Tax  

HMRC wins IR35 court case against freelancers

HMRC wins IR35 court case against freelancers

HM Revenue & Customs has won a case against three BBC freelance presenters who were considered liable for income tax and national insurance bills under IR35 legislation.

But the taxman won’t be able to recoup the total sum owed by David Eaves, Tim Wilcox and Joanna Gosling, because the judges considered the presenters and their advisers had acted in good faith, contrary to HMRC’s claims.

In a first tier tribunal decision, the judges said there was “sufficient mutuality and at least a sufficient framework of control to place the assumed relationships between the BBC and the presenters in the employment field”.

IR35 legislation is an anti-tax-avoidance rule that applies to all contractors and freelancers who don’t fall under HMRC’s definition of being self-employed.

It is designed to crack down on workers supplying their services to clients through an intermediary, such as a limited company, but who would be an employee if the intermediary was not used.

It was first introduced in 2000 by then-chancellor Gordon Brown to crack down on self-employed contractors who were paying themselves through dividends from their own limited companies. 

Despite ruling in favour of HMRC, the judges said that some of the taxman's determinations weren’t valid, as they were issued out of time.

For these to be considered, the defendants or their advisers would have to have acted carelessly, which the judges didn’t agree with.

Dave Chaplin, chief executive of Contractor Calculator, which provides guidance for freelancers, argued “this should not be a story of well-paid presenters trading through companies to avoid tax”.

Instead, it should be “about the BBC and other broadcasters pressing hundreds of existing presenters to form companies because it continued to give the broadcaster the flexibility it desired, whilst circumventing its own future tax risk by passing it to the presenters,” he noted.

He said: “The positive note for all contractors is that the presenters, who took proper advice, were not judged as being careless with their tax affairs, so the tax window extends back just four years, and not six.”

Seb Maley, chief executive of tax consultancy Qdos, noted it was of real concern the presenters could be made to “pay vast sums to HMRC, despite the judges finding they were ‘forced’ into working as self-employed by the BBC”.

“The onus should be on the engager to settle, not the presenters, who it's very difficult to label as guilty,” he noted.

According to Mr Maley, there were around 100 other BBC presenters in the same boat, which could see similar verdicts in time.

He said: “However, each case needs to be examined on its own merit. And if it’s decided the BBC left someone with no choice but to work outside IR35, then these individuals must be helped financially.”

The BBC has saod it wants to help presenters resolve any historic tax issues they face.