Double IR35 Blow: HMRC Loses To TV Presenter Helen Fospero and IT Contractor Richard Alcock

Case #1: TV presenter and journalist Helen Fospero

English TV presenter and journalist Helen Fospero, has become the ninth broadcaster to claim victory over HMRC at the first tier tribunal. Fospero acted as a substitute for Lorraine Kelly, who successfully beat an IR35 tribunal, earlier this year. Working through her company Canal Street Productions Ltd formed in 2002, she provided her services to ITV and a number of other companies, including the BBC.

Why was this brought to Tribunal? ​

HMRC assessed that on three contracts between 2012 and 2014, PAYE and NIC of £80,770 (before the calculation of interest and penalties) was due as they deemed her an employee of ITV, during this time. The First Tier Tribunal was tasked with reviewing if she was an employee, and therefore liable for the additional tax and NI.

The tribunal ruled that ITV was not required to provide work outside of the agreed engagements, and Canal Street Productions Ltd was not requited to accept work, thus there was insufficient mutuality of obligation to establish and employment contract.

What did the Tribunal look at?​

The Tribunal reviewed the key aspects of IR35, control, lack of mutuality of obligation, and substitution, as well as looking at additional business factors.

For control, though ITV operated editorial control over the content, Fospero was deemed to have control over where and when she prepared for the programs, including the words she used.

For mutuality of obligation, the tribunal ruled that ITV was not required to provide work outside of the agreed engagements, and Canal Street Productions Ltd was not requited to accept work, thus there was insufficient mutuality of obligation to establish and employment contract.

For substitution, ITV did not allow Canal Street Productions Ltd the right to substitute.

For the additional business factors, Canal street productions was responsible for providing its own equipment and office, hired an agent to look for additional contracts, traded before and after the ITV contracts and had no fixed work place at the ITV or an email address.

What was the conclusion?

Tribunal judge, Ashley Greenbank concluded that Ms Fospero was engaged, through Canal Street, in a separate business, working under a series of short-term engagements for ITV, with 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 outside IR35. Though the contract lacked a substitution clause, the other key clauses and additional business factors were sufficient to rule that IR35 did not apply to the contracts. HMRC will now consider an appeal, though is yet to for any of the previous eight cases it has lost.

Though the contract lacked a substitution clause, the other key clauses and additional business factors were sufficient to rule that IR35 did not apply to the contracts.

How does this impact a contractor operating through a Limited Company?

It’s another reminder of the importance of ensuring that prior to the start of any new contract, you should take competent advice as to the suitability of your contract and working practices with regards to IR35.

Case #2: IT Contractor beats HMRC in 5 year IR35 case

A professional IT contractor and director, Richard Alcock, has defeated HMRC in an IR35 first tier tribunal case. Working through his company RALC Consulting Ltd between 2010 and 2015, he provided his services to multiple companies including his former employer Accenture, and the Department for Work and Pensions (DWP).

Why was this brought to Tribunal? ​

HMRC assessed that under IR35, £243,000 in tax and NI (before charges and interest) was due as they deemed him an employee of Accenture. The First Tier Tribunal was tasked with reviewing if he was an employee, and therefore liable for the additional tax and NI.

The tribunal ruled in favour of RALC Consulting Limited accepting the appeal in full, meaning that no income tax and NI was due…The clear lack of mutuality of obligation was sufficient to win the case and is a blow for the HMRC online assessment tool CEST.

What did the Tribunal look at?​

The Tribunal reviewed the key aspects of IR35, control, lack of mutuality of obligation, and substitution, as well as looking at his working history with Accenture.

For control, the tribunal found that the work was project-based and RALC Consulting Ltd had control over how this was performed. Though it found that there was a degree of control over when and where the services were provided, the judge added that it was necessary to provide a quality of services for his clients and had a “substantial level of control over how he provided his services”

For mutuality of obligation, the tribunal agreed that there was a clear lack of any obligations by either party to offer or accept work, including not been able to charge for making himself available. All work was agreed upfront and paid upon completion.

For substitution, though RALC Consulting Ltd never provided a substitute, it was able to prove that it had arranged one which had latter fallen through. The Tribunal accepted that a substitute could be provided, though the client was required to approve them.

For the working history, HMRC argued that working for his former employer, implied carrying out continued work. The judge dismissed this argument saying the contract did not point to daily work being required, in the way that an employment contract would.

What was the conclusion?

The tribunal ruled in favour of RALC Consulting Limited accepting the appeal in full, meaning that no income tax and NI was due. The decision was made despite the weak control and substitution aspects of the contract and working practices. The clear lack of mutuality of obligation was sufficient to win the case and is a blow for the HMRC online assessment tool CEST, which does not consider mutuality of obligation. HMRC had previously failed in a bid to have the tool removed as evidence from this case.

HMRC argued that working for his former employer, implied carrying out continued work. The judge dismissed this argument saying the contract did not point to daily work being required, in the way that an employment contract would.

How does this impact a contractor operating through a Limited Company?

It’s another reminder of the importance of ensuring that prior to the start of any new contract, you should take competent advice as to the suitability of your contract and working practices with regards to IR35.

At Clever Accounts, we provide IR35 reviews as part of the ongoing monthly service and we will explain the factors that will help in the defence of any HMRC investigation into your company.

Posted by David Crossley