Kaye Adams Court Ruling
The Kaye Adams court ruling means that fewer contractors and freelancers will be inside IR35 – despite HMRC’s CEST IR35 test. A judge ruled that she was outside of IR35 despite HMRC ruling her in and demanding £125,000 from her in back tax, fines and interest. The tribunal judge decided that she had a contract for services like a supplier has and not a contract of service like an employee has.
Who is Kaye Adams?
Kaye Adams is a freelance journalists who supplies programmes to the BBC and other clients she has. She also writes books. Indeed 30% of her income is from outside the BBC. She does not have to obtain the BBC’s permission to do work for someone else, e.g. corporate events.
One would have thought that this alone would put her outside IR35. HMRC thought the opposite – but they thought wrong.
IR35 Factors in Kaye Adams Court Ruling
There were six IR35 factors which influenced the Kaye Adams court ruling.
Supervision, Direction and Control
The BBC did have a clause in their contract with Kaye Adams which said that they had editorial control over what she produced for the programmes. However, they did not exercise this in practice. The judge decided that working practices were more important than the contract.
The BBC could dismiss or suspend Kaye Adams if she did not fulfill her contract in any way. However, this is no different from a goods supplier returning something to the supplier that was faulty. Also, the BBC were not able to control the work she did for other clients.The judge decided that the BBC did not control her and that she had a contract for services with them.
Mutuality of Obligation
Kaye Adams’ contract with the BBC said that she had to get permission from them to supply services to other clients. It said that the BBC had first claim on her services. This would seem to imply a mutuality of obligation.
However, BBC management testified that this was not the case in practice. Kaye obtained no permission from he BBC to supply services to other customers.
The judge decided that the practice was more important than the contract.
The Right of Substitution
The right of substitution went against Kaye Adams. That’s even though she had the right to provide a substitute in her contract. However, the judge ruled that, in practice, she did not have the right to supply a substitute.
This goes against a previous tribunal finding that the onus was on HMRC to prove that a substitute would not be used if there was a substitute named in the contract. In other words if a substitute was named in the contract, it had to be taken in good faith that he substitute would be used. The opposite could only be proven if an opportunity came up and the substitute wasn’t used.
However, this judge was more interested in practice than contract. Besides the name of the show was the Kaye Adams Programme for BBC Scotland. Mots IT Contractors wouldn’t work on something called the John Smith Project. So, this is not something that would apply too much to other freelancers in other professions.
Part and Parcel of the Organisation
The judge ruled that Kaye Adams was not part and parcel of the BBC organisation. She was considered by those who worked at the BBC as an outsider who supplied services to the BBC.
This is good news for all contractors.e.g. IT Contractors. It is made pretty clear to them by the management and permanent employees that they are not part of the company. Perhaps contractors should keep a note of all such comments while they are at a company.
The judge ruled that Kaye Adams was not an employee of the company as she did not get the following benefits that an employee of the company would:-
- Sick Pay
- Paid Holidays
- Maternity Pay
- Pension Contributions
The same point was made by the judge in the Lorraine Kelly case.
Previously HMRC and the Government have believed contractors to be disguised employees just for taxation purposes. They did not think it was important that contractors did not get the company benefits that a real employee gets.
Now, two tribunal judges have told them that this is not true.
In Business in Your Own Account
One very important factor for all contractors is that the judge made a call on deciding whether Kaye Adams was in business on her own account by looking at the whole of her career rather than just the two years that are covered by this case. The judge looked at the totality of her career when deciding that she was in business on her own account.
HMRC and the Government had always led us to believe that IR35 is judged on a contract by contract basis. A contractor didn’t have an IR35 status – only a contract.
However, this judge gives the lie to that. The judge looked at her whole career before making the call as to whether she was a freelancer or employee. The judge decided that she operated as a supplier of services to her clients over her career. This is a big one for contractors who worry about suddenly becoming caught by IR35 after a career outside it. Now they can be career contractor according to this judge.
The Kaye Adams Court ruling has helped this.
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