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In both Kickabout Productions Ltd v HMRC [2022] EWCA Civ 502 (Kickabout) and HMRC v Atholl House Productions Ltd [2022] EWCA Civ 501 (Atholl House) the Court of Appeal considered the application of the intermediaries legislation, commonly known as IR35. In part 2 of this blog, Harry Sheehan gives his view of the effect of the Court of Appeal’s judgments, and the extent to which they alter the way in which practitioners should approach cases involving employment status and provide scope for novel arguments to be run in future cases.

In part 1 of this blog, Marianne Tutin addressed the Court’s judgments in Kickabout and Atholl House, summarising the facts and outcomes of both cases. This article does not restate that background but takes a closer look at the consequences of the judgments for future cases. References to paragraphs are to paragraphs in the Court of Appeal decisions (citations above), unless otherwise indicated.

The three most important points from the decisions are as follows: (1) the scope and application of Autoclenz in the tax context; (2) the status and scope of the business on own account test; and (3) the correct application of the Ready Mixed Concrete test.

Construing contracts of employment and the application of Autoclenz and Uber

In Autoclenz Ltd v Belcher [2011] UKSC 41 (Autoclenz) the Supreme Court found that terms in a contract between “valeters” and Autoclenz did not represent the true agreement between the parties, but without finding that those terms were a sham or by seeking to rectify the contract. In cases where the parties were of unequal bargaining power, the Supreme Court found that the court’s role was to “ascertain the true agreement between the parties”, conscious that “armies of lawyers” could seek to insert clauses to insert clauses denying any obligation to provide work in employment contracts even where such terms did not reflect the real relationship between the parties (see paras 25 and 26, endorsing the comments of Elias J as he then was). Autoclenz was recently applied by the Supreme Court in Uber BV v Aslam [2021] UKSC 5 (Uber) and Lord Leggatt explained that the justification for the approach adopted in Autoclenz was that a different approach should be taken where the primary question is actually one of statutory interpretation rather than contractual interpretation.

Uber and Autoclenz were relied on in both Kickabout and Atholl House. In Kickabout, HMRC relied on Uber to argue that clauses in Kickabout’s service contracts stating that they were not contract of employment should be ignored (see para 96). In Atholl House the taxpayer adopted a similar approach in arguing that the First-tier Tribunal had been right to find that the terms of the written contracts between Atholl House and the BBC did not reflect the actual agreements between the parties (para 53). In both cases, those arguments were rejected (see para 96 of Kickabout and para 159-160 of Atholl House). Sir David Richards (who delivered the leading judgment in both cases) explained in Atholl House that it was not a case which raised any issue of statutory construction, and that in those circumstances it was not legitimate to apply the Autoclenz approach (para 156 of Atholl House).

Following Atholl House and Kickabout, it will be difficult for either party in an IR35 case to argue that terms of a written contract should be disregarded by applying the approach in Autoclenz and Uber. This is a development that can cut both ways: it is common for service contracts to include terms excluding any obligation to provide work or allowing an unfettered right to substitute. Following Kickabout and Atholl House, it will be more difficult for HMRC to argue that such clauses can be disregarded on the basis that they do not reflect the true agreement between the parties. Similarly, however, the same reasoning may cause difficulties for taxpayers who seek to disregard terms, such as exclusivity clauses that point towards employment, such as the clause that was present in in Atholl House (see paras 15-17) – even where they might never be operated in practice.

Uber is still a fairly recent decision, and there appears to be uncertainty as to when the approach Lord Leggatt took is apposite (as both HMRC and Atholl House sought to apply it in the context of the IR35 provisions). We know from Uber that a purposive approach is to be taken to determining worker status under inter alia section 230(3) of the Employment Rights Act 1996 and Kickabout and Atholl House suggest that such an approach should not be taken to the determination of employee status under the hypothetical contract postulated by the IR35 provisions, but it remains to be seen how far the Uber approach can be taken and in what other contexts it may be relevant. Could there, for example, be scope for a purposive approach when dealing with questions of continuous employment under the Employment Rights Act 1996 where the court or tribunal has to determine at what time the putative employee’s relations were “governed by a contract of employment” for the purposes of section 212?

Moreover, Sir David Richards based his conclusion on the fact that both parties agreed that the statutory context in Kickabout and Atholl House gave no special meaning to the term employee. In Atholl House he said, “[b]oth sides agreed that the statutory context gave no special meaning to the term “employee”. This is not therefore a case which raises any issue of statutory construction of a term such as “worker”…” (at para 156). This may not be agreed in future cases, particularly given the consequence that agreement had in Kickabout and Atholl House, and there may be arguments that the statutory context is relevant to the meaning of “employee” even though the common law test for employment applies.

Hall v Lorimer and the business on own account test

The most authoritative test for employment status can be found in case of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497 (RMC) which gives the well-known three-stage test. The first two stages ask whether the contract contains sufficient “mutuality of obligation”[1] and whether the putative employer had a sufficient right of control over the putative employee. The third stage is at one point described in RMC as whether “’[t]he other provisions of the contract are consistent with its being a contract of service.” It is common for parties seeking to dispute employment status to rely on Hall v Lorimer [1992] 1 WLR 939 for the principle that the third stage of the RMC stage requires an extremely broad factual enquiry.

In Atholl House, the parties disagreed as to the proper application of Hall v Lorimer. HMRC submitted that the factors the court or tribunal could take into account were limited to the express and implied term of the contract under which the putative employee was engaged (see para 58), and their effect. More broadly, HMRC argued that recent authorities had established the ‘primacy’ of the RMC test over the approach expounded in Hall v Lorimer (para 59). The Court of Appeal rejected HMRC’s submissions. Sir David Richards concluded that there was no dichotomy between the RMC test and the approach in Hall v Lorimer, and the factors to which a court or tribunal could have regard was not confined to the terms of the contract and the effect of those terms (Atholl House at para 61 and 122).

The Court of Appeal’s decision endorses a more expansive test for employment status, and one which allows the court or tribunal to consider more potentially relevant factors than the restrictive approach HMRC contended for. Naturally, a broader test gives more scope for creativity when preparing cases. As the taxpayer will generally have a more complete understanding of the working relationship between the putative employer and employee, as well as the background of the putative employee’s professional life and background, this may be advantageous to a well-prepared taxpayer.

This is subject to two notable caveats. The first is that a broader test can, in some cases, assist HMRC as well. This was the case in Kickabout, for example, where the Upper Tribunal had regard to the fact that 90% of Mr Hawksbee’s income during the years under appeal had been obtained from Talksport (see paras 9(2) and 63).

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