The First-tier Tribunal has handed down its decision in the latest of the media IR35 cases Paya and others v HMRC  UKFTT 0583 (TC), which concerned three BBC television presenters.
The first 157 pages of the decision are worthy but predictable. As in all such cases, the facts are exhaustively (not to say exhaustingly) recounted and the legal principles subjected to examination in microscopic detail; and, as is not uncommon in IR35 cases, the Tribunal was split. The decision in favour of HMRC was made on the casting vote of the Chairman (Judge Harriet Morgan: “Chairman” is the term by which she described herself).
Frankly, the case doesn’t tell us much we didn’t already know, namely that employment status decisions are sometimes in truth too close to call, though “call” the Tribunal must.
But plough on after page 157 and your diligence will be rewarded: that’s when the case gets interesting as the Tribunal considers the procedural validity of the determinations under which HMRC sought to collect the tax.
Two issues arose.
The first was whether S29 of Taxes Management Act 1970 (which is stated to apply to “assessments”) also applies to PAYE determinations, so as to permit them to be made only if there is a “discovery” that tax has been underpaid. And, if it does, do HMRC lose the power to make an assessment or determination if they do not act within a reasonable time after making the “discovery”?
The Tribunal concluded that the concept of “discovery” has no relevance to PAYE determinations. Nonetheless, in case it was wrong in so concluding, it went on to discuss the question of “staleness”. It held (as it was bound to, following the Appeal Court decision in HMRC v Tooth  EWCA Civ 286) that if a discovery is to be relied upon, it must be acted upon while it remains fresh. But, in the Tribunal’s words,
“this is not just a question of simply how much time has elapsed between the discovery and the issue of the determinations and whether the determinations could have been made sooner. The status of discussions and awareness of the likely issue of the determinations must be a relevant factor in assessing whether the issue remains ‘live’ or has become ‘stale’”.
The Tribunal held that, on the facts of the case, if “discovery” had been relevant, the PAYE determination would not have been vitiated by the delay in making it.
At least as interesting is the statement in the case of HMRC’s current stance in regard to “staleness”:
“HMRC does not accept, in principle, that “staleness” should have any role at all in a case of an assessment that is issued within the applicable statutory time limits. In an appropriate case HMRC will argue that point in the higher courts. They accept, however, that as matters stand, there is case law, which is binding on the tribunal, that “staleness” operates as a ground of invalidity even if the assessment is made in time.”
Which brings us to the second issue: were the assessments made “in time”? This depended upon whether the loss of tax had been “brought about carelessly” either by the presenters or by “another person acting on behalf of” the presenters.
Of course, not even HMRC could credibly assert that the BBC presenters themselves had been careless in failing to recognise that IR35 applied. They did, however, assert that their advisers had been careless. Either they had not considered IR35 at all, HMRC said; or they had considered it and come to a conclusion (that IR35 did not apply) that no reasonably competent professional could have reached.
The Tribunal was, rightly, unimpressed:
“It is not sufficient for Mr Simmonds to be held to have acted carelessly, as HMRC seem to suggest, that he took a view contrary to that of HMRC or that now expressed by the tribunal. It cannot be the case that a person is necessarily careless because he took a view that is later found to be incorrect, in particular, where determining whether the relevant legislation applies depends on making a difficult value judgment.”
But there is a more fundamental point. The hearing of the case before the Tribunal took place over no less than eight days; the report on the substantive point ran to 157 pages and came out 16 months after the hearing; and even after that degree of attention the two members of the Tribunal disagreed as to the correct analysis. Against that background, for HMRC to assert that the advisers were careless in failing to recognise that IR35 applied is simply beyond ridiculous.
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This article was also published in Tax Journal Issue 1460 and is available on the Tax Journal website here.