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Rugby star turned Sky pundit wins £695k IR35 appeal

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Former rugby union fly-half turned Sky Sports pundit Stuart Barnes has won an IR35 case over a £700k tax liability, breaking away from the scrum of high-profile sport pundits that have recently lost their appeals against HMRC.

20th Jan 2023
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The first-tier tribunal heard another case [TC08697] involving a Sky TV presenter and IR35 but this time the presenter, or should I say commentator, won. 

Although it must be remembered that this is a first-tier tribunal so does not make binding precedent. It is, however, a departure from the judgments of late such as Atholl House and Kickabout.

Stuart Barnes who provided his services through S&L Barnes (SLB) Limited was a rugby pundit. He provided his services in relation to the sport of rugby union to a range of media organisations including the Times and the Sunday Times newspaper, Rugby World Magazine and other broadcasters such as Ireland’s TV3 and Fox Sports in Sydney, Australia.

Determination

HMRC issued determinations under Reg 80 IT(PAYE) Regs 2003 and Notices under section 8 SSC(TOF) Act 1999. The total quantum under appeal was £695,461.97 and this was not including interest.

The appeal concerns the period from April 2013 through to April 2019 (the “Relevant Period”) when SLB was contracted to Sky TV. SLB entered into two agreements during the relevant period but the tribunal considered that they were not materially different so were considered together under the hypothetical contract.

Hypothetical contract

The issue in this case is whether the contract was for services or a contract of service and because it is under Chapter 8 ITEPA 2003 (IR35), the tribunal had to look at whether there was a hypothetical contract. 

Key terms

The key terms considered under the hypothetical contract were that there was a fixed term, no right to substitution, Sky had ‘first call’ on Barnes although this was limited by the pundits other commitments.

He was contracted for a maximum of 228 days, and Sky had the right to allocate Barnes from the roster of commentators, although this was subject to any reasonable alternatives being suggested by Barnes.

Sky paid Barnes an annual fee of £235,000 increasing to £265,000. The fee was payable in equal monthly instalments in arrears on presentation of an invoice from Barnes. Although Sky had a lot of control, the content of the live commentary was created solely by Barnes.  His services were restricted under a non-compete. He would have to seek permission from Sky before engaging in any new commercial activities.

Intellectual property rights

Intellectual Property rights were also assigned to Sky and the contract also provided for a ‘paid holiday entitlement’ under the Working Time Regulations. Barnes had no other contractual rights over and above those that were statutory. So, he would not be paid for sickness.

The parties were agreed that the relevant test to be applied was the three stage test from Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497. In this well-known conundrum, it was agreed that both mutuality of obligations and a sufficient degree of control applied and that the case came down to the third stage of the test, as it did in the PGMOL case.

Contracts were not an exclusive record

Firstly, Judge Poon found that the parties did not intend that the contracts were an exclusive record of the terms of their agreement. For example, the contracts did not provide for the basis of the 228 days. Incidentally, Barnes did less than the 228 days by about 25% and his pay was not adjusted – unlike in Kickabout, where Paul Hawksbee was contractually obliged to provide 222 programmes per year.

RMC Third stage factors

Having considered various case law including Atholl House and Weight Watchers, Judge Poon said: “The focus at the third stage remains anchored on the contract in issue, but the angle of the focus widens out to take in the context and circumstances in which the contractual relationship is created…” 

Judge Poon was mindful of the flawed approach taken by the tribunal in the Atholl House case and said that the following factors were relevant to the consideration at the third stage:

  1. There is a distinction between a presenter and a commentator in the broadcast of a live match. Barnes ended up being a commentator and the judge found that there was a qualitative difference between the two.
  2. Mr Barnes provided the analytical input to the game which, without it, the presentation would be duller and unlikely to attract as many viewers.
  3. The intellectual property rights would place no embargo on Barnes’ right to reproduce his opinions elsewhere and indeed he did reproduce it elsewhere, particularly in the Sunday Times.
  4. Outside of his Sky commitments, Barnes was in business on his own account.
  5. He profited from sound management of his business through the efficient use of his time.
  6. In common with Adrian Chiles in Basic Broadcasting Ltd, Barnes carried a reputational risk every time he appeared on air for Sky.
  7. Barnes was not financially dependent on Sky – the broadcaster accounted for about 60% of his overall turnover.  His refusal to enter into a new contract in 2019 with Sky to cover second division matches was another indicator that Mr Barnes was not financially dependent on Sky.

Judge Poon concluded that the relevant contracts would not have been contracts of employment and had even not given any weight to the express intention of the parties that Barnes should not be an employee of Sky.

In business on your own account

Judge Poon continued: “Separately, my conclusion is reached with the factor that Mr Barnes being in business on his own account is one of the many factors to be considered in the round.” 

Conclusion

I personally can’t see how this stands out from Atholl House and Kickabout where the Court of Appeal held that both were caught by IR35. It is interesting though that Lorraine Kelly, Adrian Chiles and now, Stuart Barnes have all been held to be outside IR35 because of their unique status. 

So, expertise seems to win the day here and being in business on your own account. Meanwhile, HMRC is apparently considering their position.

Replies (14)

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By Justin Bryant
20th Jan 2023 16:53

Well done to Aweb for their impressively quick commentary there. Nearly beat me to it. https://www.accountingweb.co.uk/any-answers/interesting-ir35-case-0

The decision looks right to me (or at least there's nothing obviously wrong with it).

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Replying to Justin Bryant:
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By johnjenkins
23rd Jan 2023 10:58

These cases make a complete mockery of IR35. It needs to go very quickly.

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Replying to johnjenkins:
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By Justin Bryant
23rd Jan 2023 11:27

No-one here would seriously argue against you there and I have said as much numerous times here.
https://www.accountingweb.co.uk/any-answers/latest-ir35-taxpayer-win
https://www.accountingweb.co.uk/tax/hmrc-policy/widespread-ir35-non-comp...

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By Mr J Andrews
23rd Jan 2023 12:08

Not quite the conversion HMRC expected. But no doubt they'll try a second tier punt and we'll see some extra time with a new T.M.O. {Tax Madness Official} .

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By rmillaree
23rd Jan 2023 12:51

"I personally can’t see how this stands out from Atholl House and Kickabout"

the following bit jumped out at me.

"Firstly, Judge Poon found that the parties did not intend that the contracts were an exclusive record of the terms of their agreement. For example, the contracts did not provide for the basis of the 228 days. Incidentally, Barnes did less than the 228 days by about 25% and his pay was not adjusted – unlike in Kickabout, where Paul Hawksbee was contractually obliged to provide 222 programmes per year."

To me this seems a good pointer towards then relationship not being employment - fixed fee for services as needed - with no concentration on actual hours worked as almost certainly would be the case with an employee. I always think the less it simply looks less like an hourly rate that is being paid (for hours worked) the less the unconscious bias will take you in that direction of starting from the viewpoint that its employment.
I suspect with all these cases you take 10 highly trained judges who know the law and based on blind decisions being made from facts its almost certain the variability of outcome will be massive - probably like the var decisions the first year it was used in the premier league.

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By AndrewV12
23rd Jan 2023 12:59

'So, expertise seems to win the day here and being in business on your own account. Meanwhile, HMRC is apparently considering their position.'

HMRC do not lose much theses days, I have a feeling they will overturn this case.

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By [email protected]
23rd Jan 2023 15:50

The root problem is our complex tax system under which different people doing much the same job for much the same reward can pay vastly different amounts of tax and NIC depending upon their perceived tax status. Remove the differential tax burden and you do away with all this nonsense (and with a strong income stream for tax lawyers).

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Replying to [email protected]:
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By johnjenkins
23rd Jan 2023 16:27

There is no problem in people doing the same job receiving different amounts of money. The difference is the risk some people take to enable them to increase their net and that shouldn't be taken away.
HMRC should have nothing to do with employment status. It is a commercial decision.

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By indomitable
23rd Jan 2023 16:01

The pertinent point here is that IR35 is a complete and utter mess, badly written legislation that has never been corrected by politicians, mainly because it can't be due to the fact that many different types of law are in contradiction to each other.

The whole thing should have been shelved long ago

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By AndyC555
23rd Jan 2023 16:18

The initial regulatory impact assessment for IR35 in 1999 stated that HMRC expected the measure to generate £220 million per year in National Insurance contributions and a further £80 million in income tax.

In May 2009 the Professional Contractors Group received a reply to a request under the Freedom of Information Act to HMRC, asking just how much tax revenue IR35 had in fact raised for the exchequer. The FOI reply revealed that in the tax years 2002/03 to 2007/08, IR35 directly raised just £9.2 million. This equates to an average of around only £1.5 million per tax year, less than 1% of the expected amount.

HMRC stopped publishing IR35 statistics in 2010.

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Replying to AndyC555:
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By rmillaree
23rd Jan 2023 17:00

Being honest - the amount of clients i have seen deemed to be within public sector ir35 or large company ir35 i kind of think hmrc have won the battle battering larger companies and public sector bodies to simply defaulting to treat everyone as being an employee. In that regard the legislation probably has done its job. Presumably hmrc dont really "care" if they win these cases or not the mere fact someone might lose seems to be enough to psuh highner % of peeps onto the books of someone one way or the other.

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Replying to rmillaree:
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By johnjenkins
24th Jan 2023 10:22

No it hasn't done it's job. We have a shortage of labour totally caused by the new rules of IR35. HMRC even lost most of the IT consultants working on MTD. Why do you think it's been put off till 2026? When you make decisions to increase the tax take you have to deal with the consequences.

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Replying to AndyC555:
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By rbw
24th Jan 2023 08:24

While successive administrations have made a right mess of this area, the question is not the direct yield but what yield would be lost if people were free to self-identify as self-employed. Without even spending 3 months working in that identity.

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Replying to rbw:
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By johnjenkins
24th Jan 2023 10:08

There you have it. "If people were free to self-identify". They should be free to self identify. It is not up to HMRC to decide Employment status. it never has been. The blue circle case should never have gone to court. There is no law describing self-employment. Guide lines, yes, but that's it.
So, in conclusion if HMRC kept their noses out then the status quo would ensure a proper yield.

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