Upper Tribunal Tax and Chancery Chamber

UT/2023/000018 - [2024] UKUT 00165 (TCC)

Fecha: 06-Feb-2024

The FTT’s approach to the Third RMC Stage

The FTT’s approach to the Third RMC Stage

58.

We turn now to whether the FTT made the errors of law set out by Ground 1 in its approach to determining the Third RMC Stage. We remind ourselves that, given the FTT’s findings that there was sufficient mutuality and control under the Contracts, this determination was critical in deciding the appeal.

59.

The FTT helpfully set out the relevant principles and case law regarding the third stage at FTT[245]-[278], and then applied those principles at [318]-[355].

60.

In terms of the applicable principles, the FTT began by determining that the level and nature of control found to exist should be taken into account at the Third RMC Stage: FTT[253]. That was clearly correct, and confirmed in Atholl House CA. The FTT accepted that at stage three there was a prima facie assumption of employment. That proposition was disapproved in Atholl House CA, but in this appeal neither party suggests that this resulted in any material error.

61.

At FTT[260], the FTT set out the “business on own account” approach, by reference to Market Investigations. At FTT[263], it noted that in the case of a profession or vocation the question may not be very helpful. Both of these are correct statements of principle.

62.

At FTT[265], the FTT turned to Atholl House UT. It set out [79] of Atholl House UT, which ends with the following passage:

If the facts demonstrate that [Ms Adams’] professional life both in the tax years in dispute, and in previous tax years, involved her carrying on a business on her own account, and if the hypothetical contract with the BBC would be regarded as entered into in the course of that business, that would be perfectly capable of supporting a conclusion that the hypothetical contract was not one of employment.

63.

The FTT referred to Cooke J’s formulation of the business on own account test in Market Investigations, and to the judgment of the Court of Appeal in Hall v Lorimer. It concluded by noting that it is not appropriate at the third stage to adopt a “check list” approach, but to stand back and make a qualitative assessment.

64.

We return to the FTT’s summary of the applicable principles and case law after we have considered how the FTT applied those principles. In considering this ground of appeal, we must look at the Decision in the round, and not fall into the trap of focussing unduly or narrowly on particular words or phrases, or taking statements out of context.

65.

At FTT[319]-[320], the FTT began its discussion as follows (emphasis added to original):

319.

We have found that the broadcasters do have a sufficient measure of control to establish a prima facie case that there is a contract of employment. However, we do not consider that the extent of the broadcasters’ control in either case is a compelling factor. Essentially, we must consider whether there are other provisions of the contracts or other factors which displace the prima facie case and require a conclusion that the contracts are contracts for services rather than contracts of employment.

320.

In our view the most significant factor that might displace the prima facie case that Mr Chiles was an employee under the hypothetical contracts is whether he was in business on his own account. But only if the hypothetical contracts can properly be seen as part of that business. That is the approach taken by the Upper Tribunal in Atholl House and in other cases. It involves a value judgment and will depend on various factors which will carry different weight in the overall analysis.

66.

The FTT then turned to whether Mr Chiles was in business on his own account. It is clear that the FTT was considering this question in the second context we identify above, namely whether he was in business on his own account by reference to his activities outside the Contracts. This is clear from FTT[323]-[324]:

323.

Mr Tolley pointed out that BBL bears the burden of establishing that Mr Chiles should be treated as being in business on his own account. He submitted that there was a lack of documentary evidence which meant that we should not make any finding that Mr Chiles was in business on his own account. In particular, we could not assume that any other contracts entered into by BBL would themselves not subject to IR35.

324.

We agree with Mr Tolley that we are not in a position based on the evidence and submissions before us to make any findings in relation to the status of the First ITV Contract so far as it relates to Daybreak or as to work done for the BBC on long-standing programmes such as Match of the Day 2 and The One Show. However we do consider that we have sufficient evidence from Mr Chiles to form a conclusion as to the nature of his other work, including work done for the BBC through independent production companies.

67.

The FTT identified “the real question” before it as follows, at FTT[325] (emphasis added to original):

In relation to BBL’s other work, Mr Chiles’ evidence was not challenged. We infer on the basis of our findings of fact that Mr Chiles’ other work would not be considered that of an employee. We agree with Mr Rivett that Mr Chiles should be treated as being in business on his own account in all the tax years under consideration. The real question is whether the hypothetical contracts were entered into as part of that business, or whether they should properly be viewed as contracts of employment separate to the business.

68.

The FTT discussed in detail the factors relevant to whether Mr Chiles was in business on his own account outside the Contracts for the relevant periods, and concluded that he was. The FTT framed the remaining question as it saw it at FTT[332]:

We must now consider whether the hypothetical contracts are separate contracts of employment with ITV and BBC, or whether they should be seen as part of Mr Chiles’ business.

69.

We note the following statements from the FTT’s reasoning, as indicative of the approach which it was adopting. The FTT referred to certain matters “which in our view point to [the Contracts] being part of the business he was conducting on his own account”: FTT[333]. It considered that the absence of any right of substitution on the part of Mr Chiles “[did] not indicate that these contracts were outside Mr Chiles’ established business activities”: FTT[336]. At FTT[340] onwards, the FTT considered what is described as “the most significant factors relied upon by HMRC”, being the duration of the Contracts, the contribution the Contracts made to Mr Chiles’ income, and the absence of financial risk in performing the Contracts. It considered that “the length of the contracts does in our view indicate they were contracts of employment rather than part of Mr Chiles’ business”. At FTT[345] the FTT said this:

Mr Chiles clearly had time over and above his commitments under the ITV Contracts and the BBC Contracts to conduct his business. We have set out above the income he derived from his business in the relevant tax years and the nature of the work he was carrying out in those years. It is not uncommon for businesses to have a small number of good, long-standing clients who effectively form the backbone of a business, a factor which we have noted was recognised by the Upper Tribunal in [Atholl House UT] at [113] quoted above.

70.

At FTT[352], the FTT stated:

Mr Chiles had a number of clients in his existing business. It is notable that he was working for both ITV and BBC at the same time in the period November 2013 to May 2015. The services provided by Mr Chiles for ITV and BBC fell fairly and squarely within the scope of his existing business activities. In relation to ITV, Mr Chiles was also involved co-producing That Sunday Night Show on behalf of ITV, which we are satisfied was part of his existing business.

71.

In assessing the extent to which Mr Chiles could profit from sound business management, the FTT stated, at FTT[353]:

As we have said, Mr Chiles could profit from sound business management of his activities generally. He conducted his activities in a business-like manner. The Avalon Agreement applied to his income from the hypothetical contracts in the same way as it applied to his other work. Mr Chiles’ personal assistant helped him to better perform his duties under the hypothetical contracts as she did in relation to his other work.

72.

The FTT’s overall conclusion was at FTT[354]:

We must stand back and look at the circumstances as a whole. Those circumstances include the prima facie existence of a contract of employment given the existence of mutuality of obligation and a sufficient framework of control. We take into account the nature and extent of the framework of control we have found to exist. We also take into account the nature and extent of the business which we have found Mr Chiles is to be treated as conducting on his own account. 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.