IR35 has been in the news this month with the judgment against BBC Look North presenter, Christa Ackroyd who lost her appeal covering tax years 2006/7 to 2012/13, resulting in a tax bill for Christa of £419,151. It is the first IR35 judgment to emerge from a number of appeals involving television presenters operating through personal service companies.
Ackroyd had told the tribunal that the limited company model was in place at the insistence of the BBC. However, the tribunal judge pointed to the fact that the BBC could control what work Ms Ackroyd did; and judged that it was a seven-year contract for what was effectively a full time job.
IR35, which came into force in April 2000, was introduced to tackle the problem of ‘disguised employment’, ie. where organisations engage workers on a self-employed basis, rather than on an employment contract. This approach can provide significant savings, in terms of employers’ NICs; and also means that the organisation does not have to offer any employment rights or benefits.
There is plenty of case-law around IR35, but the rules of thumb are:
Control: what degree of control does the client have over what, how, when and where the worker completes the work
Substitution: does the client expect personal service by the worker, or can the worker send a substitute in their place?
Mutuality of obligation: ie. is the client obliged to offer work, and is the worker obliged to accept it.
We saw changes to IR35 in April 2017. If the client was in the private sector, the worker could decide if IR35 applied; whilst if the client was in the public sector, the client would decide if IR35 applied. This had a massive impact on the contracting and freelancing sector operating within the public sector. There is evidence that some public sector clients reacted by moving all of their contractors within IR35, which resulted in contractors facing hefty tax bills, and as a consequence increasing their fees.
The Chancellor made no mention of IR35 during his Autumn Budget speech. However, the accompanying document did include:
“The government reformed the off-payroll working rules (known as IR35) for engagements in the public sector in April 2017. Early indications are that public sector compliance is increasing as a result, and therefore a possible next step would be to extend the reforms to the private sector, to ensure individuals who effectively work as employees are taxed as employees even if they choose to structure their work through a company.
“It is right that the government take account of the needs of businesses and individuals who would implement any change. Therefore the government will carefully consult on how to tackle non-compliance in the private sector, drawing on the experience of the public sector reforms, including through external research already commissioned by the government and due to be published in 2018.”
We can only hope that the government’s research and consultation will be thorough, to understand the impact of April’s IR35 changes, ensuring that if IR35 is changed, it will be done fairly within the spirit of the original objective.