HMRC Winning the War Against Personal Service Companies?

What has happened?

Last month Christa Ackroyd, the former BBC presenter, lost a First Tier Tribunal hearing concerning her engagement with the BBC through a personal service company. The First Tier Tribunal ruled that her contract with the BBC was caught by IR35, and her personal service company must therefore pay income tax and national insurance of £420,000 covering the period 2006/07 to 2012/13. Although IR35 was introduced in 2000, this is the first ruling on the matter since 2011, and the first to be won by HMRC for nearly ten years.

Key Points

The tribunal considered the application of the relevant employment/self-employment principles and agreed with HMRC that the nature of Ackroyd’s engagement with the BBC was that of employment rather than self-employment, the key factors being:

• Her personal company was not allowed to provide a substitute for Ackroyd.
• Under the contract Ackroyd was prohibited from providing services to other companies or organisations.
• The BBC controlled the work that Ackroyd performed by dictating content etc.
• The contract had a length of seven years which indicated a stable, regular and continuous arrangement.  This coupled with the fact that only a small proportion of her income was based on ratings (or performance), meant she bore very little risk.
• It was found that there was a mutuality of obligation as Ackroyd was required to provide services on at least 225 days per year and the BBC was contractually obliged to pay monthly fees to Ackroyd’s personal service company based on the number of days worked.
• Ackroyd had a BBC email address and attended BBC training which suggested she was “part and parcel” of the BBC.

How it affects you?

The fact that IR35 has seemingly been off the radar for so long may have created the impression, for some, that HMRC are not serious about enforcing these rules.  It is however clear from this judgement, and measures introduced in 2017 affecting contractors in the public sector, that HMRC are serious about clamping down in this area, and those potentially affected should not be complacent if they wish to avoid being faced with a large tax bill and penalties.

What you can do?

If you provide your services through a personal service company and consider that your engagements may fall foul of IR35 we recommend that you speak to one of our chartered accountants in Grimsby. We can conduct a full review of your engagement and activities and advise whether you are IR35 compliant.