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HMRC is continuing its campaign of IR35 enquiries into a range of individuals who operate via personal service companies, particularly some high profile freelancers in the entertainment industry.
It has been common for broadcasters and production companies to engage individual actors and performers to provide services outside of PAYE, either via an agency, a limited or personal service company (PSC) or on a self-employed basis. As with most of the cases in the media sector, control seems to be the most significant factor and HMRC lost its recent case against radio host Paul Hawksbee because the FTT judge decided that it was not solely enough for the right of control to exist, but that right must be exercised in order to trigger the IR35 rules.
Of course, HMRC is making IR35 enquiries across many business sectors. In the recent case of George Mantides Ltd v HMRC, the company was providing the services of its director to two hospitals (Mr Mantides was a locum urologist at both hospitals). The first hospital simply had a booking contract via an agency for his services via his PSC, whereas there was a formal written contract with the second hospital.
Under IR35, it is necessary to consider the terms of a hypothetical total contract between the worker and the end client. The question was whether, under each of these hypothetical contracts, Mr Mantides would be considered employed by the relevant hospital or self-employed.
For both placements it was held there was control over where and when the work would be done. It was also held there was mutuality of obligation. However, only for the first was it held that IR35 applied because, in the second, the mutuality of obligation was weaker as there was an opportunity to terminate the agreement earlier and the fact that the contract with the second hospital gave the right to substitution.
IR35 enquiries going forward
Starting with the public sector, the reformed off-payroll workers rules have, since April 2017, required public organisations to assess if IR35 applies to their contracts with any PSCs. Despite this new approach, HMRC has not given up on cases that pre-date the change in rules.
Now that we have draft legislation to extend the off-payroll rules to private sector organisations from April 2021, a key question will be whether HMRC will enquire into PSCs where the worker is determined to be in deemed employment by the end user business under the new rules. In a factsheet published by HM Treasury alongside the draft legislation, there is a statement that:
“The reform is not retrospective. As was the case in the public sector, HMRC will focus on ensuring businesses comply with the reform for new engagements, rather than focusing on historic cases. HMRC will not carry out targeted campaigns into previous years when individuals start paying employment taxes under IR35 for the first time. Organisations’ decisions about whether workers are within the rules will not automatically trigger an enquiry into earlier years.”
While this is a statement from HM Treasury rather than HMRC, it is hoped that there will not be a swathe of historical employer compliance enquiries once the new rules have bedded in. However, with HMRC currently so active in pursuing historic IR35 cases, we may see a flurry of enquiries (based on existing data available to HMRC) launched before the new rules take effect.
Businesses using PSCs and other non-payroll labour should urgently review their processes and procedures to identify any historic risks – if only as a first step in preparing for the new rules from April 2021. For help and advice on any employment status issue please contact Nick Duffin or Stephanie Wilson.
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