With the new IR35 regime coming into force for medium and large companies in the private sector from April 2020, it is helpful for us to look at how the regime has been implemented and adjudicated on in the public sector, where it has been in force since 2017. The case of Paya Limited and others v HMRC [2019] UKFTT 0583 (TC) shows us that the application of the relevant tests to real-life scenarios can be extremely difficult. So much so, even the panel of the First Tier Tax Tribunal (FTT) could not come to a unanimous decision.

IR35 was introduced to prevent individuals from avoiding tax by providing their services through an intermediary, personal service company (PSC), thereby classing themselves as self-employed rather than employed. Essentially IR35 applies where an individual personally performs services for a client through a PSC where, in the absence of the PSC, the individual would have been regarded as an employee.

The case involved three presenters who had each provided their services to the BBC via PSCs. These services were provided under a series of contracts with very similar terms over a period of five years.

By a casting vote, the FTT held that an employment relationship had been created and, therefore, that IR35 applied, meaning that the unpaid taxes would need to be repaid to HMRC.

The decision was based on the three main factors used to determine employment status:

  1. Mutuality of obligations: the BBC was obliged to use the presenters' services for a minimum number of days and the presenters were obliged to be available if called upon.
  2. Control: the BBC exercised control over the presenters whereby they had to attend meetings and training and follow its editorial guidelines. In addition, they were prevented from working for other broadcasters.
  3. Personal service: there was no real right of substitution.

Looking at the relationship as a whole, the FTT determined that an employment relationship existed.

The case highlights the complicated nature of IR35 – even the FTT panel was not entirely in agreement – and the importance of assessing the reality of working arrangements, not just the label given to them.

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