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football in net | accountingweb | IR35 win for HMRC for nearly £300k
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HMRC scores £300k IR35 win in sports pundit case

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In this IR35 case involving Sky Sports presenter Phil Thompson, the tribunal looked at whether there was a hypothetical contract of employment and found in HMRC’s favour.

14th Dec 2023
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Hot on the heels of Atholl House, or the Kaye Adams case as it has become known, is another IR35 case. This one concerns Sky Sports pundit Phil Thompson, who provided services to Sky on Soccer Saturday and other programmes through his personal service company, PD & MJ Ltd.

HMRC maintained that the Chapter 8 intermediaries legislation (IR35) applied and that PD & MJ Ltd owed some £294,306.68 for PAYE and national insurance contributions (NICs) between 2014 and 2108.

Hypothetical contract

The first tier tribunal (FTT) has to look at whether there is a hypothetical contract and whether under that hypothetical contract Thompson had a contract of employment with Sky or was self-employed under a contract for services. Rebecca Cave offered a good synopsis of what the tests are for the hypothetical contract in her article IR35: Kaye Adams wins marathon fight with HMRC. The tribunal found that the hypothetical contract would have been a contract of employment for the following reasons.

  1. It was agreed by all parties that there was mutuality of obligations. Thompson’s obligation under the hypothetical contract would be to provide the services in accordance with the terms of the contract, and Sky’s obligation would be to pay the agreed fee.
  2. Control was considerable. Sky’s contractual right to require Thompson’s performance of the services at a location of their choosing is consistent with an employment relationship. The control was regular and although there was consensus, it does not detract from the level of Sky’s contractual right. Contrast this with Atholl House where control was not considered as part of Stage 3C of the decision.
  3. The fact that Thompson was a pundit does not sway the tribunal. An employee can give his or her own advice too and this is in line with the Atholl House case, which states that the “how” of control is irrelevant when the individual is highly skilled. Contrast this also with Atholl House where Adams had her own brand.
  4. The hypothetical contract restricted Thompson’s ability to be able to exploit his opinions and analysis and intellectual property more generally, and this was other than in accordance with its terms.
  5. The hypothetical contract provided for termination by Sky but, not by Thompson.
  6. Thompson had become associated with Soccer Saturday and in his evidence he said that the viewing public would expect to see him on the programme. Contrast this with the FTT’s decision in Atholl House that being “part and parcel” of the BBC was neutral. This was because although the Adams show had become integral to the BBC, it was not an organisational part.
  7. The payment was paid in a block fee regardless of airtime but the FTT considered that this was a neutral factor. Whether this was a salary or a fee depended on whether the arrangement was an employment contract or not on the contract’s choice of label.
  8. Thompson’s work at Sky was the substantial majority (an average of 80% during the relevant periods) of PD & MJ Ltd’s earnings. This was the main element of Thompson’s professional income. His income did not come from a range of self-employed engagements.
  9. There was an absence of perks and benefits that Sky gave to employees but, not to Thompson. This was, according to the tribunal, outweighed by the other factors.

Whole picture

Standing back and looking at the whole picture, the factors combined to create a contract of employment. The tribunal had not taken into account the fact that Thompson later became an employee because it post-dates the relevant period.

The FTT also noted that they had reached a contrary conclusion to that in Barnes (Stuart Barnes vs HMRC [2023] UKFTT 00042) on the basis that the facts were different. Barnes appears to have been in business on his own account to a greater degree than in the present case. Barnes was also entitled to reproduce his opinions in other media and was known as the “voice of rugby” generally rather than being associated with one broadcaster, as Thompson was with Sky.

Persona brands

Interestingly, this case was not stayed pending the outcome of Atholl House remitted back to the FTT, presumably because it is not binding. The judgment refers only to Atholl House in the Court of Appeal. In that case referring to Adams, as with Lorraine Kelly, Adrian Chiles and Stuart Barnes, they are all somewhat of a brand based on their own persona, whereas Thompson does not have the same attributes.

This FTT decision does not, however, set a precedent and Thompson has 56 days to appeal.

Replies (18)

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By Justin Bryant
14th Dec 2023 09:41

It's usually helpful to have a link to the case.

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Replying to Justin Bryant:
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By Amy Chin
14th Dec 2023 10:30

Hi Justin, this news really is hot off the press - the case had not yet been published at time of writing. When it is published, we'll add a link.

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Replying to Amy Chin:
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By Justin Bryant
14th Dec 2023 11:31

I see. Thanks.

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Replying to Justin Bryant:
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By Justin Bryant
18th Jan 2024 09:32
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By Rweaver
14th Dec 2023 11:33

I would be the first to admit that I'm no IR35 expert, but is the wording of this article correct?

"the tribunal looked at whether there was a hypothetical contract"

"The first tier tribunal (FTT) has to look at whether there is a hypothetical contract"

Surely the hypothetical contract is imagined - it doesn't actually exist, and the FTT doesn't need to look for it. The FTT's job was to consider what such a contract would have said, if it did exist?

Thanks (3)
Replying to Rweaver:
Rebecca Seeley Harris
By Rebecca Seeley Harris
14th Dec 2023 13:14

Yes, it is correct.

The 'hypothetical contract' is, in fact, a statutory term so, the tribunal actually does have to determine what the hypothetical contract would be under Chapter 8 ITEPA.

But, your comment highlights how ridiculous it is!

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Replying to seeleyharris:
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By Rweaver
14th Dec 2023 14:31

I fear I've been misunderstood. I fully accept the tribunal has to determine what the hypothetical contract would say.

Do the tribunals not apply a three stage process:

1) Find the terms of the actual contractual arrangements.
2) Ascertain the terms of the “hypothetical contract”.
3) Consider whether the hypothetical contract would be a contract of employment.

At what point are they ascertaining "whether there is a hypothetical contract"?

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Replying to seeleyharris:
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By AndyC555
14th Dec 2023 15:44

"The 'hypothetical contract' is, in fact, a statutory term so, the tribunal actually does have to determine what the hypothetical contract would be under Chapter 8 ITEPA."

So in advising clients on this, a hypothetical advisor is now in a position of having to consider what a hypothetical Tribunal would determine a hypothetical contract would be.

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Replying to seeleyharris:
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By johnjenkins
15th Dec 2023 10:15

I'm sure you'll agree, Rebecca that the "contract for services" in this case wasn't really a "contract for services" in the true sense of being self-employed. I'm pretty sure that Sky and Phil realised this and consequently Phil became employed.

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By FactChecker
14th Dec 2023 19:25

With tongue lodged firmly in cheek (and at the risk of annoying any readers from the legal professions) ... the conclusion could almost have been paraphrased as:

Phil Thompson not as famous as Kaye Adams, Lorraine Kelly, Adrian Chiles or Stuart Barnes.

Thanks (9)
Replying to FactChecker:
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By Mike Warburton
15th Dec 2023 12:12

I may be wrong but my understanding is that the decision on Adrian Chiles is under appeal, and the same may be true for Stuart Barnes
We do not know yet whether HMRC are going to take Kaye Adams through yet another appeal process, but it was good to see Jim Harra being questioned on this at the PAC

Mike

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By Springfield
15th Dec 2023 11:06

In 1776 Adam Smith in his Wealth of Nations argued that "good taxation should follow the four principles of: fairness, certainty, convenience and efficiency."

Nearly 250 years on, and a succession of chancellors have ensured that UK taxation is not just unfair, inconvenient and inefficient but, through a never-ending raft of IR35 cases and accompanying appeals, more uncertainty has been created than could have ever been imagined.

It may be an over-simplification but, to me, this ongoing mess has been created by two competing factors.

1 - the complication of how National Insurance is calculated and where it is levied, and

2 -the preference of someone engaging a regular service provider to avoid making them an employee. That may be partly due to employers NI, but is far more to do with avoiding all the other statutory non-tax issues such as pensions, sick and maternity pay, discipline, redundancy and dismissal.

If only we had some sort of office for tax simplification which had the power to sort out this sort of thing.

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Replying to Springfield:
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By johnjenkins
15th Dec 2023 11:26

2. Of course people don't want to be landed with all the paraphernalia of employing people (you forgot NMW). These days for a small business its just not worth it.
Most of all these problems would be eradicated if HMRC kept their noses out of employment status. As I keep saying the more push for more tax the less goes into the coffers.

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Replying to Springfield:
By Nick Graves
15th Dec 2023 12:13

I'll see your Adam Smith and raise you a:

“Taxation is theft, purely and simply even though it is theft on a grand and colossal scale which no acknowledged criminals could hope to match. It is a compulsory seizure of the property of the State’s inhabitants, or subjects.”
― Murray N. Rothbard

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By Ian McTernan CTA
15th Dec 2023 13:47

Rebecca is the UK's most prominent thought leader and leading expert in ‘employment status’ including IR35...

What's a 'thought leader' ?? And 'leading expert' might be debatable by other experts...I'm always amused at this sort of self description.

As to the case in hand, pretty easy win for HMRC and little surprise he was later made an employee.

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By Mikeat91
15th Dec 2023 15:26

Unbelievable, Jeff.

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By LAMBERTCLERICAL
16th Dec 2023 11:42

I know HMRC are keen on their "payments on account" but 2108 . . . . . really?

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Replying to LAMBERTCLERICAL:
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By FactChecker
16th Dec 2023 14:16

Well spotted ... makes you wonder if HMRC have inside knowledge of plans to further extend the age of retirement (beyond death)?

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