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HMRC scores another IR35 appeal win at tribunal

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Sky Sports pundit and former footballer Neil McCann is the latest TV personality to lose his IR35 appeal at the tax tribunal. Rebecca Seeley Harris reviews case.

23rd Mar 2022
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Neil McCann is a former Scottish Premiership footballer who played international football representing Scotland and later became a qualified coach. He then moved into punditry and set up a personal service company with his wife called McCann Media Ltd (MML). 

MML entered into services agreements with British Sky Broadcasting Ltd (Sky) as a ‘pundit’, commentator, presenter or interviewer for football programmes or videos.

In 2019, HMRC issued various determinations for PAYE and NICs under IR35, the intermediaries legislation, for approximately £210,000. These covered the periods from roughly 2013-2018.

IR35

Under the intermediaries legislation or IR35, it is necessary to consider the ‘hypothetical contract’ in order to establish whether there was a contract of employment between Sky and McCann and this is regardless of the interposition of his personal service company MML.

The FTT tribunal dealt firstly with the contractual arrangements, the hypothetical contracts and then moved on to whether there was any personal service or mutuality of obligation.

Sky contract

The first Sky service agreement from 2012-2014 was stated to be on an ‘ad hoc as and when required basis’. The second agreement stated that the term was from 2014 to 2017.  Under the Sky contracts, the ‘Personnel’ was described as Neil McCann but there was a clause stating that “MML had the right to propose other employees or sub-contractors of MML to perform the Services”. 

The contract also stated that: “Sky will have the right to assess the suitability of the substitute prior to the substitution. If Sky finds the substitute to be suitable, they will confirm this in writing. Sky will have no relationship with the substitute and MML is solely responsible for arranging payment to the substitute.”

The tribunal found that the terms which Sky engaged MML on were standard terms and the only one’s which Sky was prepared to use. The drafting was not bespoke but standard form and very generic. Amendments had been proposed by MML’s professional advisers but, these had been refused by Sky. MML signed the agreement based on Sky’s terms because the pay was attractive, and Sky was a sought after opportunity.

Hypothetical contracts

The tribunal considered the hypothetical contract drawing on the guidance from the Upper Tribunal in HMRC v Atholl House Productions Ltd [2021] UKUT 37 (TCC).  

The hypothetical contract would include the Sky contracts but also the NDA and the terms relating confidential information, to the intellectual property rights including copyright, non-compete and non-solicitation. This NDA was executed as a deed and signed by Mr McCann in a personal capacity.

On the evidence, the tribunal inserted various terms into the hypothetical contract including:

  • That there was an obligation to pay monthly;
  • The dates for providing the service would be agreed between Sky and McCann;
  • Sky would have the right to determine where and when the work was done;
  • Sky would have final editorial control and retain the IP rights;
  • McCann was subject to restrictive covenants, including his use of social media and his ability to work for another organisation.

Personal service and mutuality of obligations

The tribunal then considered Ready Mixed Concrete and mutuality of obligations and agreed with HMRC that:

  • Sky was required to pay McCann monthly on the basis of an agreed annual fee;
  • That amount is payable regardless of the service levels requested or actually performed;
  • Performance of the obligations was personal and there was no opportunity to substitute;
  • McCann was obliged to provide services as required by Sky.

In short, the tribunal thought that “the lack of an absolute right for Sky to dictate the dates on which Mr McCann is to attend and act as a pundit negates the existence of the required level of mutuality of obligations”.

Control

Looking at the second condition of Ready Mixed Concrete, that of control, the tribunal thought that Sky did have a sufficient degree of control, for example:

  • The Sky production team decided which pundits to use for which games;
  • Sky determined the roles to be performed and McCann had to work within the agreed format;
  • McCann provided his own expertise but, this was considered a neutral factor;
  • McCann was not permitted to provide services to competeing broadcasters.

The whole picture

When considering the whole picture to establish whether here was a hypothetical contract, the tribunal noted in addition that:

  • Sky provided all the equipment;
  • There was minimal financial risk;
  • There was no opportunity to profit; and
  • The intentions of the party was a neutral factor.

Assessing all of the above, the tribunal decided that McCann cannot be considered to be in business on his own account under the terms of the hypothetical contract.

Particular weight is placed on the entitlement to an annual fee from Sky regardless of the services provided, he did not provide services to other broadcasters and could not do so. 

Other presenters

It is interesting to note the difference between this case and the recent case involving Adrian Chiles. In that case, Chiles was considered to be in business on his own account because he had a management agent who he paid 15% of revenue, a PA and other clients but, generally, Chiles had far more control than McCann and was more of a brand. 

It will be interesting to see the judgments from the two appeals of Atholl House and Kickabout which were in the Court of Appeal in February.

Replies (2)

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the sea otter
By memyself-eye
23rd Mar 2022 15:11

The 'no opportunity to profit' aspect confuses me - surely the whole point of the engagement IS to profit?
As is the case in all commercial transactions
Or am I being thick?

Chalk one up to HMRC though....

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Replying to memyself-eye:
paddle steamer
By DJKL
23rd Mar 2022 17:11

"no opportunity to profit" may refer to outwith this contract in a similar activity 9restrictive covenant)

For the life of me I cannot understand why any different arrangement of a few bits of paper might have ever made this outwith IR35 ,but that may just be my dislike for the company (now dissolved) for which he at one time played football.

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