April 2022
When is a freelancer a freelancer? And does HMRC know? Not according to a recent high-profile tribunal case TV and radio presenter Adrian Chiles has won his seven-year battle over a £1.7m tax liability claim against HMRC. The taxman claimed that Chiles’ company, Basic Broadcasting Limited, owed £1,249,433 in income tax and £460,739 in National Insurance contributions.
During this period in dispute Chiles worked as a freelancer for both the BBC and ITV, and HMRC said that all this work fell into the terms of IR35 and was in effect ‘disguised’ employment.
However, at a first-tier tax tribunal Judge Canan said that the work carried out by Chiles was for services and not contracts of employment. This meant IR35 did not apply.
Tax expert Penny Simmons of Pinsent Masons said that the tribunal’s decision “demonstrates how complicated the rules are to apply and adds to the growing uncertainty for business as to when contractors should be taxed as employees within IR35.
“One of the difficulties with IR35 is that there is no single definition of employment status for tax purposes, rather it is necessary to look at a number of factors together,” she said.
“Historically, HMRC has focused on three factors: whether there was personal service between the individual contractor and the engaging business and whether the individual could provide a substitute, the level of control that the business had over the individual and whether there was mutuality of obligation between the parties. Here, the tribunal decided that although there was mutuality of obligation, no right of substitution and a level of control, it was necessary to ‘stand back and look at the circumstances as a whole’.”
The IR35 rules require that employment taxes be paid by people who provide services to a business through a PSC or other intermediary if that person would otherwise have been regarded as an employee for tax purposes of the engaging business. From 6 April 2021, engaging businesses became liable for determining whether the IR35 rules apply, operating PAYE and paying employers’ National Insurance contributions for contractors falling within the scope of the rules. Previously, where a private sector business engaged a contractor through a PSC, liability to decide whether IR35 applied and to pay any employment taxes rested with the PSC.
Simmons said: “The decision will undoubtedly be welcomed by contractors looking to engage with businesses through PSCs. However, it adds to the complexities of determining employment status for tax purposes and will not be helpful to business trying to apply the rules and manage IR35 tax risks.”
