The Commissioners for HMRC v Basic Broadcasting Limited

Where mutuality of obligation and sufficient control are present, the third stage of the Ready Mixed Concrete test requires a multifactorial assessment of whether the hypothetical contract, viewed in its relevant circumstances, is one of employment. The question whether an individual conducts a business on their own account is not a separate test. Work outside the engagement is relevant context, but cannot become the primary inquiry into whether the disputed contracts formed part of that outside business.

The contractual terms must remain central. Relevant surrounding circumstances are confined to those known, or reasonably available, to both parties when the hypothetical contract was made. A tribunal which applies the wrong analytical framework commits a material error of law even if its individual evaluative findings were open to it.

Basic Broadcasting Ltd supplied the presenting services of Adrian Chiles to ITV and the BBC through a personal service company. HMRC issued income-tax determinations and national-insurance decisions on the basis that the engagements fell within IR35 and that Mr Chiles would have been an employee under the postulated direct contracts.

The First-tier Tribunal allowed the company's appeal. It found sufficient mutuality and control, but held at the third Ready Mixed Concrete stage that the hypothetical contracts were contracts for services because they formed part of Mr Chiles' business on his own account. HMRC appealed on the ground that the tribunal had adopted the wrong approach, particularly following HMRC v Atholl House Productions Limited [2022] EWCA Civ 502.

The Upper Tribunal considered whether the third-stage analysis and the treatment of facts outside the engagements were legally correct.

1. Appeal allowed and remitted. The FTT made a material error of law in deciding the third Ready Mixed Concrete stage. Its decision on that stage was set aside and remitted for reconsideration.

2. The third-stage question is whether the other provisions of the hypothetical contract, assessed with all relevant circumstances, are consistent with employment. Mutuality and control are necessary but not necessarily sufficient. The exercise is multifactorial; it is neither confined to contractual terms nor governed by a freestanding business-on-own-account test.

3. Whether the individual conducts a business on their own account may be a way of answering the third-stage question in relation to the engagement itself. Activities outside the disputed engagement are also relevant contextual evidence, but their weight is evaluative. The tribunal must not treat them as a comparator or ask principally whether the hypothetical contracts were entered into as part of that external business.

4. The FTT had done just that. Its conclusion rested on its finding that Mr Chiles carried on a business outside the contracts and on its assumption that the decisive issue was whether the ITV and BBC contracts formed part of it. That substantially repeated the flawed approach identified in HMRC v Atholl House Productions Limited [2022] EWCA Civ 502. Although the FTT had considered contractual terms, the Upper Tribunal rejected HMRC's separate challenge to the weight it had given them.

5. The Tribunal also admitted HMRC's new knowledge argument. Under Atholl House, relevant circumstances must have been known, or reasonably available, to both putative contracting parties. The issue arose only after that appellate guidance and the third-stage decision had in any event to be remade. The FTT had made no necessary findings on it.

6. The FTT must remake the third-stage assessment under the correct approach, using its existing findings on mutuality and control and making any further findings or admitting any further evidence it considers appropriate.

• Upper Tribunal (Tax and Chancery Chamber): HMRC's appeal was allowed. The First-tier Tribunal's decision was set aside only in relation to the third Ready Mixed Concrete stage and disposition, and remitted for reconsideration.
• First-tier Tribunal (Tax Chamber): On 9 February 2022, it allowed Basic Broadcasting Ltd's appeal against HMRC's income-tax determinations and national-insurance decisions. Its neutral citation was not stated in the judgment.