Why TalkSPORT’s Paul Hawksbee lost HMRC IR35 tribunal
TalkSPORT radio presenter, Paul Hawksbee, won his IR35 appeal at the First-tier Tax Tribunal back in July 2019 - but only just. Judge Thomas Scott and Tribunal member Charles Baker differed quite dramatically in their opinions, and it was left to the Judge to exercise his casting vote in favour of Mr Hawksbee in the end. It shouldn’t be too big a surprise (although ultimately unfortunate for Mr Hawksbee) that it’s now swung the other way in an appeal brought by HMRC and heard at Upper Tribunal on 16th and 17th June 2020. IR35 is, after all, a notoriously slippery piece of legislation. You can read the full case here.
Paul Hawksbee is probably best known for his longstanding partnership with Andy Jacobs in presenting the Hawskbee and Jacobs Show on TalkSPORT for the last 18 years. In 2001, Hawksbee formed Kickabout Productions Ltd (KPL) and it was through this PSC that he conducted his radio presenting activities to TalkSPORT. HMRC believed that this relationship was caught by IR35 and raised tax and NIC assessments for the three years ended 5th April 2015 totalling just over £143K.
So why has Hawksbee’s IR35 status determination changed since the last tribunal, and what exactly were the issues in his contract and working practices that landed him inside the off-payroll rules?
Paul Hawksbee and Mutuality of Obligation
Mutuality of Obligation is often the defining factor in presenter IR35 cases – see both Eamon Holmes and Lorraine Kelly, who's determinations both swung on MOO, albeit in different directions – and this was once again the case for Mr Hawksbee and Kickabout Productions Ltd.
Hawksbee was obliged to work for at least 222 days a year; under the hypothetical contract TalkSPORT were not obliged to provide work, even though in practice both parties expected the minimum number of shows to go ahead. Although the bare requirements of MOO existed, a proper employment relationship would typically require an employer to provide work to the employee, not just for the employee to be obliged to do it.
However, the TalkSPORT income formed approximately 90% of Hawksbee’s turnover which is far more damning when it comes to the presence of obligation. Coupled with the length and time over which the contracts were renewed, Hawksbee’s economic dependency on TalkSPORT were seen as material indicators of an employment relationship.
It was decided during the initial Tribunal hearing that the degree of MOO present between TalkSPORT and Hawksbee did not exceed the ‘irreducible minimum’ and therefore wasn’t enough to indicate employment. Consequently, MOO was considered of diminished importance.
However, this sits at odds with the interpretation of the Upper Tribunal Judge Zacaroli. He noted that, while the initial decision didn’t state expressly that TalkSPORT had no obligation to provide Hawksbee with work, it was clear from the decision that this was the initial
tribunal Judge’s conclusion. Zacaroli goes on to state that this was an error on the first Judge’s part and was ‘highly material’ to the overall initial decision.
Substitution in the Kickabout Productions Contract
Personal Service, or ‘Substitution’, is another key status test that presenters often fall foul of. Neither of Hawksbee’s contracts provided for a right of substitution, which is to say that TalkSPORT wouldn’t accept anyone else to fill in for him should he be absent.
Much like Lorraine Kelly, the show featured Hawksbee's name and TalkSPORT were paying for his unique expertise and work. Kelly got around this by arguing that she was ‘playing a character’ so to speak, rather than offering her own unique and unreplaceable personality, and she did indeed have another presenter fill in for her on a couple of occasions during the run of Lorraine. In the first Tribunal – which, incidentally, wasn’t too far behind Kelly’s IR35 win - it was accepted that Hawksbee’s personal service was a feature of the working relationship and he too was offering a ‘persona’ to the radio station.
However, this played a bigger part in the overall view taken by Judge Zacaroli in the Upper Tribunal. Perhaps thanks to some media distance from other presenter cases, or simply taking a more definitive stance on Hawksbee’s contract, it was pulled out and named specifically as a point in favour of an employer/employee relationship.
Client control over Hawksbee’s work
Yet again, client control was somewhat accepted as part of the job in the initial Tribunal, with OFCOM restrictions and other generally accepted broadcasting requirements named as causes for tighter client control over Hawksbee’s work than would’ve necessarily been acceptable in other professions. Because Hawksbee used his own laptop and mobile phone when undertaking research and preparation at home, but used TalkSPORT equipment during the live broadcasts, control was not seen as relevant and was considered broadly neutral by the original Judge.
However, the contracts that were in operation during the years under appeal required Hawksbee to present his show for a minimum of 222 days, Monday – Friday between 13:00 – 16:00 at the broadcaster's studios. Therefore, it followed that TalkSPORT controlled where and when the work was carried out. The initial Tribunal considered this was considerably less significant than control over how and what was done, but once again Judge Zacaroli took a less forgiving stance on Hawksbee’s contract terms.
Although the Judge agreed that, in practice, TalkSORT had relatively narrow control over what tasks Hawksbee performed, this was deemed of diminished importance in comparison to the where and when, with Judge Zacaroli noting there was a sufficient framework of control to indicate an employer/employee relationship. This is most notably seen in who has the ultimate right to decide on the form and content of a particular episode; although in practice, content disagreements between Hawksbee and TalkSPORT were resolved amicably, both contracts between the parties would have afforded TalkSPORT the ultimate right to decide the issue where there was an impasse.
Remember: a holistic view is the most important thing for IR35 determinations
While many factors in what was originally a borderline case were interpreted differently by the Upper Tribunal, Judge Zacaroli concluded that ‘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.’
All contractors need to remember that an IR35 employment status determination is not made up of just the three major status tests detailed above. It’s an overhead, holistic view of the entire contract and working practices that determines an engager/contractor relationship, and a tribunal can swing on a knife-edge depending on any one interpretation.
“Whilst the fact that HMRC has (finally) managed to win a tribunal case is surprising, it does not overlook the fact that to date HMRC’s record of dealing with IR35 cases has been very poor,” says Matt Tyler, IR35 Consultancy Manager at Kingsbridge. “This is further re-enforced by the fact that HMRC ended up having to appeal to this particular case’s outcome to get the result they wanted. Of interest is the point raised in the appeal that Mutuality of Obligation was the key decision-making factor in shifting the balance from being considered outside of IR35 to inside – albeit negatively for the contractor in this instance, this does go some way to re-enforcing that Mutuality of Obligation cannot and should not be overlooked, which HMRC have been historically keen to do.”
Get ready for the IR35 reform with Kingsbridge
To make sure you’re ready for the 2021 IR35 reform, and to avoid an unfortunate Tribunal appeal outcome like Paul Hawksbee's, contractors should make sure they fully understand their IR35 position well ahead of April next year. Getting a professional status determination is the best place to start.
It’s also worth investing in IR35 insurance. A good policy will include an IR35 status determination, as well as cover unpaid tax debts, interest, fines, and legal fees, and will flex with the reform roll out to cover the contractor, recruiter, and end client. Our IR35 Protect product offers all of the above in one comprehensive package, as well as Tribunal defence, IR35 consultation, and HMRC tax enquiry advice from our Head of Tax Andy Vessey ATT.