Intermediaries legislation (IR35): Christa Ackroyd Media Ltd v HMRC

November 11, 2019

Writing for Lexis®PSL, BKL consultant David Whiscombe examines the concept of control under the hypothetical contract posited by ITEPA 2003, s 49 (Christa Ackroyd Media Ltd v HMRC).

Tax analysis

This was another IR35 case involving a media personality providing services (in this case to the BBC) through a personal service company (PSC). The First-tier Tax Tribunal (FTT) had decided that the hypothetical direct contract between the individual and the end-user posited by section 49 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) would have been one of employment. On appeal, the PSC contended that the FTT had misdirected themselves as a matter of law as to the content of the hypothetical contract as regards ‘control’. Although the Upper Tribunal (UT) held that the FTT had made an error of law in implying into the hypothetical direct contract a specific term to the effect that the BBC had a right of ultimate control, this did not vitiate the FTT’s decision. The primary facts found by the FTT gave sufficient basis for the conclusion that ultimate control lay with the BBC without the need to imply into the contract a specific term to that effect.

Christa Ackroyd Media Ltd v HMRC [2019] UKUT 326 (TCC), [2019] All ER (D) 47 (Nov)

What are the practical implications of this case?

The case highlights the crucial importance of control in status matters. ‘Control’ is largely a matter of fact, determined by reference to the primary facts found by the tribunal and the inferences drawn from them. As no appeal beyond the FTT is possible on matters of fact, it is crucial in cases like this to ensure that all relevant facts are brought about before the FTT. In particular, ‘control’ for the purposes of the status test is not to be found by looking narrowly at express or implied terms of either the actual contract between the intermediary and the end-user or the hypothetical contract between the individual and the end-user but is a multifactorial judgement which looks at ‘the cumulative effect of the totality of the provisions in the agreement and all the circumstances of the relationship created by it’ to determine where ultimate control lies.

What was the background?

In this appeal it was not in dispute that of the three classic criteria of employment status laid down by MacKenna J in Ready Mixed Concrete (South East) Limited v Minister of Pensions and National Insurance [1968] 2QB 497, two were met, namely mutuality of obligation and the absence of terms inconsistent with employment. What was in play before the UT was the third criterion—had the FTT erred in law in reaching the conclusion that under the hypothetical contract posited by ITEPA 2003, s 49 the BBC had a sufficient degree of control over the provision of services by Ms Ackroyd to satisfy the control requirement necessary for an employment relationship?

The PSC had three main criticisms of the FTT’s decision as a matter of law.

The first was that where, as here, the actual contract between the service company and the end–user was negotiated, detailed and contained a ‘whole agreement’ clause, it should be assumed that the hypothetical contract posited by ITEPA 2003, s 49 was in the same terms—it was not legitimate to look outside the terms of the actual contract to determine the terms of the hypothetical contract.

Second, the FTT, having correctly determined that a ‘framework of control’ was necessary for an employment contract to arise, had in making its decision failed to take into account the absence of such a framework. Ms Ackroyd had no line manager, no formal appraisal and the BBC lacked any effective sanctions to control her.

Third, any ‘control’ found to exist by the FTT was control over the work product (output control) rather than control over the individual in the performance of the services (input control) and should not have been taken into account in determining status.

What did the tribunal decide?

The actual contract was the starting point, but it was for the FTT to determine whether the hypothetical contract would have included terms not contained in the actual contract or excluded terms which were contained in the actual contract. The fact that the actual contract was detailed and negotiated did not of itself preclude such inclusion or exclusion.

As a matter of general law, a term may be implied into a contract only if it is either necessary for the contract to have business efficacy (such that the contract lacks commercial or practical coherence without it) or sufficiently obvious to go without saying. That was not the case here and the UT considered that the FTT had erred in law in implying a control term. But that did not vitiate the FTT’s decision—regardless of whether there was an express or implied contractual term regarding control, it was sufficient that the FTT had asked itself the question ‘in so far as the [actual contract] does not deal explicitly with all aspects of control, is it appropriate in view of the [actual contract] and the wider context to conclude that ultimate control in relation to Ms Ackroyd’s services lay with the BBC?’. There was sufficient evidence to justify the FTT’s decision so to conclude.

As regards ‘framework of control’, it was wrong to infer that the phrase implied a need for formal procedures—it was rather a matter of where ultimate authority lay—in this case with the BBC. Finally, any distinction between ‘input control’ and ‘output control’ was an artificial one that had moreover not figured in any previous case law—any in event on the facts found by the FTT, the BBC had had the right not only to control Ms Ackroyd’s ‘work product’ but what she did to produce it.