Christa Ackroyd, a ‘Look North’ presenter for BBC1, was recently found to be operating inside IR35 and ordered to pay a whopping £419,151 in tax and NICs.
She was working for the BBC via her Personal Service Company (PSC), CAM Ltd, from 2006/7 to 2012/13, during which time she also had a small number of other clients including the Sunday Express newspaper.
However it was found by the tribunal that almost all of her working time during the aforementioned period was spent working for the BBC, therefore she was not ‘in business on her own account’ and in turn was ‘economically dependent’ on the BBC.
The tribunal also did not accept that Ackroyd had ‘day to day editorial control over her work’, as a BBC editor decided which stories were covered and in what order.
Despite the fact that Ackroyd was operating via a limited company upon the insistence of the BBC, and she did not have any statutory rights, a line manager, appraisals or even her own desk, the First Tier Tax Tribunal (FTT) judgement ruled that ‘it was a 7 year contract for what was effectively a full-time job’.
Factors that affected Christa Ackroyd’s IR35 status
IR35 status is determined by a series of factors, including the actual contract itself, right to substitution, control, financial risk and payment, and mutuality of obligation. Some of the factors affecting Ackroyd’s IR35 status in this case were that:
- The BBC imposed restrictions on her non-BBC work
- They vetoed any right of substitution
- A BBC editor decided who she interviewed, what stories she covered, and when they were broadcast
- Her limited company business did not take any financial risk as the BBC was contractually obliged to pay her on a monthly basis
These are just a few of the factors that went against her in the judgement.
What did the BBC have to say about it?
A BBC representative contacted ContractorUK with the following statement: ‘The BBC has always engaged a large number of freelancers on a flexible basis, altering roles or hours at short notice. In almost all cases there has been little HMRC guidance to help clarify the tax status of such roles in the media industry.
‘The use of personal service companies is legal, complies with tax legislation and should not result in any avoidance of the tax or NIC due to the Exchequer. The BBC’s use of PSCs was reviewed independently by Deloitte in 2012, which found no evidence of tax avoidance or individuals being forced to move from staff contracts onto PSCs.
‘If we engage someone through a PSC on a freelance basis, they usually get a higher gross fee (with no tax and NIC deductions) to reflect that they take the commercial risk of being freelance, assume responsibility for ensuring they pay the correct amount of tax and NI, and do not receive the enhanced pension and other benefits they would receive as a staff member on a lower salary. Individuals with a PSC usually engage an accountant to file accounts and make the correct assessments for PAYE and NICs; their accountant should have been advising them on the implications of IR35. We have always advised people to take independent advice.
‘The BBC notifies HMRC annually of what is paid to PSCs (and individuals associated with them). Since April 2017, off-payroll working rules applicable to public sector bodies mean the BBC must now assess the employment status of everyone it engages, either directly or through a PSC, for tax purposes. It remains, however, the responsibility of every individual, as it is for anyone in the UK, to pay the right amount of tax on their income.’
What does this mean for the future of IR35 reform?
The Association of Independent Professionals and the Self-Employed (IPSE) believe that this case proves that HMRC can get their message across about ‘disguised employment’ without having to reform IR35 any further.
‘[This ruling] shows that the original IR35 legislation….can be made to work when HMRC actually enforce it’, it said, whereas the floated ‘drive to push all the liability onto the client from the outset is like using a sledgehammer to crack a nut.’
This refers to the Autumn Budget’s big pledge to extend the IR35 reforms of the public sector to the private sector too.
Others simply believe that HMRC’s inability to communicate efficiently means that there are still many contractors working inside IR35 that genuinely don’t believe it applies to them, and extending the new rules to the private sector will not improve this.
What should contractors learn from this case?
One of the key takeaways for contractors from this case should be to make sure that they get their contracts reviewed before commencing any work. And not by just anyone.
The tribunal heard that Ackroyd was given assurance from her accountant that everything was in order with her contract, and that she would be operating outside of IR35, which presses the point that the only person assuring you should be a legal IR35 expert.
Christa Ackroyd, by her own admission, believed that she had been operating as an independent contractor. And like Ackroyd, the majority of contractors who end up in this position genuinely believe that they have been operating outside of IR35 too. Yet Ackroyd has racked up a huge, life-changing amount of debt, and the same could easily happen to other contractors if they fail to fully understand IR35 legislation and how it could affect them.
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