Basic Broadcasting Ltd – Contractors, are you attuned to the IR35 fuss?

In the recent decision in HMRC v Basic Broadcasting Ltd, the Upper Tribunal effectively overturned the taxpayer’s initial victory in the First-Tier Tribunal, in the longstanding IR35 dispute concerning the provision of services to ITV and the BBC by well-known television and radio presenter, Adrian Chiles, through his personal service company BBL (Basic Broadcasting Ltd), writes Suraj Chauhan of employment law firm Chartergates.

While the matter has been remitted for rehearing in the FTT (which will undoubtedly take some time to be heard), here, exclusively for ContractorUK, I want to take a look at the real questions: why is the decision important and what does it mean for limited company contractors?

The decision against Adrian Chiles’ Basic Broadcasting Limited

Centred around the correct legal approach to the “business on own account” test, in contrast to initial observations affirming the FTT’s judgment as “methodical, thorough and detailed”, the UT fundamentally criticised the FTT’s approach as “wrong” and one which caused it to fall into the “same error as the Upper Tribunal in Atholl House UT”.

The UT clarified that the “business on own account” test can effectively be utilised in two different contexts within employment status and IR35: first, to determine the status of the contract in question and second, to describe the individual’s working practices outside of that contract, generally.

In highlighting that the context in which the test is considered will determine the relevance and weight to be attached, the UT found that the FTT’s approach to ‘stage three’ (consideration of the hypothetical contracts) of the test enshrined in Ready Mixed Concrete was “flawed”, since the FTT’s finding that outside of the contracts Mr Chiles was carrying on a business on his own account, led it to erroneously assume that the relevant contracts were entered into in the course of that business.

Importance of the BBL ruling

The decision is important for various reasons:

For an area of law – that’s IR35. which by the UT’s own admission, “continues to be in a state of flux” so much so that it presents taxpayers with a “moving target”, the decision underscores the importance of judicial certainty, not least by virtue of the UT’s adherence to the application of the principles established in Atholl House CA.

1. Building on Atholl House CA, the UT’s decision reinforces the overall judicial approach regarding the interpretation and application of detailed and focused points of law. It is hoped that the much-anticipated Supreme Court decision in HMRC v POGMOL will provide further clarity and legal endorsement of the principles pertinent to employment status and IR35.
2. The decision also highlights how cases in this area are turning on the minutiae and continue to raise nuanced and novel points. Thus, in addition to outlining the correct contextual application of the “business on own account” test (which was formally established more than 50 years ago in the decision in Market Investigations) within the context of employment status, the UT also emphasised the importance of “knowledge” of the parties, which despite brief reference in Atholl House CA, was not mentioned in Kickabout Productions Ltd v HMRC.

The Adrian Chiles case: implications for limited company contractors?

Fundamentally, limited company contractors should have awareness of the “business on own account” test, particularly because of the potential impact it can have on the overall determination regarding the applicability of the IR35 legislation.

Although the test may not be one of the traditional outside IR35 factors (mutuality of obligation, control and personal service), the caselaw reinforces its material relevance and argument value.

With that said, what can limited company contractors do to safeguard their position?

Although the nature of contracts will differ depending on the relevant services and from industry to industry, as a baseline, contractors should ensure that any contracts they agree are genuinely reflective of the practical arrangements with its clients.

Seven practical must-dos to keep IR35 at bay

Below are examples of some areas that could be reflected in the contractual terms (and given effect through practical arrangements): 

1. Ensure customer awareness regarding provision of services by contractor through business on own account;
2. Freedom to provide the same/similar services to others (concurrently or otherwise);
3. Responsibility for provision of own tools/equipment;
4. Payment on provision of invoices;
5. Requirement to correct defective services;
6. Payment for training/enhancement of skills;
7. Use of business paraphernalia (email address, website, business cards, letterheads, etc.)

While the above provides some useful factors to consider when agreeing contracts and could well help contractors with the ultimate IR35 determination, the factors mentioned could also have a commercial impact for each contractor.

It is therefore vital that contractors obtain appropriate advice to ensure that a favourable IR35 determination is not outweighed by significant commercial risk and instead the right balance is achieved.

Ultimately, contractors should be aware that in the event of an IR35 dispute, the outcome will depend on the understanding of the contractual terms, which together with the practical arrangements will enable the construction of the hypothetical contracts.