Kaye Adams IR35 Win
The Kaye Adams IR35 win in front of an IR35 tribunal is of major importance to contractors and freelancers. The tribunal judge ruled that Kaye Adams was outside IR35 for several reasons. It calls into questions HMRC’s understanding of IR35 as they are losing case after case. It was only recently that TV presenter Lorraine Kelly won her own case over HMRC.
HMRC IR35 Legislation
Contractors group the Association of Independent Professionals (IPSE) said that this tax case defeat to Kaye Adams shows that HMRC don’t fully understand their own IR35 legislation.
Since HMRC introduced its IR35 rule changes into the public sector, HMRC have lost 5 out of 6 tribunal cases. In many cases they have spent more of taxpayers money on their losing cases than they were claiming in back tax, penalties and interest.
HMRC IR35 Defeats – Kaye Adams IR35 Win
Despite all these defeats, HMRC and the Government are planning to roll out the public sector IR35 changes to the private sector in April 2020.
Said Andy Chamberlain of IPSE “Loose Women star Kaye Adams IR35 win is yet another example of HMRC’s complete failure to understand its own labyrinthine self employed tax laws.”
Chamberlain continued “This should be a loud warning to the Government not to extend the hugely damaging changes to IR35 to the private sector next April. When HMRC cannot understand these tax laws, how can they possibly expect businesses across the UK to?”
Kay Adams was clearly in business on her own account as 30% of her income came from sources other than the BBC. How many permanent employees could say that? This alone should have made it a non-starter.
Main IR35 Factors
There are three main IR35 factors and nine ones. The three major IR35 factors are:-
- Supervision, Direction and Control
- The right of substitution
- Mutuality of Obligation
HMRC based its main attack on Supervision, Direction and Control and Mutuality of Obligation.
Mutuality of Obligation as IR35 Factor
The latter is an obligation for the contractor to do the work and the obligation for the client company to pay the contractor for it.
HMRC always like to think that that if there is a contract to pay the contractor for work done then this shows a mutuality of obligation. However in the recent Lorraine Kelly case the tribunal judge said that as the TV presenter would not get paid if a project was cancelled or if she was sick then there was no mutuality of obligation. An employee would still get paid in both of those circumstances.
Supervision, Direction and Control
Under IR35 factor Supervision, Direction and Control, the BBC had a contractual right to exert editorial control over whatever Kaye Adams produced. However, they never exercised that in practice.
Kaye Adams mostly decided herself how she would do the job. A customer has a right to say what service they want but that doesn’t mean that they have control over how it is done.
Take, for example, someone ordering a bespoke car. They would have a right to say what kind of car they should have and what type of facilities it would have. However, this would not mean they had control over the process of building it. The car company would have the know how on how to build the bespoke car so they would be in charge of the process.
Working Practices More Important Than Contract
What is very important here is that the judge said that that actual working practices were more important than the contract. Although the BBC had an editorial control clause in their contract with Faye Adams, the fact that they never exercised it meant that the actual working practice was more important than the contract.
So, this is very useful information for all contractors.
HMRC and Right of Dismissal
HMRC tried to argue that as there was a right of dismissal or suspension in the contract this showed an employer / employee relationship. However, that is not uncommon in a contract for services contract as opposed to a contract of service.
For example if you bought goods you were not happy with you would be within your rights to return them. If you are dissatisfied with a meal you get at a restaurant you could refuse to pay. That does not make you the boss of the restaurant.
Check for Employment Status IR35 Test
HMRC have created a Check for Employment Status Test (CEST) which purports to show if a contractor is inside IR35 or outside IR35.
Indeed many client companies in the private sector are taking this as gospel when deciding a contractor’s IR35 status. This is likely to happen in he private sector too from April 2020.
But how can a group of people who have lost 5 out of their last 6 IR35 cases create a definitive IR35 test when IR35 tribunals consistently show that they don’t fully understand IR35 themselves?
If this was at a company they would have recused themselves from the task of building a comprehensive IR35 tool as they have an interest in outcome.
Contractors Legally Outside IR35
Many contractors who are really legally outside IR35 will find themselves being treated for tax purposes as if they are inside IR35.
HMRC and the Government will be creaming in lots of money from contractors to which they are not legally entitled. It’s like a Mafia style protection racket.
IR35 Contractors Failing HMRC IR35 Test
One website, ContractorCalculator showed that when feeding their details into HMRC’s CEST test that Lorraine Kelly would be inside IR35 and that Kaye Adam’s employment status was indeterminable. Most client companies would force contractors with an indeterminable result to pay the IR35 tax.
This is despite the fact that IR35 tribunal judges have ruled that they are both well outside IR35. Indeed a blind horse could have seen that with multiple sources of income Kaye Adams could not be an employee of the BBC. However, the creators of the definitive test for IR35 status couldn’t see that.
Kaye Adams IR35 win over HMRC is yet another IR35 boost for contractors and freelancers everywhere.
Contractors Fighting IR35 Legislation
However, not all contractors and freelancers would have the financial resources of Lorraine Kelly and Kaye Adams to fight a perverse HMRC decision. And if HMRC decide that people like Lorraine and Kaye are inside IR35 then they could come after any contractor anywhere.
And the freelancers fingered may not have the resources to defend themselves in court.
Said Andy Chamberlain of IPSE “The self employed sector is one of the UK economy’s most valuable assets, contributing £275 billion every year. Now, of all times, the Government must protect this dynamic and productive sector, not stifle it with tangled and ill-conceived regulations”.
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