An Organisation for all
Accountants in Practice

HMRC target tax status of media personalities 

By Gabelle

gabelle logo

We have seen a dramatic increase in the number of enquiries into the employment status of high profile media personalities where HMRC appear to have determined their employment status before starting their enquiry.

HMRC are relying on their ‘hackneyed’ arguments around the three fundamental tests of status:

mutuality of obligation;

control; and

personal service.

While HMRC’s arguments are, in the main, based on their guidance manuals, this does not necessarily fit with the legislation. One must remember that a person’s employment status rests on consideration of a set of criteria as established in tax case law over many years.

Case law

Despite being almost 50 years old, most employment status decisions from the courts can trace themselves back to the case of Ready-Mix Concrete (South East) Ltd v Minister of Pensions and National Insurance. This posited three conditions which must be present before a contract of service (employment) can exist. These are:

“i. The servant agrees that in consideration of a wage or other remuneration he will provide his own work and skill in the performance of some service for his master.

ii. He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master.

iii. The other provisions of the contract are consistent with its being a contract of service.”

Mutuality of Obligation

One of the principal arguments used by HMRC in respect of the three fundamental tests include:

Mutuality of Obligation has been satisfied, in its most basic form, by you having the obligation to perform services and the end client to pay for those services throughout the period of the contract.

HMRC’s view is that simply entering into a contract and being paid, is sufficient to establish mutuality. We have successfully argued before the tax tribunal that HMRC had erred in law, and this was highlighted in the case which we took to Tribunal – MBF Design Services Ltd.

The contract between the PSC and end client is for services of the director (of the PSC) personally. The end client would provide cover if the director was unable to present for any reason and pay any substitute directly. Personal service is a requirement of the engagement.

Right of Substitution

As we continually highlight to HMRC, it is the right of substitution that is important, provided that that right is not unduly fettered. The fact that someone has not needed to instigate a substitution should not detract from the fact that a contractual right exists.



The right of control by the engager is an essential element of a contract of service. It is the right to exert control that is significant, not whether that right is exercised. Conversely, if there is no right of control of any kind there will not be a contract of service.

Since there will always be a degree of control by the paying party in the relationship, the test cannot, and indeed is not met simply by suggesting there is any form of control, or right thereof. It is the extent and degree of that control which needs to be properly considered.

Four kinds of control have been identified: what, where, when and how.

By far the most important of these is the ‘how’, in other words the manner in which the services are provided. HMRC’s opinion, which is particularly pertinent in media cases where the individual’s experience and skill are key, is typically that the more highly experienced and skilled the individual, the less scope there is to exercise control. One would expect HMRC to interpret this as a strong pointer towards self-employment but instead, it is treated as a neutral factor on the basis that if there is no scope for control, then HMRC cannot consider it as relevant.

This view should clearly be challenged as HMRC cannot have their cake and eat it!

There are further factors which will need to be considered as part of the overall review of status, but we have limited our comments here to the three main ‘McKenna tests’.


Status disputes can be both complex and time consuming for you and your clients, as HMRC are focused on finding reasons why there is an employment relationship. Either they fail to ask the pertinent questions or if they do, they do not necessarily follow up with further questions, answers to which would put the engagement in its correct context.

In our experience this is because HMRC is seeking to achieve the outcome that they desire, rather than the correct decision. An example of this can be seen in the case of M Lewis T/A MAL Scaffolding, MAL Scaffolding v HMRC [2006] SpC527, where Dr Williams suggested that in effect HMRC had handled the status enquiry in a less than objective manner. They wanted to establish an employer/employee relationship for their own purposes and then went out to justify a conclusion they sought.

“The [HMRC] appear to have approached their investigations on the basis that there must be an employment relationship between MAL Scaffolding and the workers there if one looks hard enough. Officers then went looking on that basis and persuaded themselves that they had found that for which they went looking. They have totally failed to persuade me.’

To minimise your client’s exposure, the status dispute requires persistence and attention to detail. In our experience, HMRC’s opinion is not final and can be successfully challenged.

The comment that is often used by HMRC is that “each case is based on its own merits” is worth remembering as each case will be different. It is however, important to note that HMRC’s opinion letters typically rest on the same commentary almost word for word in every case!