7 December 2021
IR35: HMRC Land a Bullseye – £281,000 IR35 Bill for Former Presenter
Dave Clark (“Clark”), former sports presenter for Sky Sports, had his IR35 appeal dismissed at the First-Tier Tribunal (“FTT”) resulting in a tax liability of over £281,000. The case turned on whether his working relationship with Sky fell within the IR35 intermediaries legislation, otherwise known as ‘off-payroll working’. The judgment can be found here.
What is the IR35 intermediaries legislation?
The Government introduced this legislation in 2000 to prevent tax avoidance from workers who offered their services through a limited company or a partnership in order to reduce or avoid PAYE and National Insurance Contributions (“NIC’s”).
One of the main aims of determination is to ask: "if the intermediary did not exist, would the relationship between the client and individual be that of an employer and an employee?". There also needs to be a further examination into whether there is any mutuality of obligation, the degree of control, and if there is personal service or whether substitution is appropriate. These have been tried and tested by the courts on numerous occasions.
Since April 2021, the responsibility of determining whether a worker falls within the scope of IR35 lays with the engaging entity or end user business, and they will also have the responsibility of determining any liability to PAYE or NIC’s due - this applies to both the private and public sector. Note - there is an exception to this rule where the engaging business is considered ‘small’ under the Companies Act 2006.
What Happened in this Case?
The appellant was Little Piece of Paradise Limited (“LPPL”). Clark had worked with Sky since July 1988 and following Sky’s request in 2003, he established LPPL to be a personal service company and used LPPL to provide services to Sky. There were three key contractual agreements in question which provided for an annual fee which would be paid monthly in arrears.
An appeal was made by LPPL following HMRC's decision that the arrangement between LPPL and Sky fell within the IR35 legislation. If it did apply, there would unpaid PAYE and NICs payable in excess of £281,000.
LPPL provided the terms for what they believed would be part of the hypothetical contract in paragraph [61]. LPPL submissions included:
- Mutuality of obligation - There was a lack of mutuality of obligation, e.g. if services or work were not provided, there was no obligations to make payment.
- Control – Clark controlled where he exercised his duties and not Sky, Clark would write his own script without Sky’s approval and no autocue was used. Clark would take instructions on who to interview but he would control the interview. Clark was not advised on Sky’s code of conduct or Sky training. Clark was bound by Ofcom guidelines and regulations meaning that he was under control from these regulatory bodies and not from Sky.
- Exclusivity – Clark was only restricted from covering other engagements to the extent that these were PDC darts presentations, and so could undertake additional work. Clark was also able to provide a substitute.
- Mutuality of obligation – Clark was required to personally perform the services when required by Sky. They also stated that although there was no obligation for Sky to provide work, there was a contractual requirement on Sky to provide payment each year so Clark would be in breach of contract if services were not performed.
- Personal service – Clark was required to present PDC events personally and a hypothetical contract would not have provided a right to provide a substitute and it would be Sky who would be responsible for providing another individual for presenting the event.
- Control – HMRC submissions stated that Sky would have the right to require Clark to fulfil his duties as a presenter and therefore controlled what was done, when it was done, how it was done and where it was done. Sky also had the right to terminate the contract for breach.
- Business on his own account – This would mean that Clark would be required to provide his services to Sky on an exclusive and ‘first call’ basis and would need to notify Sky if he was going to other broadcasters for work.
- The FTT disagreed that Clark’s 64 days per year made a small proportion of his work as he would also need to prepare for the performances and travel. In addition, as Sky would have first call, meant that it would not be inconsistent that whilst he was working with Sky that it was under a contract of service.
- The FTT disagreed that he was able to work for other businesses when not working for Sky as the restrictive covenants were extensive. Clark signed a NDA which meant that he agreed that he would be associated with Sky. This would restrict him working for another similar broadcaster without prior permission from Sky.
- The FTT disagreed that Clark would not fall within the intermediaries legislation simply because he used his own equipment, his own research and corrected any defective work.
- The FTT disagreed that the financial risk was not one of someone who was self-employed.
- Although Clark argued that he provided a substitute (Rod Studd) when he could not perform the services, the FTT found that there would be a separate engagement contract between Rod Studd and Sky and “..There was no unfettered right to substitute at will to negate the obligation of personal performance by Mr Clark as the named Personnel in the Contracts’