spec Savers and the addition of a financially qualified person to their team.”
Kaye Adams – Full Statement
"Whilst I am extremely pleased that HMRC has decided not to roll the dice on a fifth time lucky shot on my case, I remain utterly horrified at the behaviour of this department. The statement they released to the press, without my knowledge, twenty minutes after informing me of their decision, says they don’t think it would be ‘proportionate’ to appeal in this case.
"It was never proportionate.
"By the end of my first hearing five years ago, I had burned through more money in legal fees than the tax in dispute. Where was HMRC’s concern over proportionality when they appealed to Upper Tribunal and then appealed again to the Court of Appeal and then again hauled me over the coals in the First Tier Tribunal for a second time?
"Not once did they score a victory over me, yet they kept going. And now they have the audacity to suggest, my case does not set legal binding precedent. It is outrageous.
"Everyone in the media industry knows IR35 is a mess. Freelancers working for as few as ten days a year for engagers are being forced onto PAYE with no employment rights or benefits, HMRC knows IR35 is a mess. It knows it has been playing fast and loose with taxpayers’ money to push through an interpretation of the law that it has frankly invented and it seems these faceless bureaucrats are accountable to no one.
"They have the power to ruin good, honest hard-working people’s lives with no consequences.
"It is not just lives they are trashing, HMRC is making a mockery of the legislation. Self- employed status is now determined according to the pressure applied by HMRC and risk management on the part of media companies, not according to the law.
"This is a pyrrhic victory for me. I have won my case against HMRC and I have spent on legal fees nearly £300,000, which should have been in my pension. Justice eh!"
What next for IR35?
When portfolio workers, like Kaye Adams, are being assessed, the parties (including HMRC) will need to follow the legally binding principles set out in the Atholl House case. IR35 Shield has published a legal analysis, helpful for the media sector, which includes the following key points:
- Payment and some control says nothing about the status, which must consider all factors as part of a multi-factorial determination.
- Once some mutuality and control are identified, if the rest of the contract and surrounding circumstances are inconsistent with a contract of employment, the engagement will not be "Inside IR35."
- The length of any engagement is a factor, but not determinative, particularly where the worker still has a meaningful amount of time available to work for other clients. There is no hard and fast rule on percentages of work or where the line ought to be drawn.
- The historical career history of an individual as a freelancer is a highly relevant factor. Determinations should not narrowly focus only on concurrent work alongside the engagement being considered.
- Workers performing similar services in the same capacity for others as an independent contractor points toward self-employment. The specific activities do not matter.
- The terms of the engagement are central to determining the status.
With the Atholl house case reaching final judgment, we now await the decisions for four other cases which HMRC lost, but is appealing. Stay tuned.