How Kaye Adams won IR35 status appeal against HMRC
In yet another round of TV personalities vs the taxman, Loose Women star Kaye Adams beat HMRC this week in an appeal over her IR35 status. HMRC has forced the case into the Upper Tribunal after their previous defeat, where Adams was found to be working as an independent contractor outside IR35, and thus not liable for the £125,000 of taxes and National Insurance that they were trying to collect from her.
However, the Upper Tribunal (UT) upheld the original ruling. Here we take a closer look at the case, and what this might mean for contractors affected by the IR35 reforms, which are set to apply to private sector contracts from 6th April this year.
Atholl House Productions Ltd vs HMRC IR35 case background
Adams, like many contractors in the media, provides her services to broadcasters and production companies through her own limited company: Atholl House Productions Limited (AHPL).
Back in 2019, Adams was subject to an IR35 audit and a first-tier tribunal was held relating to work she had done between 2015 and 2017. The original case centered on two BBC contracts for The Kaye Adams Show on BBC Radio Scotland. In each of these contracts, there was a stipulation for a minimum of 160 programs.
HMRC used this clause to try to argue that there was mutuality of obligation (MOO), and of course that Adams had no realistic right to substitution. They also pointed out that the BBC had control over her output. They felt that Adams therefore failed to meet the three ‘golden tests’ of self-employment.
However, the defense was able to show that, during this time, Adams worked freely for other clients – and indeed the BBC even accommodated this other work. The BBC work was just one of Adams’s contracts, and although they had some control over her work, the impression formed by the Tribunal was that Adams was “in business on her own account”.
HMRC’s appeal on Kaye Adams IR35 status
Unwisely, as it now turns out, HMRC appealed against the ruling of the First-Tier Tribunal (FTT). Their appeal case centered on the following aspects:
- The degree of control that the BBC had over Adams. The Upper Tribunal accepted that the BBC had a level of control over Adams’ work, including editorial control, and that the contract stipulated that the BBC had the right to determine the form and content of the show. Her defense argued that Adams, as an experienced broadcasting professional, was given a high degree of autonomy over the topics for the show and the way these were presented.
- The mutuality of obligation that existed in the contract.
- The original decision was flawed, because the First-Tier Tribunal did not have evidence that Adams was freelance over the rest of her career. The defense were able to counter this by providing a witness statement from Adams, and evidence that she was paid for her appearances on Loose Women on a show-for-show basis.
In the end, the Upper Tribunal felt that there was “significant control” from the BBC over Adams, and that there was “sufficient mutuality”. However, the evidence of 20 years’ of freelance employment across her career and her contracts with other clients helped swing the decision in Adams’ favour, leading the appeal tribunal to determine that she was entering into business on her own account and not as an employee of the BBC.
Kingsbridge’s Head of Tax and IR35 expert, Andy Vessey, gives his view of what happened here.
“The three golden tests of employment status – right of control, personal service and MOO – were weighted against Kaye Adams and that would probably be enough for most employment status tools to have put her firmly ‘inside’ IR35”, says Vessey. “However, the Ready Mixed Concrete case of 1968, which is the foundation for status cases, requires a third condition to be fulfilled to justify a contract of employment, namely that the other provisions of the contract are consistent with it being one of service (employment).”
“Here, the UT agreed with the FTT that Ms Adams was genuinely in business on her own account and that was enough to scupper HMRC’s appeal.”
What’s crucial in this case is that the tribunal, as Andy explains, “considered the ‘business on own account’ test in the round rather than restricting it to the contractual period”. The two years under dispute were not treated in isolation, but in the context of Adams’ professional life in previous years.
Lorraine Kelly, Eamonn Holmes, and others targeted for IR35 status
This is the latest in a series of cases where HMRC have pursued high-profile media personalities in relation to IR35. Other rulings have included:
- Lorraine Kelly won a £1.2 million tax dispute in 2019 for work carried out for ITV.
- Eamonn Holmes lost his first-tier tribunal, but has indicated that he intends to appeal the resultant £250,000 tax bill.
- Christa Ackroyd lost both her first-tier tribunal and upper tribunal appeal against HMRC in a dispute over a £420,000 tax bill.
While this might be good entertainment for the rest of us, the cases are exposing inconsistencies and gaps in HMRC’s understanding of its own IR35 legislation. With the IR35 reforms coming to the private sector in just a couple of months, there is a greater need than ever for the rules to be clear and fairly applied. While the ruling here is unlikely to set a great deal of precedent in relation to contractors outside the specific circumstances of media personalities, Andy Vessey highlights that it does offer some limited hope “to contractors who fail the three ‘golden tests’ and look to the next strata of important status factors, such as business on own account, financial risk and provision of own equipment”, though he cautions that “the evidence would have to be compelling to convince HMRC and a tax tribunal”.
It also raises the issue of how end clients can be expected to produce fair status determinations. The defeat of HMRC here largely centered on the history of Adams’ business as a freelancer, a view of the contract taken in the wider context of her career as a whole. When assessing relationships on a per-contract basis, this may mean contractors are unfairly placed inside IR35 when this does not reflect the way they operate their business.
It was also “reiterated that HMRC cannot dismiss an absence of employee-type benefits when considering employment status,” says Andy, so make sure that you’re not accepting things like holiday pay, sick pay or pension contributions from your clients.
There’s no business like show business
If there’s an actionable takeaway for us mere mortal contractors here, it’s to make sure that you are running your own business and storing up evidence of that.
This might mean: keeping your own hours, running your own office, working for more than one client (preferably at the same time), using your own equipment, and crucially, having your own business insurance that includes Professional Indemnity cover. This demonstrates that you see yourself as a legally separate entity from your client and that you understand that you are not covered by their business insurance as an employee would be.