This month’s Chartered Accountants Tax Case digest looks at another IR35 case featuring the well-known broadcaster Eamonn Homes. With just weeks to go to the introduction of the off-payroll working IR35 rules in the private sector, the case is a win for HMRC. It’s not clear yet if the decision will be appealed.

The decision hinged on the level of sufficient mutuality and the degree of control which, according to the Tribunal, placed the assumed relationship between ITV and Mr Holmes in the employment field.

Background

Red, White and Green Limited (“RWG”) is a “personal services company” (“PSC”) formed by Mr Eamonn Holmes and it acted as the vehicle through which his services were provided to ITV Studios Limited (“ITV”). Mr Holmes is a presenter on its show This Morning under a series of contracts between the parties.

RWG appealed against determinations and notices issued by HMRC for income tax and national insurance contributions, asserted to be due as a result of the IR35 legislation, on income paid to it by ITV under the contracts for the provision of Mr Holmes’ services for the tax years 2011/12 to 2014/15.

The parties were agreed that determining whether the legislation applies calls for the following two-stage exercise:

1. The Tribunal essentially has to determine the basis on which ITV and Mr Holmes would have engaged under direct contractual arrangements between them for the provision of his services i.e. the “assumed contract” or “assumed relationship”; and
2. The Tribunal must then determine the nature of the assumed contract between Mr Holmes and ITV, as either an employment or a self-employment relationship, by reference to the well-established legal principles applied by the courts in determining whether an employment relationship exists.

The Tribunal’s view was that the actual contractual terms between ITV and RWG constituted the best available evidence of what the terms of a direct contract would have been. For the purposes of determining whether IR35 applies, Mr Holmes should be assumed to have entered into a series of contracts with ITV based on the actual contracts between RWG and ITV on terms as near as may be to the actual contractual terms.

The Tribunal examined four contracts during that period. Where there were gaps between the contracting periods, Mr Holmes worked on the programme via a different PSC, Holmes and Away Ltd.

Under the terms of each contract, RWG was required to procure Holmes’ services ‘on an exclusive basis’ during the specified period or on dates agreed with the executive producer. The specified dates included a list of Fridays, with exceptions in July and August, and Monday to Thursday dates in other weeks. Although Mr Holmes did not receive any employee benefits from ITV, the contract did provide for the provision of a car for travel to the studio, a clothing allowance of around £5,000 and expenses for travel and accommodation for certain trips.

The contract required the broadcaster to be ‘as flexible as possible’ regarding any changes to the dates and also stated that when ITV cancelled any dates and could not reschedule for reasons other than Holmes’ unavailability then RWG was entitled to payment in full for cancelled dates. A fixed fee was paid for each programme.

Mr Holmes, in his evidence, described himself as a freelance journalist and broadcaster and a ‘gun for hire on my terms’, with engagers signing up for his ‘USP and profile’. He also sought to assert that he was effectively in total control of what needs to happen when on air.

During his evidence, he sought to assert that his work with Sky News between 2011 and 2015 occupied more of his time than his This Morning duties, and that he carried out a large number of other engagements on a self-employed basis. However, the Tribunal heard that for the tax years 2011/12 and 2012/13, RWG’s main income stream was from the work for This Morning.

The FTT also heard evidence that he did his own research, wrote and asked questions he developed and was only following a prepared script ‘10% of the time’. When he had a double hip replacement in 2016, ITV did not pay him any sick leave and he did not get any holiday leave.

The Tribunal decision set out that in giving his oral evidence, Mr Holmes was prone to arguing his own case with counsel rather than focusing on answering the factual questions asked of him. However, it did not consider that any adverse inference should be drawn from this albeit that the scope of some of Mr Holmes’ more general statements has to be considered in the light of his more specific responses and the other evidence.

Arguments and decision

The Tribunal concluded that whether Mr Holmes was employed by RWG was not relevant to the analysis of whether ITV controlled him under the assumed contracts. It then moved on to consider mutuality of obligation between the company and the broadcaster and the issue of substitution of services.

Counsel for the appellant argued that Mr Holmes carried out many of his activities under his own name and was taxed as a person carrying on a profession. Individual engagements should be looked at in the context of his business activities as a whole. Although something might at first appear to be employment, this could simply be an incident of the worker’s overall professional activities.

Counsel also argued that it was wrong to view ITV as being able to control Mr Holmes such as to be ‘his master’, as the situation was analogous to a chef hired to cook a meal. While ITV provided ingredients, it was Holmes alone who supplied the final result. It was also argued that RWG was paid fees, rather than a salary, and there was no provision regarding pension, holidays, sick pay or training.

The Tribunal also heard a number of arguments about the lack of control ITV exerted over Holmes’ work.

HMRC on the other hand argued that RWG’s contract painted a picture of regular, predictable and substantial part-time employment and argued that ITV had demonstrated the right to control, as it determined whether the programme went out and ensured it met with all regulatory guidelines. In that sense it was not correct, as Holmes asserted, that the presenter was ‘answerable to no one but myself’. In addition, Mr Holmes was required to seek ITV’s permission to undertake certain other commercial activities and RWG took on no risk in the contracts, which were renewed.

Overall, the FTT found there was sufficient mutuality and a framework of control to place the contract between ITV and RWG in the employment field. ITV was required to provide work on specified dates for a fixed fee, and Mr Holmes was required to work on those dates for the fee.

ITV had full control of editorial content, it was able to restrict his other commercial activities and could require him not to appear on the programme in branded clothing. Even if Mr Holmes ‘did his own thing’, the contract contained the expectation of control.

Although ITV lacked ability in the immediate sense to control Mr Holmes during a live broadcast, this did not mean that the assumed relationship could not be categorised as an employment contract. The absence of assumed benefits was also not a material reason to rule out an employment contract.

The FTT concluded that there was sufficient mutuality and at least a sufficient framework of control to place the assumed relationship between ITV and Holmes in the employment field rather than self-employment. The appeal was dismissed in full.

The full judgment in this case is available from: -
https://www.devereuxchambers.co.uk/assets/docs/publications/RWG_v_HMRC_-_Decision.pdf