The first-tier tribunal ruled that IR35 applied to the arrangements between the BBC and Christa Ackroyd, who was engaged to provide presenting services through her company Christa Ackroyd Media Ltd (CAM). The tribunal found that the arrangements, which lasted for seven years and required Ackroyd to personally provide services 225 days a year, "point[ed] towards a contract of employment".
Ackroyd was "economically dependent" on the hypothetical contract with the BBC, under which the company "could control what work Ackroyd did", the tribunal said.
"It was a seven year contract for what was effectively a full time job," the tribunal said.
"Standing back and making an overall qualitative assessment of the circumstances we consider that Ackroyd was an employee under the hypothetical contract. If the services provided by Ackroyd were provided under a contract directly between the BBC and Ackrord, then Ackroyd would be regarded for income tax purposes as an employee of the BBC," it said.
IR35 applies if a contractor providing services through a PSC would have been an employee had the services been provided directly under a contract between the contractor and the client. Where IR35 applies, a contractor's PSC is obliged to deduct broadly the same tax and National Insurance contributions (NICs) as an employer would. HMRC had previously issued determinations to CAM for some £419,151 in unpaid income tax and NICs.
Employment tax expert Chris Thomas of Pinsent Masons, the law firm behind Out-Law.com, said that the judgment was "not really a surprise in view of the background to this case".
"Given the apparently significant level of control exercised by the BBC over what services Ms Ackroyd provided, the fact that she couldn't send a substitute without BBC consent and the length and continuity of the arrangement, as well as the high level of required work days, it was always going to be difficult to show that the employment status test wasn't met," he said.
"The judgment should act as a warning not only to contractors but also to engagers, as we know that the government has its eye on a possible extension of the public sector rules which place responsibility for assessing employment status onto the engager to the private sector. Engagers need to act now to assess their exposure and consider remedial action where feasible - bearing in mind also the interaction of IR35 with the new failure to prevent tax avoidance offence," he said.
A PSC is typically a limited company through which an individual is contracted to supply services, but of which the individual is usually also the owner and sole director. In Ackroyd's case, her husband was also a director. Ackroyd claimed that for the purposes of IR35, she was a self-employed contractor and not equivalent to an employee.
Public bodies which engage freelancers or contractors are now responsible for ensuring that person's compliance with the tax legislation, following a change to the law in April 2017. Responsibility for compliance remains with the individual where the end user is in the private sector.
Among the aspects of the relationship between Ackroyd and the BBC which the tribunal found relevant when coming to its decision were the BBC's control over Ackroyd's work; the lack of a right to substitution; the fact that the BBC had the contractual right to require Ackroyd to deliver 225 days worth of services; and that the contract restricted Ackroyd from working for anyone other than the BBC without its consent. It also considered that Ackroyd could not "fairly be described as being in business on her own account".
The tribunal noted that its decision required a "value judgement", and that its findings should not be taken as evidence that Ackroyd had deliberately breached tax laws.
"It is in the nature of a value judgement that different people may come to different conclusions," the tribunal said.
"We do not criticise Ms Ackroyd for not realising that the IR35 legislation was engaged. She took professional advice in relation to the contractual arrangements with the BBC and she was encouraged by the BBC to contract through a personal service company," it said.