Another celebrity IR35 case under spotlight

As referenced in our update a couple of weeks ago, yet another media personality has been under the IR35 spotlight as played out in S & L Barnes Ltd v HMRC (see here). Whilst the appeal was heard at the First-tier Tax Tribunal (“FTT”) only and the case revolved around very similar factors to other such cases in the industry, e.g., Atholl House Productions (Kaye Adams) and Basic Broadcasting Ltd (Adrian Chiles) (to name a couple), it does highlight how the specific and unique circumstances of an arrangement can influence the trajectory a decision takes even where the outcome would appear a foregone conclusion.

From the get-go this case seemed like an uphill battle for Mr Barnes given the run of recent similar cases (including other cases involving Sky) and the fact that Judge Poon had recently presided over another appeal involving Sky and dismissed the appeal in favour of HMRC.

The Facts

Stuart Barnes is a very well-known former rugby union player who provided services both as a freelance writer following his retirement and, subsequently, as a presenter and commentator to Sky Sports via S & L Barnes Limited (“SBL”) as well as a host of other media publications and organisations such as The Times newspaper, Rugby World Magazine and other broadcasters.

HMRC opened an enquiry into the arrangements. The initial enquiries focussed on the period when Mr Barnes wrote articles on a freelance basis. However, the focus shifted entirely to later periods when services were provided through SBL. Having pursued and obtained an extensive amount of information, to include a very detailed question-and-answer process of the day-to-day working arrangements between SBL and Sky Sports, HMRC concluded that the intermediary’s legislation at Chapter 8 Income Tax (Earnings and Pensions) Act 2003 (“ITEPA 2003”) (of course commonly known as IR35) applied to those arrangements. Formal Regulation 80 determinations for tax and Section 8 notices of decision for Class 1 NIC amounting to £695,461 in purported arrears for the tax periods spanning April 2013 to April 2019 were raised by HMRC against which the appeal was duly lodged.

As usual in such cases the tribunal judge embarked on an assessment of the hypothetical contract between Mr Barnes and Sky Sports having established that the two formal written contracts in place between SBL and Sky Sports were intrinsically the same. In essence, close attention followed of the day-to-day working arrangements to ascertain whether the contractual agreement actually amounted to a contract for services as opposed to a contract of service.

In line with the well-known and seminal case of Ready Mixed Concrete (South East) Ltd v Minister of Pensions & National Insurance [1968] 2 QB 497, the tribunal focussed on the trinity of mutuality of obligation (“MOO”), control and personal service in the first instance and then moved on to consider other provisions of the contractual arrangement.

Some of the standout factors that the tribunal judge considered material to her assessment of the hypothetical contract included:

• no right of substitution;
• whilst acknowledging Mr Barnes had other commitments, in general, Sky Sports had first call of his services;
• Sky had the right to allocate Mr Barnes from a roster of commentators that Sky retained;
• Mr Barnes was engaged for a fixed term not exceeding 228 days;
• the annual fee of £235,000 which rose to £265,000 was paid in equal monthly instalments on provision of an invoice;
• an appreciable level of control as to where, when and how the work was done lay with Sky;
• the live commentary rested on Mr Barnes given his expertise;
• Mr Barnes would need to liaise with Sky before taking on work for other parties;
• intellectual property rights were assigned to Sky;
• holiday pay would be paid although there was no entitlement to sick pay.

The tribunal concluded that mutuality of obligations, personal service and a level of control existed in the arrangement. This stage was made far easier for the tribunal, as the position on the first two key factors was not disputed by SLB. It was accepted that there was sufficient MOO and that Mr Barnes was personally obliged to provide the services. SLB did, however, argue that there was autonomy to deliver the services as determined by Mr Barnes and, most importantly, that there were factors surrounding the arrangements that were inconsistent with employment (namely, that Mr Barnes was in business in his own account, or would have been had Mr Barnes contracted directly with Sky).

In its assessment of the other factors, prime attention was levelled at the difference between a commentator and a presenter with the former holding greater weight given the expertise required; the analytical input from Mr Barnes which the judge found fundamentally imperative to hold an audience and impact viewing figures; the intellectual property rights did not restrict Mr Barnes from providing his opinions elsewhere and indeed he did so; Mr Barnes had other clients aside from Sky producing around 40% of the income, indeed, he turned down work for Sky on occasion; Mr Barnes operated in business on his own account profiting from good management and efficient utilisation of resources; he took a reputational risk each time he was on air.
In the round, the tribunal judge concluded that a contract of service did not exist with a key factor being Mr Barnes having been in business on his own account.

Commentary

The main takeaway from this case is the relative importance of the other provisions of an arrangement outside the strict lines of a written contractual agreement which could hold sway in such similar cases. The conclusion here seemed to hinge on the unique expertise from which Sky benefitted alongside factors which suggested Mr Barnes was in business on his own account.

These factors are often thought of as secondary to the irreducible minimum factors as set out in Ready Mixed Concrete. Evidently, such factors are just as important as mutuality of obligations, personal service and control (as seen in this case). Whilst the focus of attention is usually on the three main factors, this case is a reminder that the judgment in Ready Mixed Concrete confirmed that other provisions of the contract must be consistent with employment. If not, the engagement cannot be one of employment.

There is often debate as to what other arrangements should be considered as part of the assessment and whether these should be restricted to the contractual provisions only. The tribunal stated that this is largely a contract issue, but the angle of focus widens to take in the context and circumstances in which the contractual relationship is created. Based on this principle, the tribunal found numerous (12) factors that were inconsistent with the arrangement being one of service and thus concluded that had Mr Barnes contracted directly with Sky, he would not have been an employee. Consequently, IR35 could not apply to the arrangements.

Of course, as always, all cases are extremely fact sensitive and each one has to be considered very carefully on its own merits. The outcome in this case is certainly against the grain of most recent similar cases. Nonetheless, it is an important judgment highlighting again the complexities of employment status as well as setting out, in detail, the fundamental employment status test as clearly articulated in the seminal case of Ready Mixed Concrete.

It remains to be seen whether HMRC contend the decision and will pursue the matter further.

Please get in touch with your usual contact on the Chartergates team for further advice.