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IR35: Paradise lost

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Sky TV presenter Dave Clark has lost his appeal against HMRC determinations totalling £281,084, for tax and NIC due from his company under the IR35 rules. 

12th Nov 2021
Tax Writer Taxwriter Ltd
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Dave Clark is a well-known sports presenter and commentator, who first started working for British Sky Broadcasting Limited (now Sky) in July 1988.

It was at Sky’s request that he formed his company: A Little Piece of Paradise Ltd (LPPL), in June 2003, and started to offer his personal services through that company to Sky and to other customers. Before the incorporation of LPPL Clark invoiced Sky as a sole trader.

HMRC raised determinations for PAYE, class 1 and class 1A NIC amounting to £281,084 (excluding interest and penalties) covering the five years: 2013/14 to 2017/18, on the basis that Clark’s work for Sky fell under IR35.

The appeal against these determinations was heard by the FTT on 22 and 23 October 2020, but the case report (TC8300) has only recently been released.

MOO

The FTT considered the three written contracts (‘service agreements’) which were in place between Sky and LPPL over the five years covered by the HMRC determinations. It also considered what the terms of a hypothetical contract would be, if it was to describe the actual arrangement between Clark and Sky.

The service agreements were for fixed terms and stated that there was no intention to create an employment relationship. However, the payment arrangements pointed towards an employment relationship. LPPL was paid the same amount each month for Clark’s services, which wasn’t reduced for no-shows (eg sick leave), and neither was it increased for working extra hours.

The tribunal noted that “Clark was dependent upon Sky as the paymaster for the financial exploitation of his talents”.

The FTT found that there was mutuality of obligation (MOO) between Sky and Clark.

Substitution

The LPPL legal team argued that there was actual substitution as Rodd Studd had presented in place of Clark on some occasions.

However, the FTT found that Studd was already a presenter for Sky. There was a separate engagement contract between Sky in relation to Studd, and LPPL was in no way contractually involved in Studd’s engagement for the ‘substitution.’ It was Sky’s decision as to whether the substitute was suitable, and the substitution was permitted to go ahead.

In conclusion there was no unfettered right to substitute at will to negate the obligation of personal performance by Clark in the contracts.

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Replies (31)

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By Paul Crowley
14th Nov 2021 17:50

Much Appreciated
I read the Taxation mag version yesterday
Taxation referred to "Mr C" throughout the case report, but then quoted a tax commentator who referred to the person by name.
Taxation does not usually give annonymity.

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By cbp99
15th Nov 2021 09:32

So does HMRC get its hands on £281k, or does the company simply disappear into insolvent liquidation?

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Replying to cbp99:
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By exceljockey
15th Nov 2021 09:45

Should Sky not have collected these as part of a PAYE process and therefore HMRC can look to them for the cash? After that, it is between Sky and the presenter.

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Replying to exceljockey:
By Duggimon
15th Nov 2021 10:28

I think you have missed the dates quoted in the article, the assessment covers the period for which the intermediary was liable.

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Replying to cbp99:
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By norstar
15th Nov 2021 10:30

I wondered this. Last accounts show reserves of £134k.

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By richards1
15th Nov 2021 10:33

It would be interesting to know what tax he and or the company actually paid on this income. That would tell us if he was scamming or not

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By Duggimon
15th Nov 2021 10:33

I agree with the tribunal's ultimate determination but this:

"The FTT noted that over 50% of the presenter’s working time was devoted to Sky, taking into account preparation time. This meant that in practice Clark was restricted such that he could not work for another broadcaster."

is absolute nonsense. In determining whether he was permitted to work for another broadcaster (a contractual barrier to him doing so would clearly point to an employment type relationship) the length of time taken up by the engagement is irrelevant. Just because there was enough work to occupy a significant portion of his time does not mean he wasn't able to work for another broadcaster.

It's a moot point, he was clearly within IR35, but these kind of comments being allowed to pass unchecked in tribunal cases only strengthen HMRC's arguments when their case is more spurious.

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Replying to Duggimon:
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By jamiea4f
15th Nov 2021 11:18

Duggimon wrote:

I agree with the tribunal's ultimate determination but this:

"The FTT noted that over 50% of the presenter’s working time was devoted to Sky, taking into account preparation time. This meant that in practice Clark was restricted such that he could not work for another broadcaster."

is absolute nonsense. In determining whether he was permitted to work for another broadcaster (a contractual barrier to him doing so would clearly point to an employment type relationship) the length of time taken up by the engagement is irrelevant. Just because there was enough work to occupy a significant portion of his time does not mean he wasn't able to work for another broadcaster.

It's a moot point, he was clearly within IR35, but these kind of comments being allowed to pass unchecked in tribunal cases only strengthen HMRC's arguments when their case is more spurious.


Yes that’s utter nonsense. My biggest client takes up around the same proportion of my time but I don’t work for them, so to say “if you spend more than xx% of your time means you’re an employee” is rubbish. I spend significant amounts of time hanging on the phone waiting for HMRC to reply but I don’t work for them…
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Replying to jamiea4f:
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By kestrepo
15th Nov 2021 16:04

Log the time and bill them! :-)

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Replying to Duggimon:
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By Justin Bryant
16th Nov 2021 09:41

I would not be too hard on Heidi Poon here, as she is an intelligent judge (unlike most of them these days) and there is something in the point (she perhaps has not expressed it too well) and I believe this point has been commented on here before. To take an extreme example, if the person works 100% for the engager for say 5 years, then all else being equal that points to employment rather than self-employment does it not? If 90% for 2 years then less so. If 50% for say 10 years then that certainly does not point to self-employment rather than employment.

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Replying to Justin Bryant:
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By johnjenkins
16th Nov 2021 10:00

The length of time working for one client has nothing to do with employment status. Firstly it is up to the work giver and work doer to decide employment status. Once that has been established you follow the rules carefully so that any challenge by HMRC (be it IR35 for Ltd Cos or putting self-employed on PAYE) can be met. As much as HMRC want every one man band on PAYE, there is no law that determines employment status.

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Replying to johnjenkins:
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By Justin Bryant
16th Nov 2021 15:39

Why don't you cite some clear case law to support that point? If someone is working as per my above examples (which are not uncommon), then I would expect some clear case law on the point to confirm you're right (I believe the contrary has been stated here before, but I'm too busy today to check).

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Replying to Justin Bryant:
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By johnjenkins
16th Nov 2021 16:19

Don't need to. Just look at subcontractors in the construction industry. One of my subbies has worked for the same business for 28 years, has a watertight "contract for services", has been looked at twice and each time HMRC has gone away. As long as the work giver and work doer stick to the wording of the contract then any challenge can be met. You can't be complacent with HMRC on the look out for an easy buck.

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Replying to johnjenkins:
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By Justin Bryant
17th Nov 2021 09:48

Well, in the absence of clear case law (ratio) on the point you cannot say HP is obviously wrong, regardless of what HMRC may think.

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Replying to Justin Bryant:
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By johnjenkins
17th Nov 2021 12:17

Let's turn it around. Show me a clear case law that states if you work for one client over so many years you are employed. You can't because there aren't any. HMRC would like there to be though.

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paddle steamer
By DJKL
15th Nov 2021 10:46

Of Mans First Disobedience, and the Fruit
Of that Forbidden Tree, whose mortal taste
Brought Death into the World, and all our woe,

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By johnjenkins
15th Nov 2021 11:07

Same old, same old. You need a "contract for services" that is watertight and work to that agreement. You cannot be paid when you are not there (unless on price work) and expect to be self-employed (albeit via Ltd Co). As the company was formed in 2003 I would think that complacency has crept in on both sides.
I personally do not think that HMRC should stick their noses in employment status but that is another point.

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Replying to johnjenkins:
By Duggimon
15th Nov 2021 11:25

johnjenkins wrote:

I personally do not think that HMRC should stick their noses in employment status but that is another point.

Who do you think should stick their noses in where an incorrect determination of employment status results in underpaid tax?

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Replying to Duggimon:
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By johnjenkins
15th Nov 2021 11:49

You're post is totally incorrect. There is no underpaid tax. There might well be a "deemed" not paying as much tax and NI as HMRC wish tax payers to pay result.
It's a commercial decision, as per market forces, to decide employment status not HMRC. As I said if you have a watertight "contract for services" and stick to it then there can be no comeback. HMRC are trying to control all forms of employment status and the running of a business, which will, IMV eventually be their downfall.

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Replying to johnjenkins:
By Duggimon
15th Nov 2021 12:47

This arrangement between the presenter and Sky was, by the facts of the agreement and by the actual working relationship, within the IR35 legislation. The presenter's company reported the income as if it were not due to an incorrect assessment on their part.

You seem to be taking issue with HMRC stepping in and correcting this incorrect determination and attempting to collect the tax that was underpaid as a result. If I've misunderstood your point perhaps you'd care to elaborate a little.

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Replying to Duggimon:
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By johnjenkins
15th Nov 2021 13:39

I take issue with IR35 full stop. To take away the existence of a legal entity purely to create more tax and NI is wrong and HMRC shouldn't be allowed to get away with it. The income was, I presume, paid to the limited company, declared and CT paid thereon that is the point.

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Replying to johnjenkins:
By Duggimon
15th Nov 2021 14:41

johnjenkins wrote:

I take issue with IR35 full stop. To take away the existence of a legal entity purely to create more tax and NI is wrong and HMRC shouldn't be allowed to get away with it. The income was, I presume, paid to the limited company, declared and CT paid thereon that is the point.

The fact that you dislike the legislation is neither here nor there. It exists, there is an amount of tax due by law and it's HMRC's job to collect it. If you think they ought not to do so then you should argue against the legislation, not against HMRC actually doing the job for which they exist. There's precious little evidence of them doing their job in other spheres, seems odd to take umbrage at one of the few instances where they do.

HMRC may have requested, inspired, may even have written Schedule 12 of FA 2000 but they didn't pass the law and it's not in their power to rescind it.

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Replying to Duggimon:
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By johnjenkins
16th Nov 2021 09:30

I take umbrage in everything HMRC do these days. They are not fit for purpose, can't even answer the phone. However getting back to the original "underpayment of tax". As I previously said, there is no underpayment. CT has been paid since 2003. HMRC have used a tool called IR35 to create additional tax and NI purely to fill the treasury coffers. Their job is not to decide employment status, as much as they would like to. Business should be aware. Get a watertight "contract for services" and stick to it so that we don't have these mythical contracts springing up. Don't get me wrong, I do know where you are coming from.

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Replying to johnjenkins:
By Duggimon
17th Nov 2021 09:23

I think we're largely in agreement over IR35, in that it ought to be either clarified or just dumped entirely.

I think our difference stems from the suggestion the solution is for HMRC not to pursue these cases, which really would just be another example of them not doing their job. By the laws currently in place, the Ltd company has underpaid the payroll taxes that were correctly due on the income falling within IR35, but incorrectly assessed as falling outside it.

The issue is with the law itself, HMRC's application of it is correct in this case and they're not doing anything in particular wrong here. There are far more egregious failings of HMRC to get aggravated about, as we both are on a near daily basis, I expect.

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Replying to Duggimon:
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By johnjenkins
17th Nov 2021 12:12

I take your point, but HMRC cannot make that decision themselves. They can challenge, but ultimately it's the courts that decide. The work giver and doer have both decided which way they want to do business and this has worked since 2003 with the due tax being paid. To now decide that this working arrangement is no longer valid because we have something called IR35, which takes away the status of a legal entity, is not an "underpayment" but a tax and NI creation tool. Quite honestly if there was no money in the bank I would advise the company to go into liquidation. If enough companies did this then perhaps HMRC might get the message.

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By Tim Robinson
15th Nov 2021 11:21

So will Sky pay his additional taxes, as I believe the BBC do for their presenters in the same position?

Just wonderin....

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Replying to Tim Robinson:
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By sphilpott
18th Nov 2021 19:10

Having had a conversation with a BBC presenter who is currently in a similar situation to the above, he is mortified by the fact that, when the IR35 issue arose and HMRC contacted him, he pointed out to the Beeb that it was them that more or less insisted on him forming his own company to bill them as they wanted to save money. He presumed they would help out with any liability arising from this as they had effectively caused the problem - I can assure you they didn't want to know. At the time IR35 issue was to be determined by the sub-contractor - obviously this changed in recent years for public sector and large companies which means they no longer encourage presenters to operate through their own companies as they will be left with the tax bill. Left a sour taste in his mouth but nothing he could do and as he still does work for them he is not in a position to do much more than accept it despite the unfairness of it all.

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Replying to sphilpott:
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By johnjenkins
19th Nov 2021 09:00

If you check the "contract for services" you will probably find there is a clause exempting the BBC from all investigations leading to an additional tax liability.

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Replying to Tim Robinson:
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By sphilpott
18th Nov 2021 19:10

Having had a conversation with a BBC presenter who is currently in a similar situation to the above, he is mortified by the fact that, when the IR35 issue arose and HMRC contacted him, he pointed out to the Beeb that it was them that more or less insisted on him forming his own company to bill them as they wanted to save money. He presumed they would help out with any liability arising from this as they had effectively caused the problem - I can assure you they didn't want to know. At the time IR35 issue was to be determined by the sub-contractor - obviously this changed in recent years for public sector and large companies which means they no longer encourage presenters to operate through their own companies as they will be left with the tax bill. Left a sour taste in his mouth but nothing he could do and as he still does work for them he is not in a position to do much more than accept it despite the unfairness of it all.

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By Paul Crowley
15th Nov 2021 12:04

The substitution element was just farce.
I introduce to you your employee
Pay him not me

That is not how substitution works. The Dave Clark company pays the substitute if genuine substitution

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By AndrewV12
24th Nov 2021 11:43

Ever since HMRC lost a court case to Portsmouth FC, that's a court case not a football match (do HMRC have a football team) HMRC do not loose many cases.

They hit rock bottom and got a bounce.

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