Why BBC presenter Christa Ackroyd’s inside-IR35 status stood
In the first IR35 judgment issued for seven years, the First-Tier Tribunal has decided in favour of HMRC resulting in a colossal liability for the appellant of more than £400,000, writes Martyn Valentine, founder of IR35 lawyers The Law Place.
Unsurprisingly, an examination of the facts and reasons behind the judgment illustrate once again the perils of failing to obtain competent legal advice prior to the start of an engagement. Further, the judgment exemplifies the need for equality of representation in a tribunal hearing, notwithstanding that the facts strongly pointed towards employment.
Ms Christa Ackroyd had a long employment history with the BBC as a television presenter before providing services via CAM Limited to BBC1 from 2001 until termination of the contract in 2013. Although not a lead case for a number of other similar appeals, it is part of HMRC's policy of targeting television presenters operating through personal service companies and shows a re-invigorated approach to IR35 enforcement.
Of note, HMRC declined both to interview Ms Ackroyd before expressing their initial opinion on IR35 status (para 19 of the judgment) and interview persons connected with the BBC who would corroborate her evidence (para 38). But her representative did not call such witnesses.
The judgment considered the key aspects of Control, Mutuality of Obligations and Substitution:
Ms Ackroyd had some influence over how Look North was presented (para 71) and a high degree of autonomy in carrying out her work (para 88), but no control over the programme itself (para 27) and the BBC retained "editorial responsibility" in line with its Editorial Guidelines.
The Editorial Guidelines were evidence of an overall right of control if not contractually binding (para 108) and breach of the Editorial Guidelines were used to justify termination of the contract (para 127). It would not have been realistic for Ms Ackroyd to breach the Editorial Guidelines without consequence.
The BBC required Ms Ackroyd to obtain their prior written consent before she could work for anyone else (paras 30 and 47) like an employee, and she was not proactive in obtaining other work (para 80) to demonstrate a right to profit by sound management.
The BBC retained a right to specify what services Ms Ackroyd would provide on an ongoing basis within her "role" as a presenter. The BBC retained an ultimate right of control as a matter of contract (para 165) and to ensure compliance with the Editorial Guidelines.
Whereas there were no set hours, the requirement to work 225 days per year left little time for working for others (para 45).
Mutuality of Obligations
The contract provided for a fixed term of seven years but could be terminated (paras 39 and 171) and the BBC retained "first call" on her services for 225 days per year (para 40). Judge Cannan cited ABC News Intercontinental Inc v Gizbert EAT (21 August 2006) (unreported) as a precedent for founding mutuality of obligations on the basis of a fixed-term contract (among other factors), with a minimum number of hours. Ms Ackroyd's work at the BBC was "pursuant to a highly stable, regular and continuous arrangement" (para 170).
The BBC were required to pay CAM Limited's fees even if they did not call upon Ms Ackroyd's services (paras 51 and 151) and paid regularly each year (para 56). This point was decisive in Usetech Limited (para 133).
The question of the extent to which the taxpayer is dependent on a particular client is a relevant factor (para 146), plus whether he/she can provide services to a "wider market".
Despite the drafting of the IR35 legislation, the contract excluded substitution of Ms Ackroyd. Applying Usetech Limited, the existence of an unused right to substitute is not in itself determinative of self-employment (para 142). The absence of a right to substitute was a pointer towards employment (para 168), however, substitution would have been an unrealistic proposition given the unusual fact that the BBC required Ms Ackroyd’s personal services as a presenter rather than the supply of agreed services as in all other typical contracts involving personal service companies.
- Ms Ackroyd was entitled to £3,000 per year expenses allowance for "suitable clothing" (para 46).
- The fact that Ms Ackroyd received no employee benefits such as sick leave was purely a consequence of being employed by CAM Limited (para 53).
- Of significance Judge Cannan stated (obiter) that "it is not appropriate to adopt a mechanistic or ‘check list' approach,’" but instead to take a stand-back approach. It can be inferred that relying exclusively on the flawed CEST Tool without legal advice is a recipe for disaster.
- There was little evidence of Ms Ackroyd being 'in business on her own account' and she was “economically dependent" on the contract with the BBC (para 176).
This judgment provides useful guidance for freelance contractors, but care must be taken as the facts are not wholly applicable for the majority of freelance contractors using personal service companies.
The IR35 legislation requires cases to be assessed on their own facts and it would be criminally negligent to disregard the statutory significance of substitution following what is, after all, a first instance judgment affecting a very narrow sector. This judgment does not create a binding precedent.
For freelancers and contractors it is useful to bear in mind the following facts:
Control -- Consider the existence of any pervasive rights of control such as the client's policy and procedure documents. This judgment shows once again that the burden of proof is on the appellant to show that he/she is not subject to a pervasive right of supervision, direction or control. Applying Autoclenz, the contract must not contain a right of control over the contractor. The task of the representative is to prove a negative.
Mutuality of Obligations -- A fixed-term engagement guaranteeing a minimum number of hours provides the minimum pre-requisite for employment. Similarly, a long term engagement shows that the contractor is economically dependent on the client and is likely to be ‘part and parcel’ of the client's organisation, e.g. Ms Ackroyd being on the BBC's mailing list and attending training sessions.
Substitution -- Is essential, and the judgment cannot be relied upon given the unusual facts of the case. The BBC required a newsreader, not delivery of an IT project where the identity of the individual is of lesser importance.
In summary, this judgment presents an unusual set of facts but provides a useful review of the leading judgments. This judgment illustrates plainly HMRC's hypocrisy in disregarding Mutuality of Obligations from its own CEST Tool, but gleefully relying on Usetech Limited to persuade the tribunal that IR35 should apply to CAM Limited.
Crucially, the conduct of CAM Limited's representatives, and HMRC, is a stark reminder that it is essential to (1) obtain competent legal advice prior to the start of an engagement; (2) use an experienced barrister or Queen's Counsel in conducting an appeal; (3) to confine all contact with HMRC to correspondence which can later be relied upon; and (4) do not forego opportunities to issue witness summons -- HMRC won't do you any favours.
Lastly, the BBC does not emerge unscathed in this case, as it bears moral responsibility for encouraging Ms Ackroyd to use a personal service company for its own commercial advantage in the context of a contract and working practices which overwhelmingly confirm that IR35 should have applied from the outset.