Kye Burchmore is Director of Trinity Tax and the author of Bloomsbury Professional's Off Payroll Tax Handbook.
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As the Upper Tribunal hands down yet another judgement in favour of HMRC, winning IR35 cases at the tax tribunals is proving to be a rare occurrence.
This latest case concerned ex-rugby player, turned commentator, Stuart Barnes and his contractual relationship with Sky Sports. After successfully defending his position in the First-tier Tribunal, the decision was appealed by HMRC, and the Upper Tribunal set aside the decision and remade it in HMRC’s favour.
The FTT had set out 12 factors which it deemed relevant to the relationship being inconsistent with employment. HMRC appealed on the basis that the FTT:
The Upper Tribunal concluded that 6 of the 12 factors should not have been taken into account, and this ‘might’ have made a difference to the FTT decision when allowing the appeal which led to the FTT decision being set aside.
The Upper Tribunal then provided further clarity over how the tribunals should consider and apply the third stage of the Ready Mixed Concrete test (factors inconsistent with an employment relationship).
The judge held that while there is no template, an approach which involved identifying those factors which points towards employment, those which are not, and those which are neutral will minimise the risk of approaching this statutory question incorrectly. The FTT should explain why it has reached its decision.
This may appear to be obvious but it does not always happen and as the Upper Tribunal set this out so succinctly, be there will be no reason for this approach not to be followed in the future.
Mr Barnes was free, and even encouraged by Sky, to exploit his service offering for other businesses. The income he received from Sky as a percentage of the total income to the company was around 60% each year under enquiry.
These factors supported the view that the taxpayer was ‘in business’. The judge then followed the approach in HMRC V Basic Broadcasting [2024] that business on their own account can be considered in two contexts, firstly whether being in business determines the employment status of the contract in question, and in describing the working practices “outside that contract” and therefore not determinative.
In this case, those were factors were deemed to sit outside of the relevant Sky contract and as such the judge adopted the position set out in the Synaptek v Young [2003] case:
“The existence of a business on own account outside the contract in question is a relevant factor in considering employment status. It is an important contextual circumstance, but it is no more than that.”
This is yet another case highlighting that an individual can be deemed to be in business on their own account, but the relevant contract still caught by IR35. The weight attached to being deemed to be ‘in business’ is something for the courts to determine. The ongoing issue for the taxpayer is that it remains highly subjective and unpredictable, as evidenced by the number of judgments being appealed, set aside and remitted back to the FTT. If the judges struggle to grapple with these decisions, the taxpayer is left with a near impossible burden.
Once the FTT decision was set aside, the parties agreed the Upper Tribunal could remake the decision rather than remit it back to the FTT for another hearing.
When considering the application of the third stage of the RMC test and weighing up factors which are inconsistent with an employment relationship, the judge held:
“Whilst the presence of mutuality and control should have been discussed and decided by the time the third stage of RMC is considered, that does not mean they do not require any further consideration.”
This means where it is established that there is mutuality and control in the working relationship, these can also be considered as part of the third test meaning it can be a more difficult obstacle to overcome. The judge envisaged cases where the level of control may be so pervasive as to make it very difficult, if not impossible, to conclude that it is not a contract of employment, irrespective of factors against it being an employment relationship.
Summarising the position, the Upper Tribunal held that the long duration of the contract, the absence of right of substitution, Sky’s first call on his services and exclusivity, the absence of financial risk and overall length of the engagement were all factors which outweighed the factors pointing away from employment.
The case of S & L Barnes highlights the high threshold being deemed outside IR35 based on being ‘in business on your own account’ and that for this to be determinative, the taxpayer needs to be deemed in business, within the contract under question. There is also a common misconception with employment status that working for other people, means someone will not be an employee. This case is yet another reminder that this simply is not the case and a broader look at the contractual relationship in question is required.
