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There has been a series of IR35 enquiries into TV Presenters operating through their own limited companies, most notably, Christa Ackroyd, Lorraine Kelly, Kaye Adams, and Eamon Holmes have all been scrutinised by HMRC.
Whilst there has been quite a lot of activity in the tax tribunals over the last couple of years, HMRC’s success rate hasn’t been particularly good. They have only won a small number of cases, including the enquiry into Red, White and Green, Eamon Holmes’ limited company and Christa Ackroyd’s company CAM Ltd.
Despite this, HMRC remain relentless in their pursuit of tackling what they perceive to be disguised employment in the entertainment industry. The latest personality to be the subject of HMRC’s scrutiny was Paul Hawksbee, a well-known sports radio presenter operating through his company; Kickabout Productions Ltd.
This case is of particular interest because although the appeal by Kickabout Productions Ltd was accepted during The Tax Tribunal hearing (FTT) in 2018, the decision was not unanimous and was subsequently appealed by HMRC and heard in the Upper Tribunal (UT) in June 2020, where the decision was overturned.
Paul Hawksbee is a British sports radio presenter and comedy writer. He has presented The Hawksbee and Jacobs show alongside Andy Jacobs on Talksport since the station's beginning in 2000. It was Kickabout Production Ltd.’s contracts with Talksport which were in dispute by HMRC.
HMRC determined that for the periods under appeal the IR35 legislation applied to services provided by Kickabout Productions Ltd, on the basis that the hypothetical contract between Mr Hawksbee and Talksport would have been a contract of employment. The tax years under dispute were, 2012/13, 2013/14, and 2014/15, the liability for those years in terms of PAYE and NICs amounting to £53,368.
Mr Hawksbee disagreed with the determinations issued by HMRC, and the Tribunal hearing took place on 18-21 September 2018.
The written evidence considered consisted of two contracts between kickabout Productions Ltd, and Talksport. In addition to this, copies of discussions between Mr Hawksbee and Talksport, relevant Talksport working policies and the broadcasting code of the Office of Communications (“OFCOM”). Copies of contracts for other clients, for whom Kickabout Productions had worked, were also provided.
Interestingly enough, the tribunal considered HMRC’s guidance on self-employed workers working in the Entertainment Industry undertaking ‘behind camera’ roles, (the guidance for which is now held in HMRC’s Employment Status Manuals (ESM4000)). The guidance indicating that such roles can normally be regarded as self-employed subject to a number of conditions. However, during the hearing, this guidance was considered ‘not justiciable’ and was therefore not taken into account.
Witness statements were provided by Mr Hawksbee, James Buckland; Director of Strategy for Wireless Group and Liam Fisher; Deputy Programme Director and later Programme Director of Talksport (for the periods under appeal).
As with enquiries into other TV presenters, right of substitution is a moot point, because of the nature of the work. There is a requirement for personal service, and usually, it is not possible for a substitute to be provided. This certainly seemed to be the case with Paul Hawksbee. In contract two the schedule of services stated that the nature of the work is to:
“provide Paul Hawksbee to present the 13.00-16.00 show for live or pre-recorded transmissions for analogue and/or digital means for a minimum of 222 shows per year at the Talksport studios at 18 Hatfields, London and at any such other times, locations and stations as the Company may require from time to time.”
Mr Hawksbee’s work for Talksport was to present a show which was created by both Mr Hawksbee and Mr Jacobs known as The Hawksbee & Jacobs Show.
The tribunal notes state with regard to the format of the show that:
“Mr Hawksbee and Mr Jacobs have freedom to decide on the format and content of each show, and, subject to availability, the guests for each show, subject to four constraints. First, The Show must comply with OFCOM guidelines. Secondly, The Show must run adverts at set intervals and promotions for sponsors. Thirdly, The Show must have some news content as a requirement of Talksport’s OFCOM licence. Fourthly, The Show must run travel bulletins twice an hour, again as a condition of Talksport’s licence.”
Whilst there was some creative license over the provision of the work, there appears to be some control exercised over the work in adhering to certain rules and guidelines.
Additionally, a production team is used to ensure that regulatory guidelines are adhered to, they also oversee programming and monitor budgets and listening figures.
When on-air, the tribunal found that “control over what is said and when rests very much with Mr Hawksbee and Mr Jacobs”. Mr Hawksbee did have control over when to finish an interview, over the relevance of breaking news stories, and whether to include them in the show. With regard to activities outside of the show, whilst Mr Hawksbee was invited to some events by Talksport he was never obliged to attend and missed many such events due to work commitments.
The contractual terms clearly set out the numbers of days Kickabout Productions Ltd was required to work and that any days not worked must be agreed with the Programme Director. The days and hours of work were specified in the contract. However, this was in place to factor in preparation and the time when the show was to be broadcast.
The contract required Mr Hawksbee to make himself, “exclusively available for a schedule of preparation and rehearsal as we shall reasonably specify from time to time and for such promotional and publicity engagements as we may reasonably require from time to time”. Additionally, the contract stated that Talksport had priority over Mr Hawksbee’s services.
The standard terms and conditions for presenters contained various provisions which had to be adhered to during the contract terms, two of which were to:
Perform the services "in co-operation with the Programme Director to whom the Presenter will report and in accordance with any budget production schedule which may be notified to the Presenter from time to time.”, and “(7) comply with all instructions of Talksport including but not limited to those involving editorial and production matters, artistic taste and judgment”.
There were two contracts in place covering the period under appeal and unlike contract 1, contract 2 did not contain any clauses which addressed Talksport’s right to control the services. HMRC argued that “a similar right of editorial control must be implied by necessity” in Contract Two. Whilst this view was not necessarily shared by the tribunal, it did accept that if any dispute arose over the content of the show, then the ultimate right of control would rest with Talksport.
Mr Hawksbee worked for Talksport on a series of 2-year contracts. The tribunal accepted Mr Hawksbee’s evidence that when negotiating renewals of the contract, there was no guarantee or certainty of the contracts being renewed.
The contractual terms indicated that Mr Hawksbee could terminate the contract by providing 4 months written notice. Talksport could, however, terminate the contract immediately without cause.
In Kickabout Production’s appeal, mutuality of obligation was not felt by the judges to have any significant bearing in determining employment status in this case and it was stated that:
“…the dilemma which arises from simply accepting HMRC’s broad principle, that mutuality does not require either the obligation to offer work or the obligation to accept it, is that it renders mutuality of very little assistance in distinguishing between service and services. If I offer to pay you if you perform certain services for me, and you can decide whether to do so, on its face that appears consistent with either employment or a contract for services”.
HMRC’s understanding of MOO is rudimentary, limited to “an offer and acceptance of work”. This is a view which has received heavy criticism. HMRC stressed the fact that Mr Hawksbee had presented the show for 18 years, whilst this was considered relevant by the tribunal, they did not consider it to carry the weight indicated by HMRC. This was not only because work was not guaranteed by Talksport, but also Kickabout Products Ltd was not always completely dependant on its contract with Talksport for its source of income.
Mr Hawksbee has worked as a comedy scriptwriter since 1985 and has worked for other clients, including BBC, ITV, Dave, and Avalon. However, for the 3 years under appeal, the work for Talksport amounted to 90% of Kickabout Production’s income. For the years prior to the period under appeal, the work for Talksport amounted to 70%.
The contractual terms indicated that although Mr Hawksbee could work for other clients, specifically for other television broadcasters and commercial entities, Mr Hawksbee could not work for any other UK radio broadcaster.
It is a common misconception among contractors that undertaking concurrent work with several clients is sufficient to be deemed as outside of IR35. This is not the case, particularly where the main source of income is derived from one client.
When looking at the relevant criteria to be considered, with regard to deciding on employment status, the tribunal expressed the difficulties it faces due to the lack of clarity over the legislation and archaic case law.
“In its “Good Work Plan” published in December 2018, The Government stated its intention to “legislate to improve the clarity of the employment status tests reflecting the reality of modern working relationships”. The reforms to the off-payroll working rules are also due to be implemented next year. In our view, increased clarity is badly needed. We were referred to and considered over 50 decisions relevant or said to be relevant to the issues before us, often decided some time ago when working practices may have been very different. In addition, two of 7 the leading authorities, Ready Mixed Concrete and Market Investigations, are some 50 years old, with the terminology of “master and servant” more redolent of another era. The resultant uncertainty in relation to employment status is highly unsatisfactory.”
However Ready Mixed Concrete 1968 was cited despite its age, highlighting the three key employment status tests: Right of Substitution/Personal Service, Control and Mutuality of Obligation.
Market Investigations Limited v Minister of Social Security [1969] was also cited to consider the importance of the operation of a genuine business, in determining employment status. However, Hall v Lorimer was discussed alongside this case, where the Judge in the Court of Appeal, had warned that the rules should not be applied too rigidly.
"The facts as a whole must be looked at, and what may be compelling in one case in the light of all the facts may not be compelling in the context of another case.”
In considering control, HMRC cited more recent case law; Various Claimants v Catholic Child Welfare Society [2013], attempting to put forward the argument that it is no longer necessary to consider control over “what, how, when and where” but only over “what” the individual does:
“Today it is not realistic to look for a right to direct how an employee should perform his duties as a necessary element in the relationship between employer and employee. Many employees apply a skill or expertise that is not susceptible to direction by anyone else in the company that employs them. Thus, the significance of control today is that the employer can direct what the employee does, not how he does it.”
However, the Tribunal did not accept this view and that the passage referred to above, “…must be seen in the context of the highly unusual facts and issues involved in the case”.
In constructing the hypothetical contract, the tribunal quoted Tilbury Consulting v Gittins which stated that:
“The legislation calls for a two-stage exercise. The first is to find the facts as they existed during the period covered by the decision. The facts to be found are those that serve to identify the 'arrangements' involving the intermediary and the circumstances in which those arrangements existed, and the nature of the services performed by the 'worker'. The second is to assume that the worker…was contracted to perform services to the client…and to determine whether in the light of the facts as found [the worker] would be regarded as [the client’s] employee.”
The appeal was upheld by the tax tribunal, Mr Hawksbee was considered not to be employed. HMRC attempted to argue that mutuality of obligation was in existence and that Talksport had a right of control over Mr Hawksbee. They drew comparisons with the case involving Christa Ackroyd.
“For a skilled person, such as Mr Hawksbee, an absence of control as to the detailed way in which work is performed is not inconsistent with employment. Mr Hawksbee’s contentions as to his degree of practical autonomy were very similar to those advanced by the taxpayer in Christa Ackroyd Media Limited v HMRC [2018] UKFTT 69 (TC), in which the FTT found that the BBC retained the contractual right of control consistent with an employment relationship. The limits of Talksport’s practical control of Mr Hawksbee at the point of delivery are the same as they would be for an employed presenter.”
HMRC also argued that Mr Hawksbee was not in business on his own account, there was no right to provide a substitute or any opportunity to profit from sound business management.
It was argued by HMRC that the contract was “one of regular, predictable and substantial employment by Talksport”.
In contrast, it was argued by Kickabout Productions that mutuality of obligation was not in existence, that Talksport lacked sufficient control over the services, that Mr Hawksbee was in business on his own account, and that Mr Hawksbee was not part and parcel of Talksport.
“In practice, Talksport did not exercise sufficient control over Mr Hawksbee to make it his employer. He was not controlled in the preparation and research of The Show; he decided the content and shape of The Show; he could arrive at the studios whenever he chose before The Show was due to go on air; the pre-show meeting was minimal and confirmed choices made by Mr Hawksbee; he did not attend any post-show meeting, and he was not subject to appraisals”.
It was also argued along the same lines as in the case involving Lorraine Kelly, that Mr Hawksbee was engaged to create the show and created a product for a set fee.
The tribunal concluded that, although there was a mutuality of obligation, the fact that Talksport were not obliged to provide work pointed away from employment. The tribunal felt that Mr Hawksbee did have a “high degree of control over the content and format of each show”, but that “Talksport had the ultimate right of control over how Mr Hawksbee performed his services.” Both of these factors were not considered to be conclusive in isolation. When considered alongside a lack of any employment rights, payment being restricted to a rate per show without any bonus or retainer, and Mr Hawksbee not being part and part of the organisation, it was determined that the relationship was not considered to be one of employment.
It is important to note that the decision on this case was not unanimous and made by the casting vote of Judge Scott. The tribunal notes contain an appendix detailing Mr Baker’s reasons for not agreeing with the decision.
“Looking at the picture as a whole, my conclusion is that if Mr Hawksbee had presented The Show for the periods under appeal under a contract direct with Talksport, he would be regarded for income tax purposes as an employee of Talksport. I acknowledge that my colleague has the right to exercise his casting vote and so the decision of this Tribunal is the other way.”
This perhaps made HMRC’s decision to appeal the case relatively easy. HMRC’s appeal to the Upper Tribunal was heard on the 16th and 17th of June 2020. A summary of HMRC’s appeal can be found below.
The Upper Tribunal made specific reference to the fact that the decision made previously was on the casting vote of Judge Thomas Scott and that the other Tribunal Member on the panel; Mr Baker did not agree with the decision.
“We consider that, in the context of the contract as a whole, the express engagement of KPL for a fixed period to provide the Services was sufficient to constitute a binding commitment by Talksport to provide at least some work.”
One of the main reasons for the appeal was that HMRC considered that the First Tier Tax Tribunal had made ‘errors of law’ when making its conclusions with regard to mutuality of obligation, specifically that it was wrong to conclude that the contracts in place demonstrated no obligation on the part of Talksport to provide Mr Hawksbee with work.
The Upper Tribunal stated of both contracts relating to Mr Hawksbee’s services for Talksport that:
“We consider that, in the context of the contract as a whole, the express engagement of KPL for a fixed period to provide the Services was sufficient to constitute a binding commitment by Talksport to provide at least some work. There was no need for a separate offer of particular pieces of work, given the engagement to carry out the Services for a fixed term, …. No further express clause was needed to constitute an obligation on Talksport to provide Mr Hawksbee with some shows to present.”
With regard to both contracts in place, the Upper Tribunal expressed that the First Tier Tax Tribunal had ‘erred in law’ in determining that the contracts placed no obligation Talksport to provide work to Mr Hawksbee. The contracts did in fact place obligation on Talksport to provide 222 shows for Mr Hawksbee to present.
The Upper Tribunal ‘set aside’ the decision made by the First Tier Tax Tribunal, and considering the criteria set out in the Ready Mixed Concrete case, concluded that Mr Hawksbee was employed for tax purposes, as there was an obligation on Talksport to provide work. It was considered that Talksport did have sufficient control over the services for a relationship of employment to exist.
There is much to learn from this case – one of the most significant issues raised is the importance of the contractual terms. In this case, contract one differed from contract two, this led to ambiguity over the requirements and expectations of both parties. It is crucial to ensure that contracts reflect the reality of the actual working arrangements and that there are no significant differences in contracts for the same work, unless this does reflect changes in the services and therefore differences in the working practices.
The importance of mutuality of obligation is raised yet again in this case, highlighting the vital importance of MOO in determining employment status and emphasising the shortfalls of HMRC’s CEST tool which will never be reliable until this anomaly is addressed.
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