Affirmation of Control Interpretation under IR35: Christa Ackroyd Media Ltd v Revenue and Customs ([2019] UKUT 326 (TCC))

Introduction

Christa Ackroyd Media Ltd v. Revenue and Customs ([2019] UKUT 326 (TCC)) is a pivotal case adjudged by the Upper Tribunal's Tax and Chancery Chamber on October 25, 2019. This case revolves around the application of the intermediaries legislation, specifically IR35, to determine the employment status of Ms. Christa Ackroyd, a television journalist and presenter, within the contractual framework between her personal service company, Christa Ackroyd Media Limited (CAM), and the British Broadcasting Corporation (BBC).

The central issue was whether sufficient control existed between the BBC and Ms. Ackroyd, such that if she had supplied her services directly to the BBC, an employment relationship would have been established for income tax and National Insurance Contributions (NICs) purposes. The First-tier Tribunal (FTT) had dismissed CAM's appeal, a decision which CAM subsequently contested before the Upper Tribunal.

Summary of the Judgment

The Upper Tribunal upheld the FTT's decision, dismissing CAM's appeal. The tribunal concluded that the BBC exerted sufficient control over Ms. Ackroyd's services under the hypothetical direct contract scenario posited by section 49 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003). This control was deemed adequate to establish that an employment relationship would have existed if Ms. Ackroyd had been directly contracted by the BBC, thereby invoking the intermediaries legislation (IR35). Consequently, CAM remained liable for income tax and NICs totaling £419,151 for the relevant periods.

Analysis

Precedents Cited

The judgment extensively referenced established case law to frame the understanding of "control" within IR35:

Ready Mixed Concrete (South East) Limited v Minister of Pensions and National Insurance [1968] 2 QB 497: Set out the three conditions defining a contract of service, emphasizing "mutuality of obligation" and "control".
Professional Contractors’ Group & others v Commissioners of Inland Revenue [2001] EWCA Civ 1945: Discussed the legislative aim of preventing tax avoidance through intermediaries.
Dragonfly Consultancy Limited v Commissioners of Inland Revenue [2008] EWHC 2113 (Ch): Expanded on the statutory hypothesis approach under IR35.
Usetech Ltd v Young [2004] EWHC 2248 (Ch): Clarified the construction of hypothetical contracts in straightforward contractual arrangements.
Various Claimants v Catholic Child Welfare Society & Ors [2012] UKSC 56: Emphasized the holistic approach to determine control beyond mere day-to-day management.

Additional references included rulings from Montgomery v Johnson Underwood Ltd [2001] EWCA Civ 318 and others that refined the application of control in determining employment status.

Legal Reasoning

The tribunal's legal reasoning centered on interpreting the "control" aspect under IR35. Section 49 of ITEPA 2003 necessitates positing a hypothetical direct contract between the worker and the client to assess employment status. The tribunal undertook a two-stage analysis:

Assess the factual arrangements and determine whether the circumstances indicate an employment relationship under the hypothetical direct contract.
Examine whether the BBC exerted sufficient control over Ms. Ackroyd's services in the absence of such a direct contract.

Key factors influencing the decision included:

Contractual Terms: Clauses within the existing contract granted the BBC extensive control over Ms. Ackroyd's services, such as editing rights (Clause 5) and first-call obligations (Clause 3).
Editorial Guidelines: Although not contractually binding, these guidelines formed part of the contextual framework within which Ms. Ackroyd operated, reinforcing the BBC's control over content.
Absence of Autonomy: Despite claims of high autonomy and lack of a line manager, the tribunal found that the ultimate authority rested with the BBC, particularly through the Editor's role in content decisions.

The tribunal acknowledged an error in purely formal legal analysis regarding implied terms but concluded that, substantively, the determination of control aligned with established legal principles.

Impact

This judgment reinforces and affirms the stringent application of the control principle within IR35 assessments. By upholding the FTT's interpretation of control, the decision underscores that:

Contractual terms granting extensive control can lead to the classification of an employment relationship, even in ostensibly freelance arrangements.
The holistic assessment of control, considering both contractual and contextual factors, remains pivotal in IR35 determinations.
Entities utilizing personal service companies must carefully structure contracts to genuinely reflect self-employment, ensuring minimal control to avoid IR35 implications.

Future cases will likely reference this judgment when debating the extent and nature of control required to establish employment status under IR35, particularly in media and freelance-driven industries.

Complex Concepts Simplified

Intermediaries Legislation (IR35)

IR35 is a tax legislation aimed at identifying individuals who are effectively employees but operate through personal service companies to minimize tax liabilities. It ensures that such individuals pay taxes akin to regular employees.

Statutory Hypothesis

Under IR35, the statutory hypothesis involves imagining a direct contract between the client and the worker. If this hypothetical contract would result in the worker being classified as an employee, IR35 applies.

Control

Control refers to the degree of authority a client has over how, when, and where a worker performs their duties. High control typically indicates an employment relationship.

Implied Terms

Implied terms are provisions not expressly stated in a contract but inferred by the courts to reflect the true intentions of the parties or to ensure the contract functions effectively.

Hypothetical Contract

This is an imagined contract between the worker and the client, used to assess employment status under IR35. It helps determine whether the worker would be deemed an employee had they been directly contracted.

Conclusion

The Christa Ackroyd Media Ltd v Revenue and Customs case serves as a reaffirmation of the paramount importance of control in determining employment status under IR35. By meticulously evaluating the contractual and contextual elements of Ms. Ackroyd's engagement with the BBC, the tribunal underscored that extensive control, even in hybrid contractual frameworks, aligns more closely with employment than self-employment.

This judgment emphasizes the necessity for personal service companies to structure their contracts with precision, ensuring minimal control to preserve self-employed status and mitigate IR35 risks. Additionally, it highlights the judiciary's commitment to a holistic and nuanced approach in interpreting control within varying professional contexts.

Stakeholders in the media and freelance sectors must heed this decision, recognizing that superficial contractual autonomy may be insufficient if substantive control metrics align with those of employment. Consequently, this case not only impacts tax liabilities but also shapes the broader discourse on employment classifications and the operational dynamics between freelancers and their clients.