Author: Mike Tremeer
Ms Ackroyd was engaged to provide her presenting services to the BBC via her personal service company, Christa Ackroyd Media Limited (CAML) between 2001 and 2013. It appears that Ms Ackroyd was encouraged (if not required) to use this “independent contractor” structure by the BBC – presumably to avoid income tax and national insurance liabilities itself. It is understood that a number of other BBC presenters operate using similar arrangements.
Such an arrangement will sound familiar to many employers. Individuals, particularly senior executives and other experienced operators, often wish to be engaged as independent contractors, rather than employees. It is usually thought that such a structure will allow the individual more flexibility, including in relation to their tax arrangements.
Certainly there are cash flow advantages to the individual as self-assessment tax payments are typically made to HMRC twice per year, rather than every month as is the case for employees. And if payments are made to the individual by their service company as dividend payments, often a lower tax rate applies.
Ms Ackroyd operated in this way – apparently leaving the administration of the arrangement to her accountant and other advisers. Tax was paid on dividend payments that she received, but not at the rate that would have been paid if her BBC fee had been paid to her as salary.
HMRC investigated and considered that, but for the existence of CAML, Ms Ackroyd would have been considered an employee of the BBC. Accordingly, it considered that it should have received payments of income tax and national insurance contributions on all payments that CAML made to Ms Ackroyd under the IR35 legislation.
Choosing to perform work through a personal service company (or a similar type of intermediary) has been a risky business for a number of years now. HMRC wised up to this “creative” way of working in the early 2000s and introduced IR35 which has continued to evolve since. IR35 effectively operates to shift the obligation to make deductions of tax and national insurance from the client (in Ms Ackroyd’s case, the BBC) to the intermediary company (CAML) in certain cases.
The risk is increased if the individual concerned provides services to a single “client” in a consistent way so that the arrangement looks like an employment relationship in all but name.
In the case discussed above, the requirement that Ms Ackroyd was to be made available to the BBC for up to 225 days per year, the fact that the fees received by CAML from the BBC made up 98% and 96.5% respectively of its total income in each of two years, and the evidence that Ms Ackroyd worked in much the same way as other individuals who were recognised as BBC employees, were all factors which led to the tribunal determining that IR35 applied.
Again, we expect that those facts will sound familiar to a number of businesses and employers.
Since April 2017 public authorities have had to consider whether IR35 applies to a working arrangement with the contractor, not the intermediary company. If it does, payments to the intermediary company must be made to the contractor after deductions of tax and national insurance as appropriate.
A consultation process to consider whether a similar regime should apply in the private sector is due to take place in 2018.
If implemented, any private business which currently engages individual contractors via intermediary companies will need to assess whether those individuals are likely to be found to be employees of the intermediary company (or of the client itself).
If so, any perceived benefit in engaging the individual as a contractor rather than an employee is likely to disappear. This will bring certainty to a number of contractual arrangements that currently involve a level of risk for all parties. But those individuals who currently take advantage of the cash flow advantages and lower tax rates previously enjoyed, and employers attracted by the greater flexibility offered by engaging contractors rather than employees with their various statutory protections, could be left disappointed.
Mike Tremeer, Partner, Fladgate LLP (firstname.lastname@example.org)