The Commissioners for HMRC v S & L Barnes Limited
[2024] UKUT 262 (TCC)
The Commissioners for HMRC v Basic Broadcasting Limited
7 June 2024
[2024] UKUT 165 (TCC)
Upper Tribunal
A TV presenter used a company to get paid. The taxman said he was an employee and owed more tax. A court agreed the taxman's first attempt to prove this was wrong because it asked the wrong question. The court sent the case back for another try, this time focusing on the contract's details and what both sides knew at the time.
Key Facts
- •Adrian Chiles provided services to ITV and the BBC through his personal service company, Basic Broadcasting Limited (BBL).
- •HMRC issued determinations for unpaid income tax (£1,249,433) and NICs (£460,739) based on IR35.
- •BBL appealed, and the FTT allowed the appeal.
- •HMRC appealed the FTT's decision to the UT.
- •The central issue was the Third RMC Stage of the employment status test.
Legal Principles
Purpose of intermediaries legislation (IR35): to prevent individuals from reducing tax and NIC liabilities by using a corporate structure.
R (Professional Contractors Group & Others) v IRC [2001] EWCA Civ 1945 at [51]
Three-stage analysis for IR35: 1. Terms of actual contracts and circumstances; 2. Terms of hypothetical contract; 3. Whether the hypothetical contract is a contract of employment or for services.
Kickabout Productions Ltd v HMRC [2022] EWCA Civ 502 at [7]
Ready Mixed Concrete (RMC) test for employment status: Mutuality of obligation, control, and consistency of other contract provisions with a contract of service.
Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497
At the Third RMC Stage, factors considered can extend beyond the contract's terms, but must be known or reasonably available to both parties.
HMRC v Atholl House Productions Limited [2022] EWCA Civ 502
Whether an individual is 'in business on their own account' can be relevant at the Third RMC Stage, but the focus should be on the terms of the specific hypothetical contract, not a comparison with other work.
HMRC v Atholl House Productions Limited [2022] EWCA Civ 502
Outcomes
The UT allowed HMRC's appeal on Ground 1.
The FTT erred in law by adopting the wrong approach to the Third RMC Stage, focusing on whether the contracts were part of Chiles' broader business rather than on the terms of the hypothetical contracts themselves.
The UT allowed HMRC's appeal on the 'knowledge issue'.
The FTT failed to determine whether factors relevant to the Third RMC Stage were known or reasonably available to ITV and the BBC, as required by Atholl House CA.
The FTT's decision on the Third RMC Stage was set aside and remitted to the FTT for reconsideration.
The errors of law were material, requiring the FTT to re-evaluate the Third RMC Stage with the correct legal framework, including the knowledge issue.