In HMRC v Kickabout Productions Ltd [2020] UKUT 216 (TCC) (28 July 2020), the Upper Tribunal (UT) allowed HMRC's appeal against the First-tier Tribunal’s (FTT) decision that Mr Hawksbee, a radio broadcaster, was not an employee of Talksport for the purposes of the IR35 legislation, contained ITEPA 2003 ss 48–61. The UT held the FTT had erred in its findings on mutuality of obligation and, in remaking the decision, found that the individual was to be regarded as an employee under the hypothetical contracts for tax purposes.
Kickabout Productions (KPL) was a personal service company established by Mr Hawksbee to provide his services as the radio broadcaster of a daily three-hour show for Talksport. Payments were made by Talksport to KPL for the provision of Mr Hawksbee’s services. HMRC sought to argue the payments were subject to PAYE and NICs as they fell within the IR35 legislation.
The application of the IR35 legislation depended on whether a hypothetical contract between Mr Hawksbee and Talksport would have been one of employment.
In June 2019, the FTT noted that, under the actual contracts between Talksport and KPL, Talksport was not obliged to provide KPL with any work (albeit Mr Hawksbee was obliged to co-present 222 shows a year). The FTT therefore concluded there was an insufficient degree of mutuality of obligation for the hypothetical contracts between Mr Hawksbee and Talksport to be employment contracts.
HMRC appealed to the UT. The UT began by re-examining the terms of the actual contracts between KPL and Talksport, in order to ascertain the terms of the hypothetical contracts. The UT considered the fact the contracts provided Talksport with a right of termination or suspension meant Talksport was required to provide KPL work, being at least 222 shows per year for Mr Hawksbee to co-present. The UT agreed with HMRC that the FTT’s decision that the arrangements contained no obligation on Talksport to provide work was an error of law. It was therefore open for the UT to remake the decision.
Applying the three-stage test set out in Ready Mixed Concrete [1968] 2 QB 497, the UT considered whether there:
The UT therefore concluded that, under both hypothetical contracts, Mr Hawksbee would have been an employee of Talksport.
Why it matters: Mutuality of obligation, referred to as MOO by practitioners, continues to be a hot topic. While rarely determinative on its own, it is a key test in establishing employment status. It featured heavily in the recent Canal Street [2019] UKFTT 647 (TC) and PGMOL [2020] UKUT 147 (TCC) decisions, and continues to be a contentious issue, particularly in IR35 situations.
As private sector businesses prepare for the extension of the off-payroll IR35 regime from April 2021, the crucial issue of whether a hypothetical contract is one of employment will fall to end clients to determine. One tool available to assist with this decision-making process is HMRC’s online CEST tool. However, CEST does not take into account whether there is mutuality of obligation between the parties. Concerns about this have repeatedly been raised by practitioners, but in August 2019 HMRC confirmed it remained of the view that mutuality was not a relevant factor in a tax context. A link to its reasoning (set out in HMRC’s Employment Status Manual at ESM0543) can be found on the CEST introductory page (at ‘contract in place’).
Interestingly, in Kickabout, HMRC argued that mutuality of obligation should not have been considered by the FTT at the third stage of the Ready Mixed Concrete test, as it formed the entirety of the first part. However, given the UT’s finding on mutuality, the issue was incapable of pointing against employment status, so HMRC’s issue was put aside.
In HMRC v Kickabout Productions Ltd [2020] UKUT 216 (TCC) (28 July 2020), the Upper Tribunal (UT) allowed HMRC's appeal against the First-tier Tribunal’s (FTT) decision that Mr Hawksbee, a radio broadcaster, was not an employee of Talksport for the purposes of the IR35 legislation, contained ITEPA 2003 ss 48–61. The UT held the FTT had erred in its findings on mutuality of obligation and, in remaking the decision, found that the individual was to be regarded as an employee under the hypothetical contracts for tax purposes.
Kickabout Productions (KPL) was a personal service company established by Mr Hawksbee to provide his services as the radio broadcaster of a daily three-hour show for Talksport. Payments were made by Talksport to KPL for the provision of Mr Hawksbee’s services. HMRC sought to argue the payments were subject to PAYE and NICs as they fell within the IR35 legislation.
The application of the IR35 legislation depended on whether a hypothetical contract between Mr Hawksbee and Talksport would have been one of employment.
In June 2019, the FTT noted that, under the actual contracts between Talksport and KPL, Talksport was not obliged to provide KPL with any work (albeit Mr Hawksbee was obliged to co-present 222 shows a year). The FTT therefore concluded there was an insufficient degree of mutuality of obligation for the hypothetical contracts between Mr Hawksbee and Talksport to be employment contracts.
HMRC appealed to the UT. The UT began by re-examining the terms of the actual contracts between KPL and Talksport, in order to ascertain the terms of the hypothetical contracts. The UT considered the fact the contracts provided Talksport with a right of termination or suspension meant Talksport was required to provide KPL work, being at least 222 shows per year for Mr Hawksbee to co-present. The UT agreed with HMRC that the FTT’s decision that the arrangements contained no obligation on Talksport to provide work was an error of law. It was therefore open for the UT to remake the decision.
Applying the three-stage test set out in Ready Mixed Concrete [1968] 2 QB 497, the UT considered whether there:
The UT therefore concluded that, under both hypothetical contracts, Mr Hawksbee would have been an employee of Talksport.
Why it matters: Mutuality of obligation, referred to as MOO by practitioners, continues to be a hot topic. While rarely determinative on its own, it is a key test in establishing employment status. It featured heavily in the recent Canal Street [2019] UKFTT 647 (TC) and PGMOL [2020] UKUT 147 (TCC) decisions, and continues to be a contentious issue, particularly in IR35 situations.
As private sector businesses prepare for the extension of the off-payroll IR35 regime from April 2021, the crucial issue of whether a hypothetical contract is one of employment will fall to end clients to determine. One tool available to assist with this decision-making process is HMRC’s online CEST tool. However, CEST does not take into account whether there is mutuality of obligation between the parties. Concerns about this have repeatedly been raised by practitioners, but in August 2019 HMRC confirmed it remained of the view that mutuality was not a relevant factor in a tax context. A link to its reasoning (set out in HMRC’s Employment Status Manual at ESM0543) can be found on the CEST introductory page (at ‘contract in place’).
Interestingly, in Kickabout, HMRC argued that mutuality of obligation should not have been considered by the FTT at the third stage of the Ready Mixed Concrete test, as it formed the entirety of the first part. However, given the UT’s finding on mutuality, the issue was incapable of pointing against employment status, so HMRC’s issue was put aside.
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