BBC IR35 judgment underlines importance of MOO
As we recently reported, after a six-year drought between late 2011 and early 2018 due to a lack of HMRC compliance activity, the Tribunal now has delivered yet a further IR35 judgment – and this is a major case.
The dispute involved three BBC presenters: Joanna Gosling, Tim Willcox, and David Eades. All three worked for BBC entities via Personal Service Companies. HMRC had raised assessments on each PSC over a period of years between 2006/2007 and 2013/2014, which the presenters appealed.
This is a long and complex ruling at 177 pages and, despite being heard over 9 days in May 2018 (making it the longest duration IR35 hearing by far) it has taken the Tribunal some 16 months to deliver its judgment. After all that deliberation, the outcome was a split decision between the two judges, the Chairperson, Judge Harriet Morgan considering that IR35 applied (bar two of the contracts, as described below) and the other Tribunal member Andrew Perrin considering that it did not apply at all. However, the Chairperson holds a casting vote, and as she considered that IR35 applied, that casting vote was exercised in favour of HMRC and the assessments were largely upheld.
The Tribunal approached the IR35 test in the familiar manner – adopting the well renowned principles set out in the Ready Mixed Concrete case of the requirement in an employment relationship for personal service, control and mutuality of obligations. It is this last feature that we want to highlight in this newsletter.
The Tribunal stated:
“…at the heart of the debate is whether the minimum requirements for there to be an employment relationship, under the mutuality and control tests, are met.”
We have previously reviewed the IR35 case law in relation to the importance of mutuality of obligations (“MOO”) since HMRC’s typical stance is that “MOO doesn’t matter” or, alternatively, that there is always MOO in any relationship as soon as any work is undertaken. As a result, MOO has never featured in HMRC’s Check Employment Status for Tax (“CEST”) online status tool: and this is fundamental because the reliability of the CEST tool underpins the IR35 reforms coming in April 2020.
In any IR35 dispute coming before the Tribunal however the Judges take a different view, and indeed in this very case the BBC presenters came close to a successful defence of their position on the basis of a lack of MOO between themselves and the BBC. In fact, in relation to two early contracts between David Eades and BBC World, the Tribunal ruled:
“We have concluded that Mr Willcox’s first two assumed contracts with World (as based on the actual contracts described…were not employment contracts due to a lack of the minimum mutuality of obligation required. Unlike under his assumed contracts with News, under these contracts, the BBC had no obligation to call on Mr Willcox’s services to present on World or to pay him a fee should they not do so except. It is clear that Mr Willcox was to be paid only for whatever slots on World he actually worked on.”
The circumstances throughout the contracts with the BBC were the same except for the fact that these specific two contracts, in the Tribunal’s view, lacked the necessary MOO due to a lack of obligation on the BBC to offer any work under the contract. This case is, therefore, the most explicit example of a defence to IR35 purely on the basis of a lack of MOO regardless of the other factors pointing towards IR35 and reinforces the importance of the test. With the benefit of hindsight, the parties could easily have agreed contracts so that this lack of obligation (which, according to the presenters who all described feeling vulnerable and anxious about whether they would have ongoing work from the BBC, seemed to be the case anyway) applied across them all – in which case the overall outcome to the case would likely have been very different indeed.
What is more surprising is that HMRC’s oft-quoted argument that there is always MOO in any relationship anyway was only raised on the second last day of the hearing of the case – and the Tribunal rejected their entitlement to even raise the argument on the basis that:
“…we consider it is not in the interests of justice and fairness for HMRC to be permitted to raise this argument at such a late stage.”
It seems quite incredible that the controversial argument on which HMRC have rejected MOO over so many years in the face of such ardent criticism is left to the penultimate day of a dispute which had been running for several years. In any event, the point was academic as the Tribunal considered there were sufficient mutual obligations within most of the contracts to offer and accept work.
This is the narrowest of victories for HMRC and given that the Tribunal was split as to the outcome an appeal by the presenters appears highly likely.
Whether or not such an appeal is successful, this judgment reinforces the fundamental importance of MOO and illustrates how careful consideration and documentation of the relationship the parties wish to adopt is essential in an IR35 defence.
A further crumb of comfort from the case is that, despite considering that IR35 applied, the Tribunal refused to accept HMRC’s argument that the parties’ advisers had been negligent in adopting the contrary view. This is important for three reasons: firstly (as here) it prevented HMRC extending the ordinary time limit for recovery of PAYE from 4 to 6 years so that some of the earlier assessment in this case were deemed out of time and invalid; secondly, it impacts upon HMRC’s entitlement to levy a penalty for an incorrect IR35 decision; and thirdly (and perhaps most importantly) it makes life extremely difficult for HMRC when seeking to impose any personal liabilities onto PSC director/shareholders under existing – albeit very limited – provisions or, potentially, the as yet unknown IR35 debt transfer rules which are set to accompany the April 2020 reform.
For contractual advice in relation to strengthening contracts from a MOO perspective, contact the Chartergates IR35 team.