Breaking news today is that Stuart Barnes, the Sky TV pundit, has defeated HMRC in his IR35 appeal.
The rugby expert, who played top-level rugby union throughout the 1980s and early 90s, had his IR35 appeal upheld by Judge Heidi Poon. It was a First-tier tax tribunal, and the first Sky TV case upheld by FTT, as the three previous appeals were dismissed.
Stuart Barnes worked for Sky Sports between the years of 1994 and 2019, and became ‘the voice of rugby’ within his 25 year TV career. He was also a published writer for various tabloids and magazines, showcasing his expertise.
The appeal itself was in regards to a contract he had with British Sky Broadcasting Limited, between 6th April 2013 and 5th April 2019. The tax being appealed under the “Relevant Periods” totalled £695,461.
These figures do not consider the tax already paid by the company and Mr Barnes, which would be offset. Any final bill is around one-third of the headline figure and closely aligns with the amount of secondary class 1 Employers’ National Insurance that the hirer would normally pay.
During the tribunal back in July 2022, the three-staged test of Ready-Mixed Concrete was applied (RMC). This was after the Atholl House Court of Appeal classifications, ruled in April 2022.
Although the first two stages of RMC were met when applying the multi-factorial analysis, the third stage meant Stuart Barnes could uphold his appeal. Judge Heidi Poon concluded that the cumulative totality of the provisions in the hypothetical contract in the context of the parties conduct and intention, meant that the contracts would NOT have been contracts of employment.
The approach has differed from previous cases, as the Tribunal constructed the hypothetical contract using terms based on a combination of the documents between the parties, and from their conduct. Other cases have taken a more literalist approach to the construction.
Although this case was won, these appeals based on the original IR35 rules (Chapter 8 ITEPA 2003) mean that the contractor has to pick up the hirer’s tax bill. Under the new Off-payroll rules (Chapter 10 ITEPA 2003), the hirer is responsible.
If Mr Barnes had been investigated under the new rules, it would be Sky TV having a huge tax bill, and not him.
There is a question as to whether HMRC was complacent. IR35 cases have previously been dismissed involving the same broadcaster – Little Piece of Paradise Limited (“LPPL”), McCann Media Limited (“MML”), and Alan Parry Productions Limited (“APPL”).
It’s worth noting, the same Judge dismissed the appeal for LPPL. Perhaps HMRC relied too heavily on her taking the same route this time.
The court report highlighted “HMRC’s Statement of Case and Skeleton Argument follow very closely the structure and flow of argument in Little Piece of Paradise v HMRC [2021] UKTT 369 (‘LPP’), which is a decision by me on the personal service company of Mr Dave Clark as a TV presenter for Sky Sports. The framework agreements examined in LPPL adopted the same format and contained substantive terms practically identical to the contracts entered into between SLB and Sky in the present appeal. It is perhaps due to the fact that SLB’s contracts are also with Sky that HMRC have made their case on similar facts and reasoning as set out in LPPL.”
IR35 Legislation: What can we learn from the case?
Contractors, no matter what industry they work in, need to be very careful with how their contracts are drafted. If companies determine a status based on a poorly drafted contract, HMRC will more likely bill you for it.
To overturn this would be costly and time-consuming. Firms need to ensure that determinations are based on fact, not just by what is written within a contract. That way, any inspection by HMRC will be favourable.
The Government introduced IR35 tax legislation in 2000 to tackle what HMRC refers to as ‘disguised employment’. The aim is to stop businesses from engaging employees on a contract basis which allows them to avoid providing employment rights and benefits such as sick leave and paid holidays, and not pay Employer’s National Insurance contributions – all of which would save a significant outlay.
From April 2020, all medium and large businesses have the responsibility of status determinations and the tax status of their contractors. The onus is therefore on the employer to get this right so as to not incur any fees and penalties.
If you operate inside IR35 your tax liability is the same as a traditional employee, and you would usually be entitled to employment rights and benefits.
If you operate outside IR35, you can withdraw dividends from your limited company without paying NIC as well as paying yourself a salary.
If you are unsure about your IR35 status, Gorilla can help. If you are self-employed, it is important to know where you stand with IR35.
Get your FREE IR35 review today by clicking here.
