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Making tax less taxing: a summary of the latest cases on employment status | Dentons

Earlier this year, the Court of Appeal decided two cases which dealt with the question of deemed employment status for the purposes of IR35. The cases had similar facts and concerned broadcasters who provided their services through personal service companies. The Court of Appeal’s judgments provide guidance on the approach to be taken when determining employment status, both for the purposes of IR35 and for employment law. In this article, we reflect on the elements relevant to determining deemed employment status in the context of IR35.

The Ready Mixed Concrete test

But first, when deciding whether there is an employment relationship more generally, courts will consider the terms of the contract between the parties and the actual working arrangements in place, as well as the intentions of the parties at the time the contract was entered into. Based on this assessment, the court will identify the terms of a “hypothetical contract” which reflects the actual relationship and from this determine whether the contract is one of employment.

To do this courts use the test established in the 1968 case of Ready Mixed Concrete (South East) Ltd v. The Minister of Pensions and National Insurance. This test sets out specific criteria that must exist for there to be an employment contract. At the risk of oversimplifying what is often a complex balancing of factors, an employment contract will be found to exist when there is:

  • mutuality of obligation: a person agrees to personally perform a service for a company in exchange for remuneration;
  • control: a person agrees expressly or impliedly that, in the performance of the services, they will be subject to the other’s control; and
  • consistent contractual provisions: the other terms of the contract are consistent with there being an employment contract – this considers a wide range of factors.

Subsequent cases, such as Hall v. Lorimer, have made it clear that tribunals should not apply these tests mechanically. The weight a tribunal should give the various factors will differ from case to case.

This test was considered by the Court of Appeal in the recent cases of HMRC v. Atholl House Productions Ltd and Kickabout Productions Ltd v. HMRC which rose under IR35. Both cases centered on individuals who presented programs for a radio station through a personal services company.

Atholl House

In Atholl House, the presenter provided services to a broadcaster under annual contracts. They committed to provide a minimum of 160 programs for a minimum contract fee. The contract sets out a schedule of services and fees. The presenter had freedom to work for other clients, but the contract gave the broadcaster first call on the presenter’s services and provided that the presenter must obtain the broadcaster’s consent to appear in other broadcast media intended for a UK or Irish audience.

The First Tier Tribunal (FTT) concluded the contract was not one of employment. It reached this decision by applying the Autocleanz principle, which allows the tribunal to disregard contractual terms if they do not accurately reflect the genuine agreement of the parties. It found on the evidence that in reality – contrary to the written contract – the broadcaster did not have first call on the presenter’s services and the presenter did not need to obtain consent for other engagements.

The Upper Tribunal (UT) held that the FTT had wrongly applied the Autocleanz principle and that it should not have departed from normal contractual interpretation principles. The UT found that there was sufficient mutuality of obligation and control to make a “prima facie” conclusion that the relationship was one of employment. However, ultimately, the UT concluded that it was not an employment relationship because the broadcaster was carrying on business on her own account. Part of its reasoning was that there was no relevant difference between the work the presenter did for the broadcaster and that which she carried out as an independent contractor.


In Kickabout, there were two contracts which provided for the radio station to pay a fee per episode performed, with a minimum fee based on a minimum number of programs per year. The presenter was free to provide services to other entities (other than radio broadcasters) and to decide the format of the shows. The presenter was required to present the shows at the times, days and locations prescribed and the radio station could edit, delete or transmit any part of the show as it saw fit. The contracts were for two years and included termination provisions.

The FTT determined that there was an obligation on the presenter to provide his services personally but there was no obligation on the broadcaster to provide work, only to pay for the shows that were provided. While they found this met the mutuality of obligation test in a narrow sense, it was not a strong indication of employment status. The absence of an obligation on the broadcaster to provide work led the FTT to conclude that there was no employment relationship. It did not express a clear conclusion on the question of control.

The UT also reversed this decision, finding that the broadcaster was obliged to offer programs to the presenter (otherwise certain provisions of the contract, such as the right to terminate by giving four months’ notice, did not make sense). The other limbs of Ready Mixed Concrete were also satisfied in the eyes of the UT and so it found that the hypothetical contract amounted to a contract of employment.

What did the Court of Appeal decide?

The Court of Appeal allowed HMRC’s appeal in Atholl House and sent the case back to the UT for reconsideration. The UT had been wrong to focus on the activities the presenter performed for the broadcaster and as an independent contractor. It should have focused on the capacity in which she performed the activities. Its findings on mutuality of obligation and control stood, but the UT had approached the third element of the Ready Mixed Concrete test in the wrong way.

In Kickabout, the Court of Appeal upheld the UT’s decision that there was a contract of employment. As a matter of construction, it was clear there was an obligation on the broadcaster to offer the number of programs the presenter was required to present. The Court of Appeal also upheld the UT’s finding that there was a sufficient framework of control and approved its analysis of the third element of the Ready Mixed Concrete test.

What can we learn from the Court of Appeal’s decisions?

There are a few key points we can take from the Court of Appeal’s decisions:

  • A finding that the first two limbs of the Ready Mixed Concrete test are met (ie that there is both mutuality of obligation and control) does not create a presumption that a contract of employment exists. Findings of mutuality of obligation and control are prerequisites to a finding of employment but the full assessment still needs to be made. If a tribunal makes positive findings that mutuality and a framework of control exist, it can and must make a “multi-factorial” assessment to determine whether an employment relationship does exist. If either mutuality or control are missing, there is no employment.
  • The tribunal must undertake a balancing exercise and weigh any terms of the contract that point away from an employment relationship against the terms that point towards one. So the strength of the mutual obligation and degree of control are also relevant at this stage. The Court of Appeal held that it is for the tribunal to determine the weight it should assign to each factor, based on the context.
  • In cases about employment (or worker) status in the employment context, the approach to be taken is slightly different as the employer may be trying to exclude or limit the protections afforded to workers/employees. Therefore, in this context, the tribunal may apply the approach from Autocleanz and look behind the written contract to determine if it reflects the reality of the relationship.
  • In situations, such as Atholl House and Kickaboutwhich are concerned with the assessment of deemed employment status for tax purposes, it is not permissible for the tribunal to apply the Autocleanz approach – instead of the normal principles of contractual interpretation applied.
  • The tax tribunals are not immune from making mistakes when applying these principles (as seen in the overturning of the UT’s decision in Atholl House). This is more than a little disheartening for us mere mortals. It is a particularly complicated area of ​​law and one on which it is always prudent to take advice.

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