Kickabout Productions - HMRC wins IR35 re-match
In Kickabout Productions Ltd [2020] UKUT 216 (TCC), the Upper Tribunal (UT) has allowed HMRC's appeal and confirmed that the relationship between a radio station and one of its sports presenters fell within the IR35 regime.
Background
Paul Hawksbee, was a radio presenter on Talksport radio, who had presented a radio show on Talksport, with a co-presenter, for eighteen years. For the three years under appeal (2012/13 to 2014/15), 90% of Mr Hawksbee's total income derived from this work carried out through Kickabout Productions Ltd (KPL), a personal service company established by Mr Hawksbee to provide his services. Payments were made by Talksport to KPL for the provision of Mr Hawksbee’s services. This was the only radio presenting work Mr Hawksbee had been involved in during this period. He and his co-presenter were free to decide on the format and content of the show, subject to constraints largely dictated by OFCOM's regulatory requirements.
There were two contracts in place between KPL and Talksport for the relevant period. The first was executed on 1 January 2012 and the second replaced it with effect from 1 January 2014. Under each, KPL was required to make Mr Hawksbee available to present at least 222 shows each year.
HMRC was of the view that the payments made by Talksport to KPL for Mr Hawksbee's services were subject to PAYE and NICs, as they fell within the intermediaries legislation, contained in sections 48-61, ITEPA 2003 (commonly referred to as IR35) and issued to KPL a notice of determination for PAYE and a notice of decision for Class 1 NICs for the period 2012 to 2015.
The application of IR35 depended on whether a hypothetical contract between Mr Hawksbee and Talksport would have been one of employment.
KPL appealed to the First-tier Tribunal (FTT).
FTT decision
The FTT had decided that the relationship under the hypothetical contracts between Talksport and Mr Hawksbee would not have been one of employment, and that the IR35 regime did not therefore apply. It considered that, although Mr Hawksbee was to a large degree economically dependent on Talksport, under the actual contracts between Talksport and KPL, Talksport was not required to provide any work to KPL; the services were largely restricted to delivering the show; there were no rights to holiday, sick pay, pension or paternity leave; the payment obligation was restricted to a flat fee per show, and Mr Hawksbee was not part and parcel of the Talksport organisation. The FTT therefore concluded that the hypothetical contracts would not give rise to an employment relationship between Talksport and Mr Hawksbee and allowed KPL's appeals.
HMRC appealed to the UT.
UT decision
The appeal was allowed.
HMRC argued that Talksport was, on a proper construction of the contracts between KPL and Talksport, required to provide work to KPL (and the FTT had misconstrued the classic employment test set out in Ready Mixed Concrete [1968] 2 QB 497, under which mutuality of obligation – or the requirement for an employer to provide work and an employee to do it – is one of the key limbs) and that the absence from the written contracts of clauses granting worker rights (such as sick pay) and boilerplate clauses did not necessarily mean that they did not exist.
The UT re-examined the actual contracts. It agreed with HMRC that the fact that KPL was required to provide Mr Hawksbee's services to Talksport for at least 222 shows per year, when coupled with the provisions for termination and suspension and the 'first call' given by KPL to Talksport over Mr Hawksbee's services, led to the conclusion that Talksport was required (unless and until either party exercised its termination rights) to offer at least 222 shows each year for Mr Hawksbee to co-present. There was therefore sufficient mutuality of obligation for the relationship between Mr Hawksbee and Talksport under the hypothetical contracts between them to be one of employment.
KPL submitted that the FTT had made clear findings of fact as to the true nature of the agreements, and the UT should not interfere with them. The UT rejected this argument. It held that the FTT's decision that the contracts imposed no obligation on Talksport to provide work was one of law, rather than of fact (the facts were not in issue: it was the result of those facts as a matter of law that fell to be decided) and it was therefore open to it to re-make the FTT's decision.
Further, the UT agreed with the FTT that Talksport had sufficient control over the activities of Mr Hawksbee for the relationship to be one of employment (in that Talksport could control what Mr Hawksbee did and where and when he did it). Applying the test set out in Ready Mixed Concrete, the UT also determined that the remaining terms of the contracts were not inconsistent with the relationship between Mr Hawksbee and Talksport being one of employment. In light of this, the UT overturned the FTT's decision, and remade it with the result that the IR35 regime applied and KPL's appeals were dismissed.
Comment
While rarely determinative on its own, mutuality of obligation is a key test in establishing employment status and this decision, together with the UT's recent decision in Professional Game Match Officials Ltd (see our blog on that decision here), provides some welcome guidance when considering this test.
Interestingly, as private sector businesses prepare for the extension of the off-payroll IR35 regime from April 2021, the crucial issue of whether a hypothetical contract is one of employment will fall for determination and yet HMRC’s online CEST tool does not take into account whether there is mutuality of obligation between the parties. Concerns about this have been raised by practitioners, but HMRC remains of the view that mutuality is not a relevant factor in a tax context.
A copy of the decision can be viewed here.