Atholl House Productions Ltd v Revenue And Customs (INCOME TAX AND NATIONAL INSURANCE - intermediaries legislation - personal service company)

Factual and Procedural Background

This case concerns an appeal by Company A against the Commissioners for His Majesty's Revenue and Customs (HMRC) regarding the application of intermediaries legislation (IR35) to the engagement of an individual presenter by the BBC through Company A as a personal service company. The issue centers on whether, if the contracts had been directly between the BBC and the individual, they would have been contracts of employment or contracts for services.

The matter was remitted for rehearing following an earlier decision and appeals to the Upper Tribunal and the Court of Appeal. The remitted hearing focused on the scope of the determination, particularly Stage 3C of the IR35 test, regarding the overall employment relationship under the hypothetical contract.

The contracts in question were written agreements between the BBC and Company A, under which Company A provided the services of the individual presenter. The individual was engaged as a freelance presenter with a minimum commitment of 160 programmes per year, paid a minimum fee, with additional fees for extra programmes. The agreements contained detailed terms including editorial guidelines, rights and obligations, and restrictions on other engagements.

Evidence was heard from the individual presenter, BBC representatives, and other witnesses concerning the nature of the working relationship, contractual terms, industry practices, and the individual's other engagements. The tribunal considered the terms of the actual contracts, the hypothetical contracts (between the individual and the BBC), and the circumstances known or reasonably available to the parties at the time of contracting.

Legal Issues Presented

1. Whether, under the intermediaries legislation (IR35), the hypothetical contract between the BBC and the individual presenter would be a contract of employment or a contract for services.
2. How to properly determine the terms of the actual contracts (between the BBC and Company A) and the hypothetical contract (between the BBC and the individual) for the purpose of assessing employment status.
3. The application of the three-stage IR35 test, particularly Stage 3C, involving the consistency of the hypothetical contract's terms and circumstances with employment.
4. The relevance and weight of the individual's other engagements and industry custom and practice in determining employment status under the hypothetical contract.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Court's Reasoning and Analysis

The court's analysis followed the three-stage IR35 framework:

1. Stage 1: The court interpreted the actual contracts between the BBC and Company A, applying standard principles of contractual interpretation. The written agreements were found to be a complete and accurate record of the terms, and the Court of Appeal confirmed that the Autoclenz principle did not apply to alter their terms.
2. Stage 2: The court constructed the hypothetical contracts between the BBC and the individual presenter by reference to the actual contracts and the circumstances known or reasonably available to the parties. It emphasized that subjective beliefs and conduct can inform this construction, but the terms must be objectively assessed. The hypothetical contract included rights and obligations similar to those in the actual contracts, with some adjustments such as a more limited right of substitution and reasonable accommodation of the presenter's other engagements.
3. Stage 3: The court examined the three limbs of the employment test:
   • Mutuality of obligations (Stage 3A): The BBC was obliged to pay a minimum fee in return for a minimum number of programmes, and the presenter was obliged to personally provide the services. The limited right of substitution was heavily circumscribed and did not negate personal service.
   • Control (Stage 3B): The BBC retained ultimate control over the content ("what"), timing and location ("when" and "where") of the programmes, though it generally allowed the presenter autonomy in how ("how") the work was performed, consistent with the high skill level required. This level of control was significant and pointed towards employment.
   • Other terms and circumstances (Stage 3C): The court considered all relevant factors, including:
     • Substantial time commitment and length of relationship.
     • BBC’s rights to restrict other engagements but practical accommodation and encouragement of the presenter’s other work.
     • Absence of customary employee benefits such as holiday or sick pay.
     • The presenter’s use of own equipment outside the studio.
     • Industry custom and practice treating similar presenters as self-employed.
     • Parties’ shared belief that the presenter was self-employed.

The court noted criticisms by the Court of Appeal of the Upper Tribunal's earlier approach to Stage 3C, emphasizing that the terms of the hypothetical contract must be given central importance and that the surrounding circumstances, limited to those known or reasonably available to both parties at the time of contracting, must be considered. The court applied a balanced approach, weighing terms and circumstances indicative of both employment and self-employment.

Ultimately, the court concluded that, on the correct basis and with the evidence available, the hypothetical contracts would be contracts for services and not contracts of employment.

Holding and Implications

The appeal is allowed.

The court held that if the contracts between the BBC and the individual presenter had been direct (i.e., without the intermediary personal service company), they would constitute contracts for services rather than contracts of employment. This means that the IR35 legislation does not apply to deem the individual an employee for tax purposes in this case.

The decision remits the matter to the Upper Tribunal for the decision to be remade on the basis of the First-tier Tribunal’s findings of fact, as corrected by the Upper Tribunal, and any further findings or evidence the Upper Tribunal may permit. The parties may apply to adduce further evidence or request additional fact-finding if necessary.

No new legal precedent was set by this decision; rather, it clarifies the application of established legal principles in the context of IR35 and personal service company arrangements within the broadcasting industry.