How Did Adrian Chiles Beat HMRC?

Overview Of Adrian Chiles Beating HMRC

The Tax Tribunal found that Adrian Chiles had a mutuality obligation to do work for ITV and the BBC and he was under their control, so how on earth did Adrian Chiles beat HMRC in its IR35 claim?

The appellant is a UK company controlled by a very well-known broadcaster, Adrian Chiles. The respondent is a very well-known government department, none other than HMRC.

Voila, we present the case of Basic Broadcasting Limited v Revenue & Customs [2022] UKFTT 48 (TC). We suggest that you may wish to skip reading all of its 357 paragraphs to get right down to the brass tacks.

In 1996 basically what happened was, Basic Broadcasting Limited (“the Company”) was born as a body corporate and Adrian Chiles was appointed to the Board of Directors. He appears to have been thereafter the sole shareholder of the Company. He provided through the Company his services to broadcasters like the BBC and ITV.

HMRC issued various determinations suggesting that Mr Chiles was liable for in excess of £1.5 million in income tax and NIC for certain tax periods.

The HMRC Tax determinations and decisions were made on the basis of the “intermediaries legislation” also known as IR35 contained in Sections 48-61 Income Tax (Earnings and Pensions) Act 2003 (“ITEPA 2003”) and equivalent provisions in the Social Security Contributions (Intermediaries) Regulations 2000 (“the 2000 Regulations”).

Purpose Of The Intermediaries Legislation

The purpose of the intermediaries legislation was identified by Robert Walker LJ as he then was in R (Professional Contractors Group & Others) v IRC [2001] EWCA Civ 1945 at [51]:

to ensure that individuals who ought to pay tax and NICs as employees cannot, by the assumption of a corporate structure, reduce and defer the liabilities imposed on employees by the United Kingdom’s system of personal taxation.

The Servant And Master

The case boiled down to whether or not Adrian Chiles was an employee of the BBC and ITV.

In essence, to be employed under a contract of service the following test from Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497 at 515 can identify such a contract:

(i) The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master. (ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master. (iii) The other provisions of the contract are consistent with its being a contract of service.

So, in a nutshell, an individual is the servant of a master who in exchange for the servant’s work, is paid by the master. As a result, this gives rise to three tests:

1. Mutuality of Obligation.
2. Control.
3. Consideration of the other provisions being consistent with a contract of service.

Mutuality Of Obligation

The mutuality of obligation is the act of personally performing work offered and to pay remuneration in exchange. This was articulated in Carmichael v National Power Plc [1999] 1 WLR 2042 at 2047

“irreducible minimum … necessary to create a contract of service”

The Tax Tribunal found that in relation to the BBC and ITV contracts that there was mutuality of obligation.

Control

Control over the work in terms of where, when and how is germane to an employment relationship.

The key issue is not whether the servant (worker) has day to day control over their work, but whether there is, to a sufficient degree, a contractual right of control (see White v Troutbeck [2013] IRLR 286 at [40]-[43] per Richardson J, upheld in the Court of Appeal at [2013] IRLR 949, and Morren v Swinton and Pendlebury BC [1965] 1 WLR 576). The question whether control is “sufficient” for this purpose must take into account the practical realities of the particular industry, considering those aspects of the performance of work that can be controlled in that industry.

The Tribunal found that the control ITV and the BBC had over Adrian Chiles was sufficient to suggest that prima facie he was an employee of ITV and the BBC.

Other Provisions

The matter developed with consideration by the Tribunal of the third test ie. consideration of the other provisions being consistent with a contract of service and as a result principally whether or not Adrian Chiles was in business on his own account.

What the Tax Tribunal said was:

The principal factors which in our view establish that Mr Chiles was in business on his own account may be summarised as follows:

(1)          Since at least 2001, Mr Chiles had provided his services as a broadcaster and journalist to a significant number of clients. We have described the extent of this work in our findings of fact. Some of that work was one-off, in the sense that it related to one-off programmes. Some related to short series of programmes. The work was wide in its scope, including not just presenting programmes and writing newspaper articles and columns, but also appearing in commercials, presenting awards at award ceremonies and speaking at commercial conferences.

(2)          Mr Chiles had a significant number of clients. In the period 1996 to 2019 he contracted with nearly 100 different third parties.

(3)          In addition to this work, Mr Chiles undertook work on other commercial projects which did not bear fruit and turned down other work including television appearances. We are satisfied that in the period from 2007 onwards when Avalon was appointed Mr Chiles was building a reputation and a career working through BBL.

(4)          Avalon was appointed to act as Mr Chiles’ agent. Their role was to act as his management company in all areas of the entertainment industry. They were to use their best endeavours to promote and further Mr Chiles’ career and reputation in the entertainment industry. Mr Chiles paid Avalon a fee of 15% of his income from the entertainment industry.

(5)          In September 2007 Mr Chiles engaged a personal assistant to manage his diary and to liaise with Avalon, the BBC and his other clients. The personal assistant was self-employed and in the period 2012 to 2017 Mr Chiles paid her on average £15,900 per year.

(6)          In 2009 Mr Chiles and Avalon were looking to produce a factual entertainment show which Mr Chiles would present and which was pitched to the BBC. The BBC commissioned a pilot, but the show was not adopted. It was later adopted by ITV. Mr Chiles had helped to create the format and was a co-producer entitled to a share of the production profits. He was ultimately engaged by Avalon to present the programme.

(7)          Throughout the relevant tax periods Mr Chiles continued to seek and obtain other work apart from his work under the ITV Contracts and the BBC Contracts. He entered into 40 separate agreements with some 25 different third parties.

(8)          The income earned by Mr Chiles in the period 2012 to 2017 excluding his income as a presenter for ITV and the BBC under the hypothetical contacts was some £350,000. We have described the sources of that income in our findings of fact and some two thirds of it was earnings from Avalon in relation to That Sunday Night Show. There was very little other income in tax year 2013-14, although the reason for that is not clear.

Result: How Did Adrian Chiles Beat HMRC

In formulating its judgment the Tax Tribunal signed off for HMRC now to consider if they wish to advance matters to the Upper Tax Tribunal, by saying:

In all the circumstances we consider that Mr Chiles is to be treated as entering into the hypothetical contracts as part and parcel of that business. They were contracts for services and not contracts of employment. We conclude therefore that the condition in s 49(1)(c) ITEPA 2003 is not satisfied in relation to the ITV Contracts or the BBC Contracts in any of the relevant tax years.

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