HMRC wins first IR35 case since 2011

Former BBC presenter Christa Ackroyd lost her appeal against the tax authority when the FTT ruled that her personal service company, Christa Ackroyd Media Ltd, owed income tax and national insurance contributions (NICs) amounting to £420,000 for the tax years 2006/07 to 2012/13. This judgment is the first of a number of IR35 appeals involving television presenters who operated through personal service companies, following the mass IR35 clampdown in October 2016, with further rulings likely to arrive later this year. It is also the first IR35 case to be reported in seven years, and the first comprehensively won by HMRC since 2009.

Ackroyd co-presented the BBC's Look North programme and was engaged through her company, Christa Ackroyd Media Ltd, by the BBC on a seven-year contract to provide her services up to 225 days per year. It was reported in 2013 that after a three-month period spent off air, Ackroyd had been sacked by the corporation following an alleged dispute surrounding her freelance status and payment of tax. Court documents showed that the BBC terminated the arrangement following HMRC’s formal demand against Ackroyd’s company for unpaid tax, despite the insistence by the BBC that she offer her services through a limited company.

Ackroyd contended that her status for the purposes of the IR35 legislation was that of a self-employed contractor, and there was no further tax liability on the part of CAM Ltd. HMRC argued that hypothetically she was engaged under a contract of service rather than a contract for services, therefore she should be treated as an employee of the BBC. The IR35 rules were thus in point, and her company was required to pay the appropriate amount of tax and NICs based on here deemed employment. The FTT sided with HMRC, deciding that Ackroyd could not fairly be described as being in business on her own account. The ruling stated that she was “economically dependent on the hypothetical contract with the BBC”, which took up most if not all of her working time.

HMRC finds it hard to police IR35 Compliance

Despite a six-fold increase in IR35 investigations during the first half of this tax year, HM Revenue and Customs has failed to turn up any compliance failures by contractors, according to data obtained by tax and accounting group Bloomsbury Professional. HMRC ramped up its investigation into "disguised employment" after it was alleged that a number of senior public sector figures had illegitimately received income through personal services companies to avoid liability to personal income taxes and national insurance contributions.

During the first six months of the tax year, 193 new investigations were launched but these have yet to yield a single penny for the tax man. This is despite a massive hike in enforcement activity, up from 59 investigations for the full tax year 2011/12. Martin Casimir, Managing Director at Bloomsbury Professional, commented: “HMRC has been stung into action by a handful of very high profile cases where individuals and employers may not be IR35 compliant. Ordinary contractors and freelancers are now dealing with the fallout.”

What is the settlements legislation?

Sharing dividend income from a limited company with a non-fee-earner has been a classic tax avoidance tactic employed by consultants, contractors and locum doctors who operate through limited companies. It is useful as it allows the use a non-fee-earner’s tax allowances and progressive taxation rates in order to save significant tax.

However, unless the non-fee-earner is a spouse or civil partner qualifying for a spousal exemption, HMRC could treat all the company’s fee income as that earned by the contractor, and tax them accordingly. The settlements legislation will apply if a contractor gives shares in their contractor limited company to a partner, family member or friend who does not work in the business yet receives an income.