The recent case of BBC presenter Christa Ackroyd and those against Uber, Deliveroo, Addison Lee and Pimlico Plumbers leaves many companies unsure whether it is safe to contract with ‘self employed’ contractors / consultants.

Ackroyd has been held liable for tax in excess of £400,000 because the Courts considered her to be an employee of the BBC even though her services were being paid through a separate limited company. This alone is a significant victory for HMRC because this is the first time in seven years that HMRC have won an IR35 claim. We all wait the Uber appeal to see whether their workers will be deemed ‘employee’s , having significant tax implications.

The tax rules that govern this situation are called IR35 (so called as it was published by the then Inland Revenue – now HMRC). This is a tax law which came into force in April 2000. The aim was to combat tax avoidance by workers who supplied their services via an intermediary. These workers are known as ‘disguised employees’ by HMRC.

What is a ‘disguised employee’?

This is where an organisation takes on employees on a self-employed basis, usually through an intermediary company, although not all the time, rather than using an employment contract. This set up usually allows the ‘employer’ to save a significant amount of money. For instance, the employer does not need to pay employers’ NICs or use payroll software deducting and accounting for PAYE deductions. Additionally, it also means they usually do not offer any employment rights or benefits such as holiday, maternity / paternity leave or sick pay. Often, the employees can make tax savings too, but some do lose out on the rights and benefits they would normally wish to or be afforded.

Changes to IR35

New rules came into force on 6th April 2017 regarding the assessment process for IR35. The changes now see organisations assume responsibility for deciding whether or not limited company contractors should be taxed in the same way as salaried workers where this responsibility previously laid with the contractor themselves.

Significance of IR35

If a worker is found to be a ‘disguised employee’, the financial impact of IR35 can be significant. The employer will have to pay income tax and National Insurance Contributions (NICs) as if they were employed and this can reduce net income by up to 25%. There can also be additional fines, if the former employee pays late. The tax can also be back-dated.

Christa Ackroyd

UK tax tribunal ruled on 15 February that Christa Ackroyd’s contract with the BBC should have been subject to IR35 legislation and that she was in fact a ‘disguised employee’. Although the judge ruled that she had not intentionally avoided tax, she suffered significant financial consequences. Without doubt, thanks to this case we can expect more organisations to be investigated concerning the contractual arrangements and the status of its employees. Reports have already revealed that several other BBC engagements are under investigation.

So how do you as a business genuinely determine whether a person should be an employee or a self employed contractor or subcontractor or consultant?

There are, some measures your company should have in place prior to starting the relationship:

  1. A good contract will have all the legal / tax requirements to ensure that you satisfy the rules on substitution, level of controls, who pays tax etc. It should also have an indemnity if the worst happens and HMRC come after you as the business for a contractor’s taxes.
  2. A good Contract will seek to hold you harmless, as much as possible, regarding tax implications
  3. You should make sure you receive invoices and have a clear project based or hourly or daily payment system that combats any concern that they are actually employees
  4. Where appropriate you should make sure they carry their only professional insurances
  5. Workers should bring their own or rent equipment
  6. Lack of work or end of a project should enable the contract to lapse or be terminated
  7. They should be permitted and not restricted from earning income elsewhere or be forced to be exclusive to your work force
  8. You should not, where possible and suitable, seek to force working times, uniforms or employee policies on them;
  9. Do not pay them holiday or sick pay;
  10. Allow them to be able to substitute themselves for someone else if suitable.


Ultimately, HMRC and the Courts take into consideration the actual facts of the situation to determine the relationship between the parties.





Karen Holden is a solicitor & the founder of A City Law Firm, a listed Legal 500 firm in the City. It has won several awards for its innovation, business practices and unique areas of law. The firm handles exciting tech law: drone & block chain, surrogacy and LGBT work, through to starting-up-scaling-up businesses and getting them ready for investment or sale. Karen set up the firm on her own 10 years ago and whilst juggling a family has raised this from nothing to a sizable and dynamic firm. She is a female and mum entrepreneur that ensures her practice is friendly , diverse & all staff are afforded a work life balance.