IR35 Changes

With the changes to off payroll worker rules due to come in from 6 April 2020 and Eamonn Holmes losing the latest of a string of TV presenter cases, IR35 is the current hottest topic when it comes to HMRC.

Since 2018 there have been eleven IR35 cases, seven being found in favour of the taxpayer, four in favour of HMRC. The cases all revolve around the hypothetical contract which would be in place were the Personal Service Company not to exist. Where these contracts look more like employment, the IR35 rules apply and so the income from them will be caught by the normal Income Tax and National Insurance regulations.

New rules coming in 6 April 2020

The changes to the rules, which are due to come in on 6 April 2020, shift the responsibility of deciding if income is caught by the IR35 rules from the Personal Service Company to the end user (where they are medium or large companies as per the Companies Act definition).

These changes bring most of the private sector in line with the public sector, which saw similar changes introduced back in April 2017. Basically, HMRC can enquire into one end user and cover multiple Personal Service Companies in one go.

The risks of significant penalties for getting this wrong is also moving, leaving the end users to self-police the IR35 regulations and the need for HMRC to conduct enquiries greatly reduces whilst at the same time increasing tax intake.

Ahead of 6 April 2020, we have already seen several larger businesses saying they will stop using limited company contractor altogether and, in numerous industries, the job boards are full of roles declaring they are caught for IR35.

Check Employment Status of Tax (CEST) tool

The problems highlighted by the recent court cases (and HMRC’s low success rate!) show there are no clear, black and white, rules in place to clearly determine if a taxpayer is caught. In numerous cases, it is simply not clear and, to be fair to HMRC, contractor and employment contracts are constantly changing and evolving blurring the lines further.

To assist with making these IR35 determination, HMRC issued a revised Check Employment Status of Tax (CEST) tool at the end of last year. Whilst this new tool is better than the previous version, because it takes more factors into account before making a judgement, it does still have issues.

On the face of it, HMRC’s commitment to stand by results given by the new tool (provided the information entered is accurate and in accordance with HMRC guidance) is a good thing. However, the cynic in me is not surprised to hear criticisms of the tool as it still generally finds in favour of HMRC i.e. taxpayers being caught by the IR35 rules.

The main criticism of the new tool is that it does not take account of mutuality of obligation in the hypothetical contract. This has been raised as one of the major points in every IR35 tribunal case, so it is difficult to understand how the tool can be accurate without considering this area.

Mutuality of obligation

In an employment contract you would expect to find a mutuality of obligation, for example, in the employee being obliged to work and the employer obliged to provide work. In self-employed contracts, you would not expect to find this level of obligation, normally work would be tendered for on a project by project basis and either party can normally cease work with no or minimal notice.

In the Eamonn Holmes case, the judge found, ITV was required to find work on specific dates and Eamonn was required to work on those dates, indicating the contract was more like one of employment. In another recent case involving Lorraine Kelly, the judge said Lorraine was able to choose when and if she worked and had in fact exercised this right, indicating the contract was more like on of self-employment.

Another recent case found in favour of the taxpayer, involving Helen Fospero. Ms Fospero had “anticipated” working days included in her contract, however, the judge found this did not amount to a guarantee and so found there was no mutuality of obligation.


Whilst HMRC have said they are considering appealing the Helen Fospero case, it is worth comparing this with the Eamonn Holmes case as they cover numerous areas raised time and again in this run of cases, helping to shed light on where the line is being drawn.

In addition to mutuality of obligation, control is the other big pointer raised in every case. Employees tend to work under much clearer and stronger lines of control and direction from their employers, were as the self-employed use their own skill and experience to plan and complete a project.

Several of these recent cases involved BBC news readers and all were won by HMRC! In each case, the judges felt there were clear controls in place by the BBC over the presenters, in that the presenters were reading from an autocues prepared by BBC staff. Every word the presenters says is literally being controlled!

One of the judges went so far as to say, the editorial guidelines the presenter had to abide by, would be enough to constitute control through the editor. This even though there were no other conventional frame of control in place such as line managers, formal appraisals and the like.

Helen Fospero researched her own items and wrote her own scripts, putting in serval hours of preparation not dictated by ITV, her client. The judges in this case found she was, therefore, not being directed by the channel.

Although Eamonn Holmes only read from the autocue about 10% of the time, the judge, found ITV had full editorial control of the programme, even though it was live. They also had controls over things like the clothing he wore on screen. Therefore, the judge found there was a sufficient framework of control in place for the hypothetical contract to be one of employment.

Overall context of business activity

A lot of contractors and end users still assume that the contractor having various clients will mean they are safe from the IR35 regulations. It is worth noting this is not necessarily the case as you need to look at the circumstances in each contract.

One recent case involved two contracts with the same corporate contractor but different end users. The taxpayer won on one contract and HMRC won on the other. In both the Helen Fospero and Eamonn Holmes cases the wider context of the taxpayer’s business activity did come up but with mixed results.

Both had the right to work for other channels, although both required ITV’s approval. Helen’s contract covered a period of around two years, during which time she was able to prove her management team had actively sought additional work, even though none of these came to anything. The judge in her case, found that when viewing the contract in the context of her overall business activity, she was self-employed.

In Eamonn’s case, his contract had lasted for around 15 years and the judge found his contract painted a picture of regular, predictable and substantial part-time employment. The different outcomes in these cases is likely to be partly down to the length of time the contracts spanned.

The judges in both of these cases have taken all the facts together as a whole and not just as a list of triggers to be ticked off. When taken as a whole, the judge found that the hypothetical relationship in Helen Fospero’ s case was one of self-employment and the Judge in Eamonn Holme’s case found his was one of employment.

So, what does this all mean?

The range of work undertaken by the contractors in the recent cases, show that the use of personal service companies has dramatically increased over the years, since the IR35 regulations were first introduced in 2001. It is interesting that in the run up to the changes, HMRC have generally decided to target higher profile TV personalities, rather than the IT contractors the rules were original designed to catch.

HMRC estimates that only 10% of taxpayers caught by the IR35 regulations, actually are operating it. They have also estimated the changes will generate £3 billion extra tax over four years. It is widely expected that these estimates are conservative, at best, and so for these reasons alone, the changes are unlikely to disappear.

Whilst the House of Lord’s have yet to issue their report into the implementation of the new rules, the Treasury issued theirs on 27 February and confirmed the introduction would not be delayed.

They did soften their approach in some areas, most noticeable with regards to penalties in the first 12 months though. In addition to the government’s stance, businesses have already started to prepare for these changes. It seems very unlikely then that these rules will be delayed, despite the protests in Westminster and calls from the recruitment industry to do so.