After ten years and three tribunal hearings, the nightmare continues for the IR35 case involving broadcaster and writer Adrian Chiles and his media-based company Basic Broadcasting Ltd ("BBL") as he now faces a fourth tribunal hearing.
Whilst Judge Cannan had initially ruled in his favour on 09 February 2022, after two First-tier tax tribunal hearings, an appeal by HMRC to the Upper-Tier Tribunal heard two years later on 05 February 2024 has now ruled that the Tribunal made legal errors in the initial decision and that the case should now be remitted back to the First-tier for a fourth hearing.
Dave Chaplin, CEO of IR35 tax advisory firm IR35 Shield, who attended both the First-tier and Upper-tier tribunal hearings, says: "Of the last seven IR35 cases won by taxpayers, HMRC has appealed all but one of them, with half of them being remitted back to the First-tier. Why do taxpayers have to foot the bills for at least two additional hearings, when tribunal judges make the legal errors? That does not seem fair and creates an impediment to natural justice.
"These appeals and subsequent remittals cause considerable emotional and financial harm to the taxpayers involved and clearly signal that IR35 and Off-payroll working is unworkable. It's time for meaningful reform to ensure taxpayers are treated fairly and can resolve their disputes in a timely manner."
In the latest decision, Justice Meade stated: "It should not be forgotten that behind every personal service company is a person, and, as we have seen in this case, the uncertainty and financial exposures generated by the difficulty in establishing a clear and stable legal position continue to produce a very real human cost."
Basic Broadcasting Limited - IR35 case history
The Basic Broadcasting Limited ("BBL") case relates to services provided to the BBC and ITV over 12 years ago, spanning tax years 2012 to 2017.
The first hearing occurred in November 2019, heard by Judge Barbara Mosedale, but she contracted Covid-19 and could not write and publish a decision. Judge Cannan then reheard the case in November 2021, publishing his decision in February 2022. The appeal was upheld in favour of BBL, stating that "...there is no suggestion that Mr Chiles set out to avoid tax by supplying his services through BBL."
The Tribunal considered that "the most significant factor that might displace the prima facie case that Mr Chiles was an employee under the hypothetical contracts is whether he was in business on his own account." It confirmed that "..the evidence in support of that case was overwhelming."
After a comprehensive examination of all the activities of BBL, the Tribunal concluded that: "In all the circumstances we consider that Mr Chiles is to be treated as entering into the hypothetical contracts as part and parcel of that business. They were contracts for services and not contracts of employment."
HMRC appealed the decision to the Upper-Tier, its primary ground of appeal being that they believed that the Tribunal wrongly adopted the test of whether Mr Chiles was in business on his own account instead of the correct analysis required at the third stage of the relevant test, and failed to put the relevant terms of the contracts at the heart of its analysis.
The test to identify a contract of service is based on the 1968 case ofReady Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance ("RMC"). This consists of examining whether personal service is present, along with sufficient mutuality of obligation and control, together with considering all of the other factors. After considering all of the circumstances, one must "stand back" and decide based on an impression of the overall whole ("The Third RMC Stage").
The Upper-Tier allowed HMRC's appeal under Ground 1 and agreed that the FTT erred in law by adopting the wrong approach to the determination of the Third RMC Stage, having fallen into the same sort of error as the Upper Tribunal in the Atholl House upper-tier case.
The Tribunal chose, "With reluctance", not to remake the decision but instead remitted it for reconsideration by the FTT.
Remitted IR35 cases causing distress for taxpayers
The BBL decision marks the third instance where the upper courts have remitted an IR35 case back to the First-tier tribunal. In the case of Atholl House, involving broadcaster Kaye Adams, she won her case at both First-tier and Upper-tier, but HMRC appealed again to the Court of Appeal. The Court of Appeal identified legal errors made by the judges and returned her case to the First-tier for a fourth hearing, which she, again, successfully won.
In the case of RALC Consulting, which involved an IT contractor, the case was won at the First-tier. Still, an appeal by HMRC to the Upper-tier Tribunal resulted in the Tribunal stating the First-tier had "betrayed the law" and remitted the case back to square one after 10 years. RALC Consulting was forced into bankruptcy by the decision.
The First-tier tax tribunal is a "no-costs" regime, where each side bears its own costs. However, the Upper-Tier and above is a cost regime where the losing side has to pay the other side's costs. Adrian Chiles (BBL) will now suffer his own costs and those of HMRC for the errors made by the First-Tier, and also suffer further unrecoverable costs when he faces a fourth tax tribunal hearing – even if he wins again.
Chaplin comments: "It seems unfair on taxpayers who have won at FTT to suffer legal costs due to the errors made by judges. The power imbalance between taxpayers and HMRC in these IR35 cases is staggering. While BBL must bear the financial burden of this prolonged dispute, HMRC has the luxury of dipping into the public purse to fund their legal battles.
"It's like playing a game of poker where your opponent has an unlimited supply of chips and can go all-in on every hand. Individual taxpayers are severely disadvantaged when taking on HMRC in these cases, and the system desperately needs reform."
HMRC appealed 6 out of 7 IR35 cases loses
Other than the case of Canal Street Productions, HMRC has sought permission to appeal in all of the six other IR35 cases won by taxpayers since Atholl House in April 2019.
Of those six cases HMRC has continued to pursue, half have resulted in remittals back to the First-Tier, putting an undue strain on the individuals involved.
The most high-profile of those cases was Atholl House, involving broadcaster Kaye Adams. Adams, having learnt of the same outcome facing Adrian Chiles, provided an exclusive statement to ContractorCalculator:
Kaye Adams said: "I am appalled that HMRC has once again decided to twist the knife into a fellow freelancer. Over ten long years, Adrian has done everything and more that has been required of him by presenting the facts of his case to the tribunal system. It is a costly and stressful exercise, but Judge Cannon [in the first FTT hearing] confirmed that, in his assessment, Adrian is outside IR35.
"However, it seems we are now in a situation whereby HMRC will routinely challenge judgments on the basis of 'errors in law', forcing the taxpayer to foot the bill. Despite two rulings in my favour, HMRC took me to the Court of Appeal, apparently to 'get clarification 'on the law, and the upshot was that I won my case again. How many times and how many of us have to go through this for HMRC and the tribunal system to get their heads around fair and consistent application of IR35 legislation?
My cynical self says HMRC does not want clarification. It prefers to perpetuate confusion so it can continue to wage war on freelancers ."
What's next for BBL?
The decision has been remitted to the FTT, with directions by the UT. The UT has directed that the FTT should "reconsider and remake its decision in relation to the Third RMC Stage" and apply the guidance given in the Atholl House Court of Appeal decision.
The UT has also directed that the FTT may make further findings of fact that it considers appropriate to make and that they see no reason why the remitted hearing should not be heard by the same panel as that which made the initial decision, stating it would be more efficient for them to hear the remitted case, given their familiarity with the facts and issues.
No date is yet set for the fourth hearing.