Revenue and Customs Comrs v Atholl House Productions Ltd

The Court of Appeal considered the application of the Intermediaries Legislation (IR35) and the common-law tests for employment when services are supplied through a personal service company. The court confirmed that the three-stage Ready Mixed Concrete test (mutuality of obligation; control; and whether other contractual provisions are consistent with employment) remains central but that the enquiry at stage three is multi-factorial and may properly take into account relevant contextual facts known or reasonably available to the parties.

The court held that the Upper Tribunal erred in its application of stage three by treating the existence of a freelance career as dispositive and by failing to assess the terms and effects of the hypothetical contracts for the relevant years. It also held that the purposive interpretative approach applied in Autoclenz (and explained in Uber) is not applicable to the statutory IR35 enquiry, because that approach was developed to prevent employers defeating statutory worker protections; it is therefore not the correct method for determining tax status under section 49 ITEPA. The matter was remitted for reconsideration because a correct overall assessment of the hypothetical contracts and admissible factual matrix for the tax years in dispute had not yet been made.

The respondent, Atholl House Productions Limited, a personal service company through which Ms Kaye Adams provided broadcasting services to the BBC, appealed determinations by HMRC under the Intermediaries Legislation (IR35) that the engagements for tax years 2015/16 and 2016/17 should be treated as employment for PAYE and National Insurance purposes. The First-tier Tribunal allowed Atholl House's appeal on the basis that certain written clauses (BBC's right of first call and restrictions on outside engagements) did not reflect the true agreement. The Upper Tribunal set aside the FTT on the Autoclenz point and remade the decision, concluding that, despite mutuality of obligation and editorial control, the hypothetical contracts would not be contracts of employment because Ms Adams entered into them as part of a business on her own account.

Nature of the claim / relief sought: HMRC appealed to the Court of Appeal seeking to overturn the Upper Tribunal's decision that the hypothetical contracts were not contracts of employment for the relevant tax years, so as to establish liability under PAYE and National Insurance.

Issues framed by the court:

• whether the Upper Tribunal misapplied the third stage of the Ready Mixed Concrete test by allowing evidence of Ms Adams' freelance career to displace the prima facie conclusion arising from mutuality and control;
• whether the FTT was right to apply Autoclenz to disregard written contractual clauses (first call and restrictions on outside work) when construing the actual agreement;
• whether the matter should be remitted for further consideration.

Court’s reasoning: The Court of Appeal emphasised that the Ready Mixed Concrete test and the approach in Market Investigations/Hall v Lorimer are not competing, alternative tests; both require mutuality of obligation and control as necessary prerequisites and then a multi-factorial assessment of all relevant matters. The court held that admissible contextual facts are not confined to the bare contractual wording but must be limited to facts known or reasonably available to both parties at the time the hypothetical contract was made. It found that the UT erred in privileging evidence of Ms Adams' broader freelance career over the terms and effects of the hypothetical contracts for the years in question and in misreading HMRC’s position on earlier tax years. On Autoclenz, the court held that the purposive approach used there (and explained in Uber) arises from a statutory context protecting workers and is not appropriate to the statutory IR35 inquiry; accordingly the UT was right to reject the FTT’s Autoclenz-based conclusion. Because the UT and FTT had not performed the required, balanced assessment of the hypothetical contracts and the admissible factual matrix for the disputed years, the Court of Appeal allowed HMRC's appeal and remitted the matter for reconsideration on a correct basis.

Appeal allowed. The Court of Appeal held that the Upper Tribunal misapplied the third stage of the Ready Mixed Concrete test by allowing the respondent’s freelance career and surrounding engagements to displace the required assessment of the terms and effects of the hypothetical contracts for the tax years in issue. The court also held that the Autoclenz purposive approach is not applicable to the IR35 statutory inquiry and that the FTT had been wrong to exclude the BBC's contractual rights; the case was therefore remitted for reconsideration on the correct legal approach.

Appeal to the Court of Appeal from the Upper Tribunal (Tax and Chancery Chamber) (Marcus Smith J and Judge Jonathan Richards) [2021] UKUT 37 (TCC), which itself had reviewed a First-tier Tribunal decision (Judge Tony Beare and Mr Duncan McBride) allowing Atholl House’s appeal against HMRC determinations for tax years 2015/16 and 2016/17.