IR35 and Employment status – A win for Stuart Barnes

Understanding off-payroll working (IR35)

A former rugby union player and renowned sports pundit Stuart Barnes recently emerged triumphant in his appeal against a substantial £695,000 tax bill issued by HMRC. The situation helps us understand the complicated rules of IR35 and gives useful advice for both freelancers and businesses dealing with tax regulations.

Background

Stuart Barnes was a top-level rugby union player throughout the 1980s and early 1990s.  From 1994 to 2019, he provided his services through his company, S&L Barnes Limited (SLB), his expertise led him to become a published writer for various newspapers and magazines as well as commentator, co-commentator and provide punditry services for a range of global sports broadcasters. Through his company he provided services as a commentator to Sky TV (where he became known as the ‘Voice of rugby’) and as a pundit on other TV channels in Ireland and Australia as well as providing columns for The Times and the Sunday Times on weekly basis.

HMRC reviewed Barnes’s contract with Sky from 2013 to 2019, deeming it a Contract of Service, which would classify him as an employee of Sky, subjecting him to Income Tax and he and Sky to National Insurance Contributions (NICs).

IR35 also known as intermediaries legislation which set out in Chapter 8 Income Tax (Earnings and Pensions) Act 2003 (ITEPA), was enacted with the intention of catching (or deterring) any individuals who are providing their services to clients via an intermediary, such as a personal service company (PSC), partnership, or umbrella company, but are essentially employees in all but name. If the individual is deemed to be inside IR35, they must pay income tax and NICs as if they are an employee. If they are outside IR35, they can continue to be paid through the intermediary.

In Mr Barnes’s case, the issue was whether the service provided by Mr Barnes to Sky via SLB where under a contract for service – self-employed (outside IR35) or a contract of services – employed (inside IR35).

To determine whether a person is “employed”, the Tribunal is required to construct a hypothetical contract to assess if the services provided by Mr Barnes were provided under a contract directly between Sky and Mr Barnes and therefore that Mr Barnes be regarded as an employee of Sky for income tax purposes.

The contract of service (employed) generally exists if these three conditions are fulfilled.

• Mutuality of obligations – the worker (Barnes) agrees that in consideration of a wage or other remuneration, he will provide his own work and skill in that performance of some service for the client (Sky).
• Exercise of Control – the worker agrees, expressly or implied, that in the performance of that service, he will be subject to the client’s control in regard to how, when, and where that service is performed.
• Consistency of other provisions with its being a contract of service

Mr Barnes accepted that the first two conditions were met, however the court resisted the temptation to jump straight into considering the third condition and instead analysed the first two conditions to set the context.

The court considered other relevant factors:

• The difference between a presenter and a commentator during the live broadcast of a match.
• The number of days Mr Barnes was supposed to work as per his contract. The contract stated a maximum number of days that he could work in a year, but the actual number varied between 90 and 120 days, which was typically 25% less than the maximum. This was interpreted as a retainer rather than a salary.
• The intellectual property clauses in the agreement did not prohibit Mr Barnes from expressing his views in other media outlets, and Sky did not see this as a conflict of interest.
• Mr Barnes had flexibility in his availability for matches, and there was an informal understanding that he would not be available for the Six Nations or the Rugby World Cup, where he could maintain a high profile through other work.
• Mr Barnes earned a significant portion of his income outside of Sky (60%) and was seen to be in business on his own account
• Mr Barnes faced reputational risks every time he appeared on a program or conducted an interview.

The court decided that the relevant contracts would not have been the contracts of employment. The full factual matrix of the individual contract is key in determining whether a contract falls inside or outside IR35 and SLB was notably found to be outside. The reasons for the differentiation were that the wider nature of his background and experience allowed him to argue that he had significant personal input into TV shows, meaning he was less subject to ‘control’ than some other TV presenters or commentators.  In addition, he was able to show he was in business on his own account as a professional rugby union pundit, simultaneously undertaking work for several other principals throughout. He did not just perform other work, he also provided examples where the Sky TV work could be said to be secondary (or at least, non-priority) to the other tasks. For example, he could temporarily sidestep his Sky TV commitments if commentating for another broadcaster on a major international sporting event.

In summary, this case highlights the importance of a comprehensive analysis of the individual contract’s factual matrix in determining IR35 status. The ruling highlights the significance of factors such as personal input, business independence, and the prioritisation of work commitments. Stuart Barnes’s successful appeal against HMRC’s tax bill serves as a landmark case, providing clarity on the application of IR35 legislation in the range of sports broadcasting. Freelancers and businesses alike can learn a valuable lesson from this win, emphasising the need for a thorough understanding of contractual characteristics and a careful examination of the specific circumstances surrounding employment status determinations.

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