TV presenter Adrian Chiles will head back to tribunal to face HMRC over £1.7 million in tax claims, after an appeal found that the first-tier tribunal (FTT) had misinterpreted the law.
The case hinges on whether Chiles should have been classed as a worker or employee when engaged via his personal company Basic Broadcasting Ltd. Chiles’ is set to return to the FTT about this case, for the third time.
Upper-tribunal judges blamed the complicated legal situation surrounding IR35 compliance for exacting a “very real human cost,” where parties are forced to go to tribunal to resolve an issue that could be clarified in law.
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The FTT’s mistake, the upper tribunal ruled, came in its application of one the legal tests for whether a person is classed as employee or worker. Centring around a piece of case law known as the ‘third test’, from a 1968 case involving Ready Mixed Concrete Ltd, the key dispute was whether Chiles’ company constituted a business on its own account.
Upper tribunal judges Justice Meade and Thomas Scott allowed for the confusing nature of the case, and many other IR35 cases, because of the constantly evolving legal arena.
Describing the correct application of IR35 law as a “moving target,” the judges wrote: “The case law in relation to both employment status and IR35 has not only developed considerably over time but continues to be in a state of flux.”
“It’s a confusing situation,” said Seb Maley, CEO of IR35 compliance firm Qdos.
He told HR magazine: “The upper tribunal hasn’t necessarily said that Chiles shouldn’t have won his case, it's more that how the judges went about deciding this crucial element wasn’t right.
“The concerning thing is that, through no fault of his own, Chiles faces the prospect of heading back to the first-tier tribunal to effectively clear his name yet again. It’s down to an error from the judges, which smacks of unfairness.”
Lee McIntyre-Hamilton, employment tax partner at Keystone Law said the courts had seen many such cases in recent years.
"The fact that even the courts can't decide on the correct application of the law in a number of cases involving employment status ought to be a clear warning that the law needs changing.
"Whoever forms the next government needs to act by introducing legislation that puts in place clear statutory rules for employment status so that engagers and individuals can more easily and definitively determine their employment status for IR35 and tax generally.”
Judges Meade and Scott acknowledged the lack of legal clarity's impact on people who are thrown back and forth between tribunals: “It should not be forgotten that behind every personal service company is a person. As we have seen in this case, the uncertainty and financial exposures generated by the difficulty in establishing a clear and stable legal position continue to produce a very real human cost.”
Maley added: “Above all else, this case demonstrates the highly complex, ambiguous nature of the IR35 legislation, which HR personnel and wider businesses must get to grips with when engaging freelancers and contractors. The sheer sums involved in these cases highlight, more than anything, that compliance is paramount.”
Matt Jenkin, employment partner at law firm Herrington Carmichael, told HR magazine that the case was simply the latest in a series of high-profile cases.
He said: “The decision of HMRC to appeal the findings in Chiles’ case demonstrates the lack of certainty in this complex area.
“For every TV presenter who is successful in maintaining that they are self-employed, there seems to be a case of a presenter who is found to have employment status and is subject to a sizeable tax bill.
“The CEST [check employment status for tax] online assessment tool, which is the starting point of any IR35 assessment, is much criticised and often subjectively interpreted.
“Until that point is addressed, you will continue to see the current uncertainty and contrasting outcomes repeated.”