TV presenter Adrian Chiles is set to face a fourth tribunal in an ongoing legal battle with HMRC. The dispute about the presenter’s employment status with the BBC and ITV, and a potential £1.7 million in unpaid Income Tax and National Insurance (NI), has dragged on for more than 10 years.
The case revolves around “IR35” tax rules and whether Chiles was an employee of the TV stations he worked for or providing a service as a contractor. HMRC argued the former and said that Chiles was liable for the taxes he should’ve paid as an employee, while the presenter maintains he was never employed and had paid the correct taxes.
The courts originally ruled in favour of Adrian Chiles back in 2022. However, it’s been revealed that legal mistakes were made during this case and so it will go back to court.
Adrian Chiles isn’t the only presenter to find himself in this position. In fact, IR35 disputes are very common and many TV personalities including Gary Lineker, Eamonn Holmes, and Lorraine Kelly, all found themselves embroiled in a legal battle with HMRC.
Gary Lineker and Lorraine Kelly won their cases and didn’t have to pay. Conversely, Eamonn Holmes was ruled to have underpaid tax and received a bill for £250,000 from HMRC.
These high-profile cases demonstrate how complex IR35 can be and why it’s important to understand the rules.
This is especially true if you’re a business owner because, after amendments to IR35 in 2017 and 2021, companies are responsible for determining whether somebody is an employee or not.
Read on to learn what the recent Adrian Chiles case can teach you about IR35 rules.
If a contractor is “inside IR35”, they pay tax as an employee
The IR35 rules, sometimes called “off-payroll” rules, determine whether a contractor is working as an employee for tax purposes.
If they’re considered “inside IR35” this means they are essentially working as an employee and you need to deduct Income Tax and National Insurance (NI) from their payment, just as you would with a full-time employee.
However, if they’re “outside IR35”, this means they’re providing a service as a contractor. In this case, it’s up to them to pay their own Income Tax and NI through self-assessment.
Disputes often arise when the contractor and the company they’re providing a service for disagree about the contractor’s employment status and who should pay tax.
Business owners are responsible for deciding if somebody is inside IR35 or not
The Adrian Chiles case relates to work he carried out for the BBC and ITV between 2012 and 2017. At this time, IR35 rules stated that it was the contractor’s responsibility to determine if they were inside IR35 or not.
If there was a mistake, the contractor’s company were liable for any unpaid tax. That’s why Adrian Chiles is potentially facing a bill of £1.7 million.
However, the rules changed in 2017 for public companies and 2021 for medium to large private companies. In effect, these amendments meant that it became the responsibility of the business to decide whether a contractor was inside IR35 or not.
Additionally, if ruled incorrectly, you may be liable for any unpaid Income Tax and NI, as well as additional penalties.
Previously, mistakes with IR35 classification could result in “double taxation”
Often, a business would deem a contractor to be outside IR35, meaning the contractor would pay their own tax through self-assessment. The contractor would likely consider this when pricing services and incorporate the amount they would pay in tax.
Yet, if HMRC investigated and decided that the contractor was inside IR35, the business would have to pay Income Tax and NI, despite the fact the contractor had already paid through self-assessment.
Businesses were naturally concerned about this danger of “double taxation” and, as a result, many avoided working with contractors.
Indeed, in 2021, Contractor Weekly reported that 11% of companies had stopped working with contractors altogether as a result of the new changes.
Then, in April 2024, the rules changed again.
New rules introduced in April 2024 protect businesses from double taxation
Many businesses and contractors questioned IR35 rules and whether they were fit for purpose because of the complexities involved and the risk of double taxation.
So, the government decided to review IR35. Back in June 2023, we wrote about proposed changes to IR35 legislation that would protect businesses.
Those changes came into effect in April 2024.
Under the new rules, you can now offset tax that was previously paid by a contractor against a bill from HMRC.
For example, if you incorrectly classified a contractor as outside IR35, they would pay Income Tax and NI through self-assessment. If HMRC then decided that they were inside IR35 and issued you with a bill, you could subtract the tax the contractor already paid from the amount you owe.
This is a welcome change that could protect your business from double taxation when working with contractors. That said, IR35 tax rules can still be very complex, and dealing with disputes or applying to offset previously paid tax may be stressful and time-consuming.
That’s why it’s important to be clear about the rules and how they might affect your business.
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Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.