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Lessons from Adrian Chiles’ decade of IR35 misery

Even judges can’t agree on IR35. But with HRMC relentlessly pursuing cases, what do we know for certain?

Author: Markel UK

According to HMRC, ‘tax doesn’t have to be taxing’, a strapline ITV and radio presenter Adrian Chiles likely doesn’t agree with.

Back in February 2022, Chiles and his business, Basic Broadcasting Ltd (BBL), emerged from the First Tier Tribunal ‘FTT’ victorious, having defeated HMRC over IR35-related tax and NIC determinations.

The ruling followed an arduous seven-year investigation into a number of BBL’s contracts with the BBC and ITV, spanning tax years 2012/13 to 2016/17.

The FTT’s decision, issued by tribunal judge Jonathan Cannan, relied on evidence that Chiles was clearly in business on his own account, having had a significant number of separate freelance engagements during the tax years under inquiry. Some of those engagements ran alongside the BBC and ITV contracts that were under scrutiny from HMRC.

Many would say the outcome made perfect sense given BBL has a long history of multiple income streams and demonstrated a clear business operation. That’s despite the tribunal finding that, while engaged by the BBC and ITV, Chiles worked under a sufficient framework of control and that mutuality of obligations was present – the two factors that underpin employment.

The factors of control and mutuality of obligations are fundamental status tests of an employment relationship, as laid out in the seminal case of Ready Mixed Concrete (South East) v Minister of Pensions and national Insurance [1968] (‘RMC).

But because these factors were present in BBL’s contracts with the BBC and ITV, Judge Cannan’s decision did not sit well with HMRC, which submitted an application to appeal to the Upper Tribunal ‘UT’.

The appeal left Chiles somewhat in limbo, facing more uncertainty and unable to finally draw a line under the case.

HMRC appeal the decision

The FTT had initially deferred consideration of HMRC’s application for permission to appeal its decision until another high-profile IR35 case related to the broadcasting industry, Atholl House Productions Ltd, had been decided.

Following the conclusion of Atholl House, the application to appeal was finally granted. On 5 and 6 February 2024, some two years after the FTT hearing, HMRC advanced two grounds for appeal at an UT hearing held before Mr Justice Meade and Judge Thomas Scott:

  1. The FTT erred in law in its interpretation and/or application of the third stage of the RMC test in that:
    1. 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 RMC test; and
    2. The Tribunal did not put the relevant terms of the hypothetical contracts at the heart of its analysis at the third stage of the RMC test; alternatively, did not take those terms into account.

  2. Further or alternatively, the FTT erred in law and/or took into account irrelevant considerations and/or failed to take into account relevant considerations in its approach to the question whether Mr Chiles was “in business on his own account” in relation to the relevant contractual engagements between BBL and each of ITV and the BBC in that:
    1. The FTT erred in asking whether Mr Chiles was generally in business on his own account, rather than whether he was in business on his own account in relation to the terms of his specific hypothetical contracts with each of ITV and the BBC; and
    2. The FTT wrongly disregarded or marginalised cogent factors, such as the length of the contracts, the level of required work commitment and the relationship of financial dependency thereby generated, in determining whether, in relation to the terms of the specific hypothetical contracts in question, Mr Chiles was in business on his own account.

The legal counsel representing Chiles, James Rivett KC, had argued that HMRC were looking to re-argue the case, which had already been considered and decided by the FTT.

The UT accepted HMRC’s contentions, specifically its appeal presented in ground one, in that the FTT erred in law in its approach to the third test of RMC. It was therefore the decision of the UT to set aside the FTT’s judgment.

Current situation

Frustratingly for Chiles, the UT decided not to remake the judgment. Instead, as has become common in other recent IR35 cases such as Atholl House and RALC Consulting, it referred the case back to the FTT tribunal for a re-hearing before the same tribunal Judge. The UT gave guidance as to how the case should be considered, allowing the FTT further discretion in terms of fact finding.

As we understand it, no date has yet been set for the re-hearing, which from our own experience of the tribunal service’s current workload, could be some way in the future, leaving Chiles in an IR35 cyclone until then.

What have we learnt?

This case is yet another example of how IR35 is an unworkable piece of legislation that provides complexity, uncertainty and unfairness to those affected by it.

Even judges can’t agree

HMRC recently stated that “employment status is usually straightforward to determine and uncontroversial”.

As recent IR35 cases have demonstrated, even judges can’t agree on the correct application of the legislation and the nuanced interpretation of case law. If some of the brightest minds in the land struggle to apply the legislation, how can a typical taxpayer reach the right conclusion without leaving themselves exposed to legal challenge?

HMRC are tenacious

If you are unfortunate enough to find yourself embroiled in an IR35 enquiry with HMRC, be prepared for the long haul. It is quite evident that HMRC are extremely determined. They are more than prepared to take cases right through the tribunal and court system to achieve their desired outcome.

Expect the lawyers

In the early days of IR35, it was quite often possible to conclude an enquiry after a relatively short period of time, present the information and evidence to HMRC, exchange a few technical letters back and forth and a final decision was made. For those few cases that did require a tribunal hearing, HMRC would often attend a tribunal hearing represented by their own internal inspectors or by instructing a representative from the HMRC Solicitors Office.

However, it would seem those days have long gone. HMRC’s compliance and litigation strategy is now to appoint legal counsel to argue their position, and often with a team of barristers.

Defence is expensive

In addition to the costs involved in defending an IR35 position, you should consider the potential tax and NIC liabilities at stake, which would likely include interest and a penalty should you lose your case.

The typical costs to a taxpayer for engaging specialist advisors through the technical representation stage of an enquiry (prior to a tribunal hearing) can often run into the tens of thousands of pounds. Should tribunal or court hearings be necessary, it could cost hundreds of thousands of pounds. Those are fees your clients will have to cover unless they have suitable tax investigation insurance.

HMRC, on the other hand, have access to a significant pot of public funds and can instruct legal counsel with relative ease, enabling them to continue to challenge prior legal decisions. In the Atholl House case, for example, the legal fees incurred by not only TV presenter Kaye Adams, but also by HMRC, far exceeded the tax and NIC liabilities being sought. Many would argue that this is not the best use of taxpayers’ money.

The human cost

It’s also hard to ignore the mental stress and anguish a 10-year battle with HMRC has surely caused Chiles. In fact, both judges from the FTT and UT hearings recognised the difficulties Chiles has faced over this significant enquiry period, commenting that the enquiry had “cast a shadow over [Chiles’] life for much longer than anyone would have wished” and “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.”

The evidence is surely stacking up to support a review of IR35 and the HMRC’s compliance and litigation strategy during enquires so that we avoid a repeat of the Chiles and Atholl House cases.

However, depending on the new government’s priorities, this may be a long way down the road. In the meantime, we can only hope that Chiles’ case is progressed quickly to resolution so that he can finally move on.

Speak to our team to find out how we can help you protect your clients’ businesses against IR35 risks.