In HMRC v S & L Barnes Limited [2024] UKUT 00262 (TCC), the Upper Tribunal (UT) remade an earlier decision and found former rugby player Stuart Barnes was within IR35 leaving him exposed to a bill of £695,000.
Stuart Barnes was a rugby union player in the 1980s and 1990s. On retirement, he began working as a freelance writer and television presenter. S & L Barnes Limited (SLB) was his Personal Service Company and provided services to several media organisations.
- SLB had two contracts with Sky from 6 April 2013 to 5 April 2019. He also had engagements with other broadcasters and newspapers during this period.
- HMRC considered that the Sky Contracts fell within IR35 and issued SLB with determinations for Income Tax and notices of decision for National Insurance Contributions (NICs) for the relevant tax years.
- SLB appealed the determinations and decisions and the First Tier Tribunal (FTT) allowed the appeal.
- The decision by the FTT found that the Mutuality of obligation and exercise of control was suggestive of a contract of employment. It then applied the Court of Appeal's decision in Atholl House Productions Limited whereby the outcome of those first tests should not create a presumption of employment. Taking account of the other factors as part of the third test, the FTT concluded Mr Barnes was in business on his own account.
- HMRC was refused permission to appeal that Decision by the FTT, but granted a right to appeal by the Upper Tribunal on two grounds:
- Ground 1: The FTT erred in its construction of the hypothetical contract concerning Sky's right of first call over Mr Barnes and purported variations to the contract.
- Ground 2: The FTT erred in its interpretation and/or application of the third stage of the test from Ready Mixed Concrete (RMC) by taking account of irrelevant factors whilst ignoring other relevant factors.
Ground 1: Right of first call
- HMRC argued the FTT assumed a key term in both Sky contracts giving it first call on Mr Barnes time had been varied so he could deal with his standing commitments to the newspaper columns he worked on. There was no evidence presented to the FTT to support this variation and it was only that Sky had not in practice needed to exercise this right that implied a change. This made the FTT's decision irrational.
- The UT disagreed. Mr Barnes had given oral evidence that he always gave priority to his newspaper columns at certain times of the sporting calendar so there was sufficient evidence for the FTT decision even if that decision was flawed.
The appeal under Ground 1 was dismissed.
Ground 2: The 'third Ready Mixed Concrete Stage' case
- The FTT had considered 12 factors under the third RMC stage. There was a dispute between the parties on the nature of HMRC's challenge. The UT confirmed it was not the possible weight attached to any factor, but that it took into account factors which were as a matter of principle irrelevant or failed to take into account factors that were as a matter of principle relevant.
- The FTT did not make an error in taking account of six of the factors. It did err in law in taking into account the other six. The weight applied to these factors was not known but the UT had to conclude this error may have affected the FTT's decision which therefore had to be set aside.
- In considering the third RMC Stage, no single factor is decisive. It is "about painting a picture from an accumulation of detail and then standing back to make an informed qualitative assessment." It is not merely a tick-box exercise.
- The UT found the FTT had failed to weigh all the factors and had erred in law. Particularly it ignored the terms of the hypothetical contract and looked at the circumstances of the operation of that contract in practice. It also failed to explain which terms acted for or against employment status and the UT felt this was bound to have influenced the decision.
The FTT's decision under Ground 2 was set aside.
The UT decided to remake the decision
- Factors in favour of employment:
- The FTT's findings on the terms of the hypothetical contract and its conclusions on mutuality and control were undisturbed.
- The hypothetical contract would be for a fixed term of four years, extendable by two years and subject to further renewal by mutual agreement. It could be terminated by Sky with immediate effect at any time but only if, in Sky's reasonable opinion, specific conditions applied.
- SLB was contractually obliged to perform the service himself without a right of substitution.
- Sky had a right of first call on SLB's services for up to 228 days per annum, varied by arrangements regarding availability.
- Sky had UK exclusivity for SLB's services as a broadcaster. Prior written consent was required to engage in new commercial activities with any media outlet.
- SLB's annual fee (between £235,000 and £265,000) was payable monthly and fixed in advance. It was not linked to actual days of airtime. Sky provided all necessary studio equipment and related travel and accommodation bookings so SLB had very little financial risk.
- Factors contrary to employment:
- SLB's use of his intellectual property was not restricted. He was allowed to recycle material from his work with Sky in his newspaper columns with Sky's full knowledge.
- The variation in the hypothetical contract identified by the FTT allowed SLB to make himself unavailable for match commentaries during various tournaments.
- The other factors considered by the FTT were found to be broadly neutral or immaterial.
- The UT was not persuaded that the extent of control by Sky was a material indicator of employment. It gave Sky rights it would have sought to impose on someone with a similar role whether as an employee or a contractor.
- Other factors considered by the UT:
- SLB was in business on his own account outside his Sky commitments.
- He had worked for Sky for over 20 years up to the periods under appeal which was more consistent with employment.
- SLB's income from Sky averaged 60% of his total income over the period. However, his non-Sky income was still substantial in its own right.
- On balance, the UT concluded the relationship under the hypothetical contract would have been one of employment. The long duration of the contract, the absence of a right of substitution, the right of first call for 228 days a year (as varied), the rights of exclusivity and the absence of financial risk were collectively the factors with the greatest weight.
The UT allowed HMRC's appeal under Ground 2, set aside the FTT's decision and remade it to dismiss SLB's appeal.
Useful guides on this topic
Personal Service Company (PSC) tax
What is a PSC? What are the tax implications for a PSC and its owners?
Employment status & detailed checklist
Why is it important to check my employment status? What tests should I use? What is the recent case law?
Mutuality of obligation
What is mutuality of obligation? Why is mutuality of obligation not considered by HMRC's Check Employment Status for Tax tool?
Kaye Adams: IR35 rules outfox Upper Tribunal
In HMRC v Atholl House Productions Limited [2022] EWCA Civ 501, presenter Kaye Adam's IR35 case has been remitted back to Upper Tribunal (UT) by Court of Appeal (CoA). The CoA found that the First Tier Tribunal (FTT) and UT had both erred in considering relevant case law and the terms of the contractual relationship between Ms Adams and the BBC.
The 'Voice of Rugby' not a Sky IR35 employee
In S&L Barnes Limited v HMRC [2023] TC08697, the First Tier Tribunal (FTT) applied the tests from Ready Mixed Concrete and found that Stuart Barnes provided his rugby punditry services to Sky as part of his own business, not as an employee.
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