IR35s, Employment Status and Looking North of a large tax bill


A lot of people will have noticed former BBC presenter Christa Ackroyd’s recent tax judgment which has left her with bill of up to £420,000 to settle with HMRC. The judgment from the tax tribunal specifically did not criticise Ms Ackroyd for not realising tax was due and that there was no suggestion of any attempted wrongdoing. So how did the former presenter of BBC’s “Look North” find herself with such a large tax bill to pay?

After being advised by her accountant in 1999, Ms Ackroyd created a company (Christa Ackroyd Media Ltd (“CAM Ltd”)) with Christa and her husband the only directors. Ms Ackroyd was employed by the BBC through CAM Ltd, and paid herself a dividend from CAM Ltd. This in turn meant that Ms Ackroyd paid less tax and national insurance contributions than she would have had she been directly employed by the BBC. Workers who legitimately adopt this practice can receive up to 20% more in earnings than if they had been an employee themselves.

What is IR35?

In an attempt to counteract any abuse of the system, the government introduced the law relating to IR35 in 2000. The purpose of the laws surrounding IR35 is to combat situations in which an employer/employee relationship is disguised by the employee’s use of an intermediary or limited company who enter into a contract on their behalf. The law ensures that if the reality is that the working relationship is that of an employee and employer, notwithstanding how the parties are described in the contract, then the pay received by the individual should be taxed as such.

How does this relate to employment law?

With all of the recent discussion about Uber/Citisprint/Deliveroo, an employment lawyer’s flavour of the month at the moment is employment status. Employment status was also at the heart of Ms Ackroyd’s tax case. The issue before the Tax Tribunal Judge was whether the hypothetical contract directly between Ms Ackroyd and the BBC was that of an employer and an employee.

After weighing up all of the facts of the case, it was held that Ms Ackroyd was a hypothetical employee of the BBC because Ms Ackroyd:

  1. had to perform duties for 225 days a year,
  2. was paid even if she was not required to work these days,

  3. had no right to provide a substitute to perform the required services and

  4. was subject to a contractual term of 7 years which was held to be significantly longer than a typical contractor agreement and was effectively a full time job.

As a result, it was held that Ms Ackroyd should have been paying the tax of an employee between 2008 and 2013, a sum totalling £419,151. The unpaid figure is said to be £207,000.

What can we learn?

This is a stark warning for anyone who uses a limited company as an intermediary agent. Employment status can be difficult to determine, even with all of the facts. The Tax Tribunal Judge himself acknowledged that employment status is a value judgment and that different people may come to different conclusions. It is important to remember that Ms Ackroyd acted on the advice of her accountant at the time.

With all of the recent cases reviewing employment status, a pattern has emerged in that the majority of judgments have found the working relationship to be that of an employee and employer, rather than a self-employed contractor. Although it can be advantageous for an individual to establish employment law rights, and so establish rights to claim unfair dismissal, discrimination, holiday pay and national minimum wage, bear in mind the potential tax bill to pay!

If you have a query regarding your employment status, please contact the employment team at Balfour+Manson at or 0131 200 1200.