Who’s Afraid of the Big Bad IR35 Wolf?
IR35 has struck fear and frustration into the minds of contractors for a number of years. The legislation surrounding this area is complex and there has been limited case law for additional guidance, caused by a lack of HMRC challenges. As such, any historical misunderstandings may continue to be unchecked. This can be illustrated by the recent decision issued by the Upper Tribunal in HMRC’s favour in respect of the interpretation of the IR35 regulations.
The case (Big Bad Wolff Ltd v HMRC  UK UT121) was an informal test case concerning the operation of IR35 for people working in the entertainment industry, particularly actors.
Robert Glenister, a well-known actor, provided his services to various television show producers via a Personal Service Company (“PSC”), Big Bad Wolff Ltd. The issue that arose in the Upper Tribunal concerning the interaction of IR35 and various regulations governing National Insurance Contributions (“NIC”).
Mr Glenister was employed by his PSC, Big Bad Wolff. Mr Glenister’s payments for his acting roles were paid to him via Big Bad Wolff. The issue for the Upper Tribunal was whether, but for the presence of Big Bad Wolff, Mr Glenister would be deemed as being employed by the producer engaging his acting services (despite the fact that had Mr Glenister contracted directly with those producers, legally he would have been self-employed). If he was deemed to be an employee, then IR35 dictated that Big Bad Wolff would have to pay employer’s NIC that otherwise would have been payable by the producer.
Having considered the regulations in great detail, the Upper Tribunal ruled that Mr Glenister was deemed to be employed by the producer and thus Big Bad Wolff were liable to pay the employer’s NIC under IR35.
The decision was an informal test case for a number of other cases involving the same or similar issues. Moving forward, where a worker uses a PSC (and would be considered to be self-employed if they had not operated via the personal services company), they will still be caught by IR35 if various regulations would deem them to be treated as if they are an employee – something that will likely apply to members of the entertainment industry who used PSCs. The net end result is that the PSC becomes liable to pay employer’s NIC.
The regulations applicable in this particular case ceased to have effect from 2014 for workers in the entertainment industry, the outcome of the decision may prompt a number of claims against accountancy practices who have historically advised clients in the entertainment industry on the use of PSCs and may prompt a number of reviews in this area. Liz Norris, Claims Manager at Marsh Commercial, a specialist professional indemnity insurance broker, said “On a positive note, Marsh Commercial has not yet seen an influx of claims or notifications in relation to this issue. However, if your work in this area is increasing in volume, scope or if this is a new focus for you or your practice, it’s advisable to check your insurances to make sure this additional work is covered”.
On a more general level, IR35 “off-payroll rules” are being extended to the private sector from April 2020. On the one hand, this could result in a reduction of work for the accountancy profession in terms of preparation of accounts and tax computations. This is on the basis that many may consider that there is little or no benefit to being engaged via a limited company and instead move towards being directly employed (assuming the end client agrees). However on the flip side, if HMRC activity is stepped up on IR35 compliance, this could lead to increased work for assisting those subject to first-tier tribunal actions. And, perhaps more significantly, opportunities to advise existing clients on how to prepare adequately for IR35 in April 2020 should be abound. It is a legislative minefield, but very much an opportunity to add further value to existing client relationships and, so long as adequate preparation and consideration of the legislative changes are made, there should be no big bad IR35 wolf for the accountancy profession to fear.
If in doubt, it’s always wise to pick up the phone and speak to your Professional Indemnity Insurance (PII) broker who is there to advise you.
This article is written in conjunction with Joe Eizenberg, Partner (Beale & Co).
The information contained herein is based on sources we believe reliable and should be understood to be general risk management and insurance information only. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such.
Statements concerning legal, tax or accounting matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as legal, tax or accounting advice, which we are not authorised to provide.