You might not know his name, but Paul Hawksbee has caused a bit of a stir in the tax world. This is perhaps surprising given he is a TalkSport radio presenter, but such is tax – it influences all aspects of life. Indeed, maybe my next article will be about an exotic dancer’s tax return…
Returning to Mr Hawksbee. Last month HMRC successfully appealed the First Tier Tribunal decision that had originally gone in Mr Hawksbee’s favour, meaning that the Upper Tier Tribunal overturned this decision and instead decided that Mr Hawksbee was effectively an employee of TalkSport and he (or his company) now owes a reported £140,000 in taxes.
The employment status of workers has for a long time been a contentious issue. HMRC first introduced its IR35 rules in 2000, but it only recently has had much success enforcing its position through the courts. The principles underpinning the law are sound. What the legislation looks to achieve is to prevent someone from leaving employment on the Friday only to return on Monday operating through a company. The main reason this is so egregious to HMRC is that this reduces the cost of tax, in particular by reducing the National Insurance payable and allowing more expenses to be claimed. However, as ever in taxation, in practice it is not that black and white.
In Mr Hawksbee’s case, he has been presenting a show with TalkSport – the Hawksbee and Jacobs show – since 2000 (coincidentally as long as the IR35 legislation has been about). However, his services were engaged through his personal service company, Kickabout Productions Limited (“KPL”) (which was incorporated in early 2001). The show is every weekday from 1pm to 4pm. The contracts in both relevant tax years required for KPL to provide Mr Hawksbee’s services for 222 episodes per a contract year. (Incidentally, not much was made of the fact that this is equivalent to a full-time employment less the eight English bank holidays and 30 days of holiday.)
Despite the legislation, the courts are still heavily reliant on precedents set down in previous decisions (what is known as “case law”). Somewhat amazingly, some of these cases are over 50 years old, yet the issues discussed back then are apparently still relevant to the modern workplace. Because of this, there are tangle of issues to consider when evaluating if someone is or is not an employee, but the main subjects are:
- Mutuality of obligation – There is typically an employment relationship where the employer must provide the worker with further work and the worker must do it. In other words, once a task is complete, the employer is obliged to provide the employee with more work and the employee is obliged to perform the work. Someone who is not employed can do whatever the want when their task is complete, and the engager is not obliged to offer any more work.
- Control – The employer has a significant control over what the employee does, when they do it, how they do it etc.. Someone who is not employed is usually given a required outcome and the rest is up to them.
- Economic risk – Most employees have stable, guaranteed income and the successful outcome of the task does not impact this. Someone who is not employed must deliver the task in order to be paid and cannot guarantee this income will be recurring.
- Integration – Employees are “part and parcel” of the employer’s organisation. They attend training, receive holidays, pensions and benefits, are provided with equipment to perform their task and are invited to the Christmas party. Someone who is not employed is less integrated in the day-to-day business and has to consider their own pension, holidays and equipment when evaluating how much they charge (another element of economic risk).
- Substitution – An employee is not able to send in a substitute to work should they be too busy or ill. However, subject to the contract, it is not uncommon for someone who is self-employed to send in a substitute who can complete the work on their behalf.
These are some of the key examples, but there are multiple other criteria and subsets of the above to consider when reviewing an employment status. Furthermore, just because something is not present does not avoid an employment status. For example, some employees, such as footballers and heart surgeons, are very difficult to control as they perform their duties of employment, but they would still be considered employees. The relationship must be viewed in the round.
Without going into the details of his case, Mr Hawksbee initially persuaded the First Tier Tribunal that there was no mutuality of obligation in the contract as TalkSport did not have to offer him all 222 shows in the year. However, the Upper Tier Tribunal disagreed, with a main point highlighting that the contract included a four-month notice clause which implied the 222 episodes would be offered unless this clause was activated (or one regarding Mr Hawksbee’s suspension).
This decision is important as Upper Tier Tribunal case decisions bind the lower court. While each cases will have unique circumstances, it now means any case taken to court could be influenced by this decision. This is the second major case of a similar nature to be won by HMRC at the Upper Tier Tribunal. Last year, a BBC Look North presenter, Christa Ackroyd, lost her appeal in the Upper Tier Tribunal. Similarly, she presented a daily TV news show and the majority of her income came from the BBC. Her initial case and appeal were lost as the courts felt she could not demonstrate sufficient control (or rather, the BBC held too much control).
There have been plenty of similar cases in the First Tier Tribunal in the last few years, with notable wins for Lorraine Kelly and Kaye Adams, but defeat for Eamonn Holmes. It remains to be seen if any of these will appealed, but I believe HMRC have appealed the decision in Ms Adams. I expect they will be buoyed by the results of the appeal against Mr Hawksbee. It remains to be seen if Mr Hawksbee or Ms Ackroyd will appeal their decisions to the court of appeal, but naturally, they risk incurring further costs and will need to assess their likelihood of success.
Going forward, the landscape is changing for companies with respect to IR35. Previously, it was up to the worker, i.e. the personal service company, to decide if they fell in the IR35 tax net. However, in 2017 the legislation was revised so that public companies, as the engager, now has to assess if their workers operating through companies are effectively employees. This means institutions like the NHS and the BBC are responsible for assessing the employment status. There have been reports of hospitals putting all their consultants on the payroll (which, perversely, only increases the cost to the taxpayers in general). Furthermore, while it might have been the case before 2017 anyway, the BBC salary reports show that its regular radio DJs are normally on the payroll (e.g. Steve Wright, Zoe Ball and Lauren Laverne).
These rules will be extended to private companies from 6 April 2021 (it was meant to be 6 April 2020, but Coronavirus delayed that). This will only be for medium and large companies, but this will impact many radio stations and production companies. Indeed, TalkSport is sufficiently large that it will be responsible for assessing the employment status of its presenters (although I expect it has already been reviewing this in view of the Hawksbee case). This does raise an interesting point – to what extent did the engagers (TalkSport, ITV, BBC etc.) push the workers into these setups and will they now be compensating them for the additional taxes due? Often the worker is sold this setup with the saving of taxes, but they are losing valuable employment rights in doing so. Now they have the added risk of HMRC intervention.
It appears HMRC now has an appetite for this type of case and you do wonder whether they will be looking at other scenarios. For example, it has long been understood actors are self-employed (except soap actors). However, what about a theatrical actor with a long association with a big West End show? Surely there is a similar issue with mutuality of obligation and control that suggests an employment relationship?
If you are an engager or a worker that has concerns about this, it might be worth reviewing your contracts with a lawyer and accountant that understands these issues. You might not be able to correct the past, but you can always plan for the future and hopefully avoid a visit to the tribunal. Not only are tribunal cases expensive to deal with, but the details are made public. In this case, should a TalkSport rival want to make an approach for Mr Hawksbee’s services, they will now have a very good idea of the cost of acquiring him. Also, it normally makes a great story for the tabloids and can normally be spun as someone avoiding their taxes. So if your public image is important, adopt a structure that might incur slightly more tax, but is at least less risky.
If you want to discuss any of the above, or any other matter, just give us a call on 020 7183 3383 or email info@kma-spotlight.com.
