Talksport presenter Paul Hawksbee shown the red card on IR35 status

The ‘IR35 brush up’ which the taxman was told to go away and do to refight Paul Hawksbee clearly hit a nerve, as HMRC has now turned its narrow defeat into a comfortable win.

In a £140,000 blow to the Talksport presenter, the Upper Tribunal found that it was wrong of a lower court to rule that Mr Hawksbee was not a disguised employee of the radio station.

Although HMRC lodged a total of eight grounds of appeal at the UT hearing, held in June via video phone, Mutuality of Obligation was the main “battle arena”, according to Chartergates.

'Assignment'

Assessing the new ruling, the law firm said despite a clause saying Talksport was not obliged to offer an ‘assignment’ to Mr Hawksbee’s Kickabout Productions Ltd, it was insufficient.

In fact, it was only in one of the two scrutinised contracts; ‘assignment’ was undefined, and the overall effect of the agreement was to oblige Talksport to provide at least some work.

“Judge Scott’s decision was that neither contract one nor contract two imposed any obligation on Talksport to provide Mr Hawksbee with work,” the UT said, referring to the initial ruling by the lower court (the FTT).

“[However] both contracts did require KPL [Kickabout Productions Ltd] to provide the services of Mr Hawksbee for a minimum of 222 shows per year.”

'Ought to have been clear and unambiguous'

The UT judge, Mr Justice Zacaroli reiterated: “No further express clause was needed to constitute an obligation on Talksport to provide Mr Hawksbee with some shows to present.”

Chartergates agrees, saying that if the radio station did not wish to have any obligation to offer work, “this ought to have been clearly and unambiguously recorded” in both contracts.

Qdos, a status specialist deduced: “[This case] goes to show how important it is that IR35 status is set with care and after careful consideration of the written contract.”

But another IR35 expert, Rebecca Seeley Harris, is worried about the considerations around Mutuality made by the UT -- Mr Justice Zacaroli, but also tribunal judge Jonathan Richards.

'Another unfortunate Mutuality episode'

“This [judgment reads as] another unfortunate episode in the life of MOO,” says Seeley Harris, who Her Majesty’s Treasury has previously enlisted to advise on IR35.

The boss of ReLegal Consulting explained her verdict yesterday: “I have long held the belief that Mutuality of Obligations is not an appropriate test in tax law cases for various reasons.

“And here, the UT allowed the appeal based on the wording in contract one and two. There was an obligation on Talksport to provide work and on KPL to provide the services but, this is standard contract law and plays right in to the hands of HMRC’s [wider] argument [about Mutuality].”

At the hearing, once they made their conclusions against Mr Hawksbee on Mutuality, the UT judges said many of HMRC’s other grounds of appeal no longer needed their scrutiny.

'Comes down to reaching an opinion'

Specifically, it is “unnecessary for us to consider any of the other grounds of appeal aside from grounds 1(b) and ground 4, because those other grounds challenge particular factors taken into account by the FTT in undertaking the third stage of the Ready Mixed Concrete test.”

Kate Cottrell, founder of IR35 advisory Bauer & Cottrell reflected last night: “The case does highlight the fact that IR35 status comes down to evaluating the facts and reaching an opinion, taking account of -- and interpreting, case law precedent.”

In both recent and historical IR35 cases, Control and Financial Risk have each played their parts in determining status, but this time around, both went against Mr Hawksbee.

'Sufficient framework of control'

On the weightier factor of Control, although Talksport was “in practice happy to give” him “considerable artistic freedom,” the radio station “ultimately…enjoyed the right to decide on the format or content of a particular episode of [Mr Hawksbee’s] ‘the Show.’”

“There was clearly a ‘sufficient framework of control’”, the UT judgment adds.

“[That] Talksport was content to give Mr Hawksbee a high degree of autonomy does not alter that conclusion since, as Langstaff J said in Wright v Aegis Defence Services(BVI) Ltd…the ‘control’ test is focusing on the right of control and not how, or if, that right was exercised in practice.”

'Slender'

On Financial Risk, while that too was found in his favour at the FTT, this time around the UT was not convinced.

“We do not consider that Mr Hawksbee would be taking material ‘financial risk’ under the hypothetical contracts or, to the extent he was, that this was anything other than a slender indication of self-employment status”.

Further departing with the prior tribunal’s findings, the UT found that Mr Hawksbee’s time served was not incidental in any stand-back test to gauge his status.

“The hypothetical contracts’ duration of two years, with four months’ notice of termination required, was an indicator of employment status and was not (as the FTT considered) a neutral factor.”

Mr Justice Zacaroli also noted: “Similarly, the fact that Mr Hawksbee had been presenting, or co-presenting, the Show for some 18 years pointed in favour of employment status.”

'Quite different from the typical IT contractor'

Length of engagement is not a test of IR35 status yet seeming to justify their finding, the UT judge cited Hall v Lorimer, in which the “continuity of a relationship” was regarded as an employment status indicator.

While limited company providers with long-standing clients might now be unsettled, apparently the standard IT contractor shouldn’t be.

“It’s important to note that a presenter’s contract and working practices are quite different from a typical IT contractor,” explains Qdos’ operations director Nicole Slowey.

“If and when working practices change -- which they may well over the course of an engagement, consider reviewing status again. It's better to be safe than sorry.”

'Dangerous approach'

And a review worth its salt, not CEST and definitely not an untried ‘solution’, according to Brookson Legal’s Matt Fryer.

“A common question I am being asked is ‘What tool should I use?’ This is a dangerous approach.

“Automated production of an employment status isn’t what case law requires,” he says. “This is the flaw with the free [HMRC] tool, which also applies to pay-for tools.”

Formerly a Revenue inspector, Ms Cottrell agrees. “There are currently thousands of ‘IR35 experts’ out there, with no experience of working and defending cases whatsoever and numerous magic ‘tools’ and solutions to make the subject appear easy to handle.

“It’s not [as] easy [as that],” she said. “Contractors should take great care when they pay for a service which gives the result they are looking for, rather than one that genuinely gives an opinion upon which, they can rely some years down the line.”

'Time to reframe'

She is not alone in considering that IR35 is nearing a sea change, as from April 2021, PSC contractors supplying mid-sized and large firms will lose the right to decide their status.

“With the private sector IR35 reform looming and HMRC entrenched in their position on MOO, there are likely to be many disputes of this particular nature ahead,” said Chartergates, reacting to Mr Hawksbee’s defeat.

“With a reprieve [due to covid-19] until April 2021, there is time for engagers and consultancies to review -- and if necessary, reframe -- their contractual obligations to one another.”