Last year, a first-tier tribunal went in favour of Talksport presenter and comedian Paul Hawksbee. It was found that Paul and his personal service company (PSC) Kickabout Productions Ltd were operating compliantly and outside IR35. Interestingly, it wasn’t the first time HMRC had lost a case regarding IR35, and it looked as if they were continuing to lose credibility on the legislation and their understanding of how it applies in practice.
After an appeal from HMRC, an upper tribunal ruled in favour of HMRC – almost 12 months after the original ruling. As a result, Paul Hawksbee faces a tax bill of nearly £140,000.
A quick summary
In June 2019, Paul Hawksbee appeared to beat HMRC and put the IR35 investigation he faced behind him. However, still unsatisfied with the relationship between Paul’s PSC (Kickabout Productions Ltd) and the end-client Talksport, HMRC launched an appeal against the initial ruling and the case was taken to an upper tribunal.
After a two-day tribunal (16th – 17th June 2020), judge Justice Zacaroli concluded that a number of factors meant the relationship between Paul and Talksport was similar to that of a permanent employee. As a result, Paul was told he owed a tax bill of almost £140,000.
HMRC was challenging two contracts between Kickabout Productions Ltd and Talksport that ran from 2012 to 2015. In the first-tier tribunal, the panel refused to accept that Paul’s presence was vital to the running of the show and that Talksport did not have any say over how Paul performed. They also decided that Talksport did not have any obligation to give him work. As a result, they decided Paul was not a disguised employee and was legitimately operating through Kickabout Productions Ltd.
Unlike the first-tier tribunal, the upper tribunal interpreted the facts differently and found several factors in both contracts that pointed to employment status. Judge Justice Zacaroli said:
“Taking all of the relevant factors into account, we consider that, viewed as a whole, they are not inconsistent with the hypothetical contracts being contracts of employment”.
After looking at the working arrangement, it was concluded that a multiple factors suggested Paul had employment status at Talksport. These included the amount of time he’d worked there, his 4-month notice period and the number of shows he was contracted to complete within a year (222).
In the upper tribunal documentation, Judge Justice Zacaroli states that contracts with a “duration of two years, with four months’ notice of termination required, was an indicator of employment status”. And, “the fact that Mr Hawksbee had been presenting, or co-presenting, the Show for some 18 years” also suggested that he had employment status.
As well as interpreting the law differently, the upper tribunal also found that the first-tier tribunal’s findings that there was “no obligation on Talksport to provide work was an error of law”.
What next for HMRC and personal service company (PSC) contractors?
The case involving Kickabout Productions Ltd and Talksport is complex. Paul can consider himself very unlucky, as initially, things went in his favour. However, the outcome of this case highlights two key points. The first point is just how complex IR35 legislation is and how difficult it for experts to interpret it when it comes to real-life scenarios. The second point is just how determined HMRC is when it comes to reclaiming underpaid tax from limited company contractors.
If you are a limited company contractor in the private sector, you are still able to determine your own IR35 status and pay yourself accordingly. Changes to off-payroll legislation (IR35) were scheduled for April this year. However, due to the coronavirus pandemic, they have been delayed until April 2021. Beyond April 2021, it will become the responsibility of your end-client to decide your IR35 status. These changes were rolled out into the public sector in April 2017.
If you are a limited company contractor in the public sector, your client must provide you with a thorough IR35 assessment for each assignment you undertake. Thousands of personal service company directors are perfectly within their right to continue contracting outside IR35, but your contract and working circumstances must be reviewed before you start the role.
One thing is for sure, with changes to off-payroll legislation and recent cases as a reference, HMRC is stepping up their efforts to catch and punish contractors who they deem are disguised employees.
Dave Chaplin, CEO at ContractorCalculator, said:
“This is a surprising and unexpected ruling. Some careful analysis will be required before drawing any firm conclusions on how it will impact IR35 and Off-Payroll for more traditional based contractors in IT and engineering.
The case law on presenter cases is still settling down through the courts and the decisions being made can appear to contradict each other. All of the cases have their own unique nuances, and a common theme is badly drafted contracts that don’t reflect the reality of the situation.”
We’ve been helping limited company contractors since 1998
Churchill Knight & Associates Ltd has been helping limited company contractors with their accountancy requirements for over 20 years. Whether you are a seasoned professional or you are new to contracting, we can help you with your accountancy requirements. And, if you decide to take a future assignment that is inside IR35, our industry-leading umbrella company (Churchill Knight Umbrella) is the perfect payroll service for you.
Founded by an IT Contractor in 1998, Churchill Knight has become one of the most respected contractor accountants in the UK. We’ve helped over 20,000 contractors with their accountancy requirements. As well as our accountancy services, we also have an industry-leading PAYE umbrella company and dedicated in-house personal tax department. Whichever service you choose, you can move forward with complete peace of mind. We are proud of the reputation we’ve built over the years, and our FCSA accreditation proves how committed we are to compliance within our sector. Keep reading…