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Last month, Talksport presenter Paul Hawksbee lost his IR35 case at the Upper Tribunal after HMRC successfully overturned a decision made at the First-Tier Tribunal last year. After being found to have been wrongly working outside IR35 on a number of contracts held at the radio station, the experienced host must now pay HMRC over £140,000 in tax liabilities.
As a result of this rare IR35 victory for the tax office, many of the contractors, recruitment agencies and hiring organisations that we work with here at Qdos are keen to get a sense of the wider implications of this case. In other words, what might this high-profile Upper Tribunal decision mean as we close in on the introduction of IR35 reform in the private sector?
The Hawksbee case is a clear sign that IR35 compliance sits high on the agenda of HMRC, that still has a dismal track record in IR35 tribunals even after this win. Regardless, the tax office will be delighted to have notched what is a high-profile victory that received significant media coverage. And judging by this article, the Hawksbee case, similar to Eamonn Holmes’ IR35 defeat, could be a sign of things to come, with HMRC targeting high net wealth individuals.
When also factoring in the UK’s current economic problems and the £1.3bn that HMRC claims will be missing annually by 2023/24 as a direct result of IR35 non-compliance, it’s no secret that the Treasury plans to aggressively police IR35 in the coming months and years.
IR35 is a legislation often associated with typical contractors, usually working in IT and technology fields. However, this case - along with the many other broadcasters who have also been subject to IR35 investigations in recent years - just goes to show that the impact of the IR35 rules are far-reaching. In fact, IR35 affects any individual operating via a personal service company, irrespective of profession or industry. This is an important takeaway, not just for contractors, but the recruitment agencies and businesses placing and engaging these workers.
While HMRC winning an IR35 case is concerning, it’s important to note the key differences in his contract and working practices compared to a traditional contractor. For example, the Upper Tribunal found that Mutuality of Obligation (MOO) existed, while Mr Hawksbee did not have the right to provide a substitute either, meaning he provided a Personal Service to Talksport in the way that an employee does. This is unlikely to be the case for the majority of genuine contractors, who are usually engaged under contractual terms that clearly demonstrate their outside IR35 status.
Also worth bearing in mind is that this case was not clear cut by any stretch of the imagination. The initial decision at the First-Tier Tribunal was made by a casting vote, after the judges couldn’t agree on the outcome. And while the judge at the Upper Tribunal ultimately decided Mr Hawksbee’s engagement belonged inside IR35, the case notes show that it was a close run affair.
The Hawksbee case demonstrates the value of IR35 contract reviews, which offer contractors and businesses an objective and expert view of IR35 status. At Qdos, we carry out on average 2000 IR35 status reviews each month, offering individuals, agencies and hiring organisations trusted advice regarding a contractor’s tax position. Following a thorough examination of IR35 status, individuals and businesses can safely work outside the scope of this complex legislation.
For contractors engaged over a longer period of time, like Mr Hawksbee, who had been working with Talksport for 18 years at the time of the first hearing, regular IR35 status assessments and working practices reviews are advised. This is due to the fact that the nature of working arrangements may change over time, which can alter IR35 status.
The £140,000 Mr Hawksbee is deemed to owe HMRC shows just how important IR35 insurance is. In addition to the huge sums involved in this case, the cost of ongoing IR35 advice and defence in court would have also been significant. An IR35 insurance policy covers all of the above - from representation costs to resulting tax liabilities and, depending on the policy bought, fines imposed by HMRC if it’s found that a contractor has been working non-compliantly.
With the countdown on to private sector reform, which will land on 6th April 2021 and see medium and large businesses become responsible for administering IR35 (with the fee-paying party liable), all parties affected by the changes can learn lessons from the Hawksbee case - something which could prove vital in ensuring their IR35 compliance in years to come.
Qdos provides a range of leading IR35 solutions for contractors, recruitment agencies and hiring organisations that ensure for the successful and compliant implementation of changes to the off-payroll working rules.
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