A former BBC presenter caught by the IR35 tax rules has lost her employment status appeal against HRMC, and been ordered to pay more than £400k in unpaid tax after the High Court found that she was an employee, not a contractor.
In the case of Christa Ackroyd Media (CAM) Ltd v Revenue & Customs, the court ruled on 15 February that CAM must pay backdated income tax and national insurance contributions (NICs) totalling £419,151 for tax years 2006-07 to 2012-13.
The case could have vast financial implications for other contractors and freelancers caught in the IR35 net, as well as for the employers they work for – in terms of who they can employ and on what basis.
The judge said whether the BBC itself regarded Ackroyd as an employee was of marginal relevance, and in any event “we are not satisfied that they did”, but found she “was an employee under the hypothetical contract”.
Under previous IR35 rules, the contractor decided their own employment status but, since April 2017, the organisation does. Amended IR35 tax rules mean public sector employers have the responsibility to decide the employment status for tax purposes of any contractors they take on. Contractors deemed to be inside the IR35 regulations are taxed in the same manner as employees, despite being ineligible for employment rights, such as sick pay.
Ackroyd, who presented nightly news and current affairs programme Look North, was “inevitably seen as a part of the BBC… an external observer would not know the details of the hypothetical contract”, said the judge.
This is the first such judgment to emerge from around 100 other potential cases against BBC presenters stemming from HMRC’s October 2016 clampdown on personal service companies (PSCs).
The use of PSCs has meant that staff are classed as self-employed and use a limited company instead of being directly employed by organisations – in this case the BBC – incurring much lower tax payments. PSCs allow contractors to work for clients using their own limited companies that typically has one trader – the contractor – who owns all or most of the company’s shares.
The BBC dismissed Ackroyd, who was on a seven-year contract for services up to 225 days per year, in July 2013 following HMRC’s formal demand against Ackroyd for unpaid tax.
She accepted during cross-examination at the tax appeal hearing that the BBC ultimately restricted her from providing services to other organisations in the UK without its consent. Ackroyd was also contractually obliged to perform services, and the BBC was contractually obliged to pay monthly fees to CAM.
Dismissing Ackroyd’s appeal, tax judge Cannan said the arrangement involved a “high degree of continuity rather than a succession of short-term engagements”.
He added that Ackroyd’s seven-year contract of service with the BBC was a “pointer towards an employment contract”, and was “economically dependent on the hypothetical contract with the BBC”.
Julia Kermode, chief executive of the Freelancer & Contractor Association, told People Management that this case demonstrated “how complex employment status is”.
She added that it showed the importance of seeking advice from appropriately qualified professionals who have a good understanding of IR35 issues, and urged “freelancers and contractors to review their IR35 status” immediately, as they may face scrutiny by HMRC.
Andrew Hubbard, tax consultant at audit, tax and consulting firm RSM, said the case was a “useful reminder” as to how the IR35 tax rules work. The ruling “could cause businesses and contractors to review their arrangements, and HR departments to carefully consider their hiring practises”.
He also speculated that there may be an appeal from Ackroyd on this case.
Dave Chaplin, CEO and founder of contractor and freelancer portal ContractorCalculator, said Ackroyd believed she was victimised and made a “scapegoat” by the BBC. He said he had “a lot of sympathy” for her because the BBC “encouraged her to work this way” and, in his opinion, her advisers were “clearly out of their depth” when it came to understanding and applying the IR35 rules.
A BBC spokesperson said: “The BBC was not party to this case, and as was standard industry practice at the time the individual was engaged as a freelancer in 2001 and paid via their existing company.
“Until last year it was for individuals with service companies – rather than those engaging them – to determine their status for tax purposes. The use of PSCs is entirely legitimate and common practice across the industry as it provides flexibility for both individuals and organisations.
“An independent review conducted in 2012 found that there was no evidence that the BBC had attempted to avoid income tax or NIC by contracting in this way.”
The amended IR35 rules have caused huge disruption for HR teams in the public sector, and could soon impact on the private sector as the Treasury dropped its strongest hint yet that the rules would soon cover both sectors in October last year.