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IR35: Sky Sports presenter handed £356k tax bill

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Sky Sports presenter Alan Parry has lost his £356,420.37 IR35 appeal. Rebecca Seeley Harris summarises the case and finds that contract drafting let the side down again.

5th Jul 2022
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This is another case involving sports presenter Alan Parry (Alan Parry Productions Ltd v. HMRC [TC08519]), who provided services through his own personal service company Alan Parry Productions Ltd (APP) of which he was the sole director and majority shareholder.

HMRC issued determinations to APP under the IR35 legislation (Chapter 8 ITEPA 2003) for the periods between 2013/14 and 2018/19, totalling £356,421.

During the relevant period APP Ltd provided the services of Parry to BSkyB. The question before the first tier tribunal (FTT) was whether, had the services of Parry been supplied directly under a hypothetical contract between Parry and BSkyB, Parry would have been regarded as an employed earner.

Another three-stage test

The tribunal began by following the three-stage test and approach identified in Kickabout and Atholl House:

  • Stage 1: Find the terms of the actual contract which existed at the time and the relevant circumstances within which the worker carried out the services.
  • Stage 2: Ascertain the terms of the hypothetical contract; and
  • Stage 3: Consider whether that hypothetical contract would have been a contract of employment.

What does the written contract say?

In discussing Stage 1, the FTT recognised that in Atholl House it was decided that where IR35 is concerned, the Autoclenz doctrine would no longer be authoritative in determining the terms of the actual contractual arrangements. Instead, in a case involving IR35, the actual terms of the contractual arrangements should be used and there is no need to look beyond the terms of the written agreement to find the parties’ “true agreement”. This reiterates the importance of making sure the written contract actually represents reality.

Once the terms of the hypothetical contract had been identified, following stages 1 and 2, it is necessary to turn to another test to determine whether the contract amounts to a contract of employment.

Which contract?

There was no contract between APP Ltd and Parry for the provision of Parry’s services. So, for Stage 1, the tribunal could only look at the contract between BSkyB and APP Ltd.

In that contract there were a number of drafting infelicities, namely the accurate identification of the “Personnel” and the description of the “Services”. This is not uncommon where contracts are filled out by people who do not perhaps understand the significance of the drafting. Yet again, it is the schedule to the contract that has let the side down. 

There were the usual substitution clauses but, in practice, no substitution and BSkyB had ‘first call’ on Parry’s services. There was also a significant amount of control over various activities of Parry, including what he should wear and where the services would be provided.

Hypothetical contract

Having determined the terms of the actual contract, the tribunal then looked at stage 2 and whether the above terms represented that of a hypothetical contract. In this case, the tribunal judge acknowledged that the evidence regarding the actual arrangements between the parties had not been provided by either party. So the judge concluded that most of the terms of the actual contract and the hypothetical contract were one and the same. This was, however, with exceptions which needed to be specifically considered:

  1. the right on the part of Parry to propose a substitute to BSkyB for BSkyB to consider;
  2. the obligation on the part of Parry to provide services to BSkyB “on an ad hoc basis as and when required”;
  3. the roles which Parry could be required to play by BSkyB;
  4. the obligation on the part of Parry to seek the consent of BSkyB before entering into certain other engagements; and
  5. the obligation on the part of Parry to accept direction from BSkyB when performing the services.

In point 1) the judge concluded that with regards to substitution, the right to propose a substitute did actually exist. Although, of course, so did the right of BSkyB to reject the substitute. 

For point 4) Parry did indeed provide his services to other organisations such as Talk Sport or IMG but the judge concluded that under the terms of the hypothetical contract, BSkyB would have required Parry to seek written consent to work for others. It’s interesting that the term relating to ‘First Call’ was also a significant issue in the recent case of Atholl House.

In terms of point 5), the judge also concluded that the terms relating to control would have been contained in the hypothetical contract.

Dominant feature

The judge turned to the third stage of the Ready Mixed Concrete test and applied the ‘dominant feature’ test from Pimlico Plumbers. This test outlines whether the dominant feature of the contract in question is one of personal performance.

The evidence showed that Parry himself thought that what BSkyB wanted was his own personal services as a skilled lead commentator. It was also unrealistic to expect BSkyB to accept a substitute proposed by Parry when they had a pool of other commentators. The reality was that BSkyB would simply replace the services of Parry in the event of him being unable to provide them.

The conclusion is that the ‘dominant feature’ of each hypothetical contract was that BSkyB were engaging Parry for his personal services. That in turn means, according to the judge, that the mutuality of obligations test was satisfied in relation to the hypothetical contract, as was control.

Painting a picture

In the end, when Judge Beare stood back and looked at the detailed picture which had been painted, the overall impression was that Parry was not in business on his own account and that, therefore, the relationship was one of employment. For completeness, the judge commented that the fact BSkyB now contracts with Parry as his employer is an accurate reflection of the relationship and that this existed between them over the period which is the subject of the appeals.

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Replies (10)

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By Justin Bryant
05th Jul 2022 17:12

Para 76 et seq shows that following Atholl House, only IR35 hypothetical contract cases can ignore a well-drafted substitution clause that would otherwise cause no MOO i.e. non-IR35 self-employment cases would benefit from a well drafted substitution clause per my comments here (since there is then no "Stage 2" process):

https://www.accountingweb.co.uk/any-answers/disagreement-with-employer-r...

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the sea otter
By memyself-eye
06th Jul 2022 09:41

I wonder how many more 'celebrity' IR35 cases are in the pipeline - at a potential £350k a pop HMRC must be scrutinising anyone in the media....

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Replying to memyself-eye:
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By Paul Crowley
06th Jul 2022 10:28

Media personalities are comparatively easy targets.
I was surprised Lorraine won

Clealy the shows are directed and it is the personality that is wanted, not a skill.
BBC et al. do not want their star performer turning up on other channels doing the same thing

Thanks (2)
By tonyaustin
06th Jul 2022 10:55

I believe this demonstrates what I have always said to clients and when lecturing. The client wants to exercise control over the contractor as they would over an employee but without the responsibilities of being employer and being liable for NIC. The client therefore insists on the contractor using a company since the client will not take on the contractor in a self-employed capacity. The contractor wrongly believes or is wrongly advised that by adding a substitution clause that is ineffectual it takes the company outside IR35. HMRC do not challenge it or open enquiries.
Generally, the contractor has little or no say in the terms of the contract and must accept it or work for someone else. HMRC let this situation persist for far too long, leading contractors to believe they were outside IR35 as it was never challenged. It then became too big for HMRC to ignore and they decided to attack certain contractors retrospectively and then change the law to make the client liable for the PAYE and NIC.
The amount of additional tax at stake is presumably a lot less than quoted as there will be a credit for tax already paid by the company on its profits and by the individual on his dividends or remuneration.

Thanks (4)
Replying to tonyaustin:
By cfield
06th Jul 2022 12:15

tonyaustin wrote:

The amount of additional tax at stake is presumably a lot less than quoted as there will be a credit for tax already paid by the company on its profits and by the individual on his dividends or remuneration.

I've wondered about this for 20 years and have never had a definitive answer from any tax lecturer. The CT600 is usually way out of time for amendment by the time an IR35 tax bill is assessed so no corporation tax rebate can be claimed for the years in question. The loss created by the huge Deemed Payment can of course be carried forward but there will be no future profits (or very little) to claim loss relief against. So how does one avoid double-taxation?

The only bright side is that the company usually lacks the funds to pay such a huge PAYE bill after so many years and the debt cannot be transferred to the director unless he was totally cavalier with his IR35 obligations. That is usually very rare as IR35 is such a grey area in most cases.

Where IR35 is a big risk, perhaps it is best to pay all post-tax profits as dividends to a holding company so they escape any future tax demands. Would that work or are there anti-avoidance rules? Quite a few businesses have similar arrangements now so the trading company has insufficient funds to pay potential legal claims, although I've often wondered if they actually work if push comes to shove.

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By cbp99
06th Jul 2022 12:04

What happens next? Company has net assets of £61 at 31/3/20, and accounts to 31/3/21 not yet filed.

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Replying to cbp99:
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By johnjenkins
06th Jul 2022 13:55

That is surely a hypothetical question?

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By deanej
06th Jul 2022 22:11

The English in this article is poor. This is in part because the nuances of the regulations are not well understood by the writer - who is seeking to camouflage this in a language style they think is ‘legal-speak’. It is not (as good legislation is unambiguous and plain in utterance) and nor is it the domain of their intended reader.

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Replying to deanej:
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By Paul Crowley
07th Jul 2022 09:26

Seriously?

Thanks (2)
By Tax Networks
07th Jul 2022 03:58

A key problem was the standard form Sky contracts contained ambiguity.
Arguably, the rules of evidence were not applied to the HMRC notes of meeting with Sky, being claimed as hearsay and shredded as they also contained conflicting information.
On the contrary, anyone who registered and attended the public video hearing would have noted that Alan Parry gave cogent witness evidence under cross-examination and he was found to be credible. He was the only person in the hearing that could give detailed factual circumstances., and did do so.
In addition the market forces were contained in the appellant’s submissions and pronounced in Contract 2 but nowhere will you find the detailed analysis in the Decision- the actual appellant’s submissions and appellant’s logic was applied to define “ad hoc as and when” (ie from time to time) and “required”. This was deduced as 1 match per week in a 10 month football season. To claim that Alan Parry could be allocated any role (“What”) was established to be commercially nonsensical, again logic applied within the appellant’s submissions in furtherance with s.49(4) ITEPA which is the IR35 Statute pertaining to all the circumstances of which the contract was part of. Autoclenz was certainly not relied upon.
Furthermore, Alan Parry gave Sky priority because they had the market place footprint. In consideration of this commercial arrangement with Sky, the appellant’s fees dropped by considerable £72,000 and it was established this was down to Sky loosing the Champions League broadcasting rights which was pronounced in Contract 2, which was demonstrably a commercial contract subject to market forces.
In addition, the appellant had to indemnify Sky, there was no obligation on Sky to provide work, there was a pro rata payment clause, an immediate termination clause on top of a legal right of substitution and/or subcontract out the services… these were entirely commercial terms. Not employment.
Now do we see the real picture that was actually pronounced to the FTT but not particularly detailed in the Decision.
All these points were argued plus, as stated, HMRC did not provide any cogent witness evidence which could be subjected to cross-examination re their notes of meeting with Sky.
So, if anyone was in fact tuned into the video meeting on 27, 30 and 31 May 2022 then they would have been in a better position to understand the appellant’s submissions in the appeal hearing proper. Then draw on their own conclusions.
It’s not sour grapes, for instance significantly HMRC v Atholl House Productions Ltd CoA 26 April 2022 judgement was highlighted in the Authorities and legal advice was taken as the appellant’s Skeleton was produced by counsel plus market forces argued on the appellant’s witness evidence which was subject to hours of cross-examination and Alan Parry was found to be a credible witness.
Painting the picture is very different, given the above context and therefore just reading the Decision in isolation without knowing of the whole detailed and colourful picture is a bit like painting another picture with a limited pallet of colour.
I could go into very long grass detail but will not. Simply, standard form contracts were criticised by the judge as they had ambiguity… but, the pleadings were on the contractual factual matrix.

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