what is employment?

The Court of Appeal has for the first time ruled on employment status under the intermediaries legislation (often known as IR35) in two cases involving Kaye Adams and Paul Hawksbee – and agreed with HMRC in both. In each case the terms of the contracts proved crucial.

The two appeals, both involving broadcasters using personal service companies to provide their services, were heard together.

Paul Hawksbee was co-presenter of a daily radio show under contracts between his company Kickabout Productions Ltd and Talksport Radio. HMRC determined that Mr Hawksbee should be treated as an employee. 

The Court of Appeal found that there was mutuality of obligations, an important indicator of employment, because the express terms of one of the contracts required Talksport to offer at least 222 programmes a year and Mr Hawksbee had to accept the work.

A second contract did not include these requirements, but similar terms appeared in an attached “schedule of services”. The court did not think that an analysis of whether Mr Hawksbee was “part and parcel” of Talksport’s organisation would weigh heavily in the balance, although “in other cases, analysis whether someone is ‘part and parcel’ of an organisation will be illuminating”.

The second case concerned freelance journalist Kaye Adams whose services were provided to the BBC through her company Atholl House Productions Ltd.

A complication was that the terms of the written contract differed from the actual agreement between the parties. The First-tier Tribunal had considered the contracts as if they had not included certain ‘control’ clauses, because these provisions had never been used. On this basis Ms Adams was not treated as employed. Although the behaviour of the parties has relevance to cases concerned with the definition of ‘worker’, the Court of Appeal considered that for the intermediaries legislation it is the actual contractual terms that matter.

An additional factor was that Ms Adams had other similar engagements that were akin to self-employment. The Court of Appeal held that the relevant factor was the contract in question and that the existence of other contracts should not affect the analysis. A person can have an employment and separately perform other similar activities as a sole trader.

These cases confirm the importance of a properly drafted contract that reflects the true relationship between the parties. Businesses and sole traders should review mutuality of obligations and control. If they are present, then establish whether the terms of the contract are indicative of employment or self-employment.

Further guidance

>Read more: What is IR35 and how might it affect me?

>HMRC IR35 checker: you can check your employment status for tax to find out if you, or a worker on a specific engagement, should be classed as employed or self-employed for tax purposes