HMRC “kicks back” at Upper Tribunal in latest win against Paul Hawksbee
In July 2019 we saw the fight between HMRC and the talkshow and radio host Paul Hawksbee of Kickabout Productions Limited (“KPL”) as to whether IR35 applied for the tax years 2012-13 to 2014-15. KPL had entered into arrangements with Talksport to provide Mr Hawksbee as a presenter on Talksport Radio’s “Hawksbee & Jacobs Show” more commonly known as “The Show”. The Show required a very specific slot of every weekday from 1pm-4pm.
During the Hearing at the FTT, there were disagreements between Judge Thomas Scott and Tribunal Panel Member, Mr Baker. These disagreements, due to the fact Mr Baker did not agree that mutuality was not present, made the case more unusual than most.
The FTT decision held that the contractual relationship between KPL and Talksport was not one of employment and the “irreducible minimum” as set out by Mackenna J of Ready Mixed Concrete was not met. This was a huge win for KPL, considering HMRC’s track record with TV industry cases.
HMRC subsequently appealed to the Upper Tribunal and won their case. So what went wrong?
The Upper Tribunal Decision
This was a case HMRC was never going to let go of: in their opinion the factual background steered towards employment. HMRC’s appeal focused largely on Mutuality of Obligations and they submitted that the FTT had erred in law in making their decision. The reasoning they gave was “The FFT reached a perverse conclusion in finding that under the actual contracts between KPL and Talksport, Talksport had no obligation to provide any work to KPL”.
Mutuality of Obligation
HMRC’s argument was that the two different contracts which existed were not properly considered at the FTT. Contract One was a letter of engagement that required KPL to provide services on an exclusive basis; the contract stated “You will be required to work for a minimum of 222 days per year” (this was not entirely helped by the fact KPL provided services only to Talksport).
The notice period for termination of the contract was four months, which is much lengthier then we would expect of a contractor – a point that was argued made “little sense” if it were factually correct that KPL could simply stop providing services to Talksport.
Contract Two was considered a little differently. Here the contract was more of a framework agreement in respect of projects. Again, however, there was a 222 day working requirement that replicated that of Contract One.
The UT concluded that such provisions demonstrated an obligation on Talksport to provide work and an obligation on KPL to undertake work which was sufficient to satisfy mutuality of obligation.
Control
While it was not the main argument, control was still considered in detail. Here, rather than focusing on the specific written provisions of each contract they looked at the overall method of working by drawing up the hypothetical contract that would exist between Mr Hawksbee and Talksport when all contracts and working practices were taken into account.
It was stated at the FFT that the hypothetical contracts gave Talksport the right of control over “where and when” the services were to be provided. They also considered that KPL had a “high degree of editorial control” over the services; such as choosing who was interviewed and the event/stories that came up. It was concluded that “under both hypothetical contracts, Talksport had relatively narrow rights of control over what tasks Mr Hawksbee performed”.
At the UT HMRC pushed back on this conclusion also, stating that “Talksport had the right of “first call” or “reasonable call” respectively on Mr Hawksbee’s services in connection with the Show which they said was a much broader requirement than to prepare and present episodes of the Show”.
Whilst the UT considered the original arguments put forward in the FTT. They concluded, as per HMRC’s contention, that a “framework of control” existed, sufficient to make Hawksbee an employee.
Other Factors
Strangely, in-business factors caused somewhat of a stir, as the FTT concluded that because KPL was provided with a “fixed fee” this meant Hawksbee was then bearing a financial risk.
This was disregarded by the UT, along with the “Part and Parcel” test, and they decided that the arguments “adds little to this case”.
Conclusion
It is difficult not to have some sympathy for Mr Hawksbee after his victory at the FTT. On close examination of the UT judgement, however, the defence was not without its weaknesses.
In respect of mutuality of obligations, the fact that KPL only provided services to Talksport was considered significant and a defence to HMRC’s argument was undoubtedly made more difficult by the requirement to provide services for 222 days (as this would have made it extremely difficult to provide services anywhere else).
Such provision, while commercially sensible, can have drastic consequences for IR35. This case demonstrates why we consider mutuality the hardest issue to defend in the event of an enquiry and if a defence is to be argued we need strong evidence.
In respect of control, perhaps a stronger defence could have been made in respect of “how” the services are provided. There was strong evidence that the manner in which the services were provided was determined by KPL because, without Mr Hawksbee, there was no show. It seems clear that he was engaged for his knowledge, expertise and comical nature.
It seems a little at odds with other cases that control was judged so rigidly. TV personality Lorraine Kelly presented similar facts to this case; she too had to provide her services at a certain time for the live show every week day morning and, as with Mr Hawksbee, decided who to interview and what subjects were discussed.
The stark difference between the two cases was that Lorraine Kelly’s defence mounted a “brand” argument which emphasised the lack of control, with hindsight perhaps this “brand” argument could have helped in Mr Hawksbee’s case. We will eagerly wait to see if KPL appeals this decision.
If you would like any further information about this case or if you have a current IR35 enquiry you would like assistance with then please contact Paul Mason on 0345 066 0035 or 01788 702772 or email us at IR35@markel.com
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Author Paul Mason, Head of Tax Partnerships at Markel Tax
