Former BBC presenter, Christa Ackroyd has lost her legal battle against HMRC. This is the first IR35 court case that the HMRC has won in seven years. Ackroyd and is now facing a fine of £419,151 in outstanding income tax and national insurance contributions covering tax years: 2006/07 to 2012/13. This ruling made by the first tier tribunal (FTT) was based on the judgement that despite Ackroyd working through a PSC under the name of CAM Ltd., she was not truly self-employed. Ultimately the tribunal deemed that she was an employee of the BBC under a hypothetical contract.
What does this mean?
Essentially, Ackroyd was working as a self-employed contractor through her limited company, CAM Ltd. However, HMRC argued that she met the conditions of employee status with the BBC. Consequently, she ticked many IR35 factors. Here are the key features published in court documents that indicate her as within the scope of IR35.
- Substitution and Control
Ackroyd’s PSC, CAM Ltd. was prohibited from using a substitute for herself. This meaning that she was not at liberty to provide a replacement for her contractual obligations. In addition, she was not the arbiter for her work. The BBC had control over what services Ackroyd provided and her contract restricted her from providing services to other organisations in the UK without the consent of the BBC. Furthermore, she did not have editorial control over her work. She had space to oppose decisions but the BBC always made the final call.
- Financial Risk and Mutuality of Obligation
The tribunal deemed her as “economically dependent” on the BBC. Ackroyd was contractually obliged to perform services, and the BBC was contractually obliged to pay fees to CAM Ltd. on a monthly basis. There was thus no financial risk for her. Christa Ackroyd did not profit from the overall management of the business and nor did she take any financial risk in her work. The tribunal’s judgement said:
“It was not realistically possible for Ms Ackroyd to make a loss in performing the contract…[although conversely] she could increase her income by way of…[a] ‘success’ fee [of £15,000 a year.”
Ackroyd’s plea and the reality of IR35
Ackroyd’s appeal to the tribunal was that the limited company was set-up on the advice of the BBC. She claimed to have received reassurance from her accountant that the arrangement was tax compliant. The FTT acknowledged that they:
“do not criticise Ms Ackroyd for not realising that the IR35 legislation was engaged … She took professional advice in relation to the contractual arrangements with the BBC and she was encouraged by the BBC to contract through a personal service company.”
Nonetheless, the tribunal judge of this IR35 court case, Jonathan Cannan declared these factors as irrelevant under the legislation and ruled in favour of HMRC. In his final assessment, he stated:
“In our view, the most significant factors in the present case include the fact that the BBC could control what work Ms Ackroyd did pursuant to the hypothetical contract. It was a seven-year contract for what was effectively a full-time job.”
In conclusion, what this IR35 court case ruling shows is that responsibility is on the contractor. It’s a stark reminder for other contractors to carry out their due diligence before and during a contract as well as to get advice from a legal IR35 expert to ensure they are compliant.
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