The Upper Tribunal IR35 case of HMRC v Adrian Chiles’ Basic Broadcasting Ltd: explained

The TV presenter Adrain Chiles has lost the IR35 appeal brought by HMRC at the Upper Tribunal, in a judgment that holds interest if not implications for other limited company contractors, writes Rebecca Seeley Harris, founder of ReLegal Consulting.

For the uninitiated, HMRC is seeking to recover £1.7 million in tax and NICs payments from Chiles’ personal service company Basic Broadcasting Ltd ('BBL'). Initially, BBL won its case at the FTT but, after the judgment from Atholl House was handed down, the FTT accepted HMRC’s appeal.

Interestingly, the same barristers Adam Tolley KC and Marianne Tutin defended HMRC in both Atholl House CA and BBL UT.

The facts

The basic facts of the case are that Adrian Chiles’ services were provided to the BBC and ITV through BBL. He did, at the time, have other engagements and in fact this is part of the factual matrix that was considered in the appeal. The tax years were from 2012-13 to 2016-17.

For more background on the case at the FTT -- when BBL won, read 'Frightening' HMRC loses IR35 case to an in-business Adrian Chiles.

The ‘hypothetical’ contract

In considering the hypothetical contract, it is now well established that the court starts with the three-part test established in Kickabout Productions Ltd v HMRC.(‘Kickabout’) The three stages are:

(1)       Find the terms of the actual contractual arrangements and the relevant circumstances in which the individual worked.

(2)       Ascertain the terms of the “hypothetical contract.”

(3)       Consider whether the hypothetical contract would be a contract of employment or a contract for services.

In considering whether the hypothetical contract would be a contract of employment, the court then looks at the three-stage test in the precedent case of Ready Mixed Concrete. 

Ready Mixed Concrete

In the Chiles case, there was no dispute in front of the UT that mutuality of obligations and control were present but, it cannot be assumed because of that there is a contract of employment. 

So, it is the third stage of this three-step test -- ‘the third RMC stage’ -- that the court focussed on.

The position with regards to mutuality of obligations is still awaiting the judgment of the Supreme Court in HMRC v Professional Game Match Officials Ltd. The current position, however, according to the Court of Appeal in PGMOL is that the test of mutuality of obligation does not, on its own, determine whether an employment relationship exists. 

The test is met if there are mutual ‘work-related’ obligations within the individual engagement. This is more or less in line with HMRC’s thinking on mutuality -- that MOO exists where a worker provides their services and the engager is obliged to pay them.

Grounds for appeal

The appeal by HMRC was based on whether the tribunal had wrongly adopted the test of whether Chiles was ‘in business on his own account,’ instead of using the correct analysis required in the third stage of the RMC test.

In addition, HMRC submitted that the FTT did not correctly analyse the relevant terms of the hypothetical contract at that third RMC stage.

The central enquiry

The UT acknowledged that the FTT had focussed on the ‘in business on your own account’ test when they should have been keeping the terms of the hypothetical contract at the centre of the enquiry.

One of the main points was whether the BBC/ITV contracts were part of being ‘in business’ or whether they were outside of it. 

The UT also stated that HMRC could not interfere with the weighting of the terms of the hypothetical contract. The weighting of such terms was for the evaluative judgement of the FTT and beyond appeal.

Appeal allowed

The Upper Tribunal allowed HMRC’s appeal that the FTT had erred in law by adopting the wrong approach.

Having allowed the appeal, the UT then went on to consider the so called ‘knowledge issue.’

The Knowledge Issue

This ‘knowledge issue’ pointed to whether certain information was “known or reasonably available” to the BBC and/or ITV at the relevant time. This was something that had been discussed in Atholl House CA although not in Kickabout CA, which had been heard at the same time.

This argument is new and relates to a change in legal principle.

The point is particularly in relation to Chiles’ activities outside of the BBC/ITV and whether the FTT had erred by failing to establish whether there was actual or constructive knowledge of the BBC/ITV.

Conclusion

The end result (and indeed that upshot of HMRC winning and Chiles losing at the UT) is that the case has been sent back to the FTT to remake the decision. 

The case will be reconsidered by the same FTT judges but, with the new guidance from the Upper Tribunal. It may be, however, that the FTT will come to the same conclusion as they did the first time around despite the new guidance. 

And finally, the stress...

The UT acknowledged the stress that this long-running IR35 case is causing Chiles, and Judge Thomas Scott said the following: “It should not be forgotten that behind every personal service company is a person, and, as we have seen in this case, the uncertainty and financial exposures generated by the difficulty in establishing a clear and stable legal position continue to produce a very real human cost.”