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 . 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.
HMRC argued that a hypothetical contract between the parties would amount to a contract of employment, listing its key terms in paragraph  and stated:
- 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.
What was the decision?
The FTT looked at whether there was a hypothetical contract between the parties to determine if there was a contract between Clark and Sky, would Clark be considered an employee of Sky?
The FTT determined numerous material terms for the hypothetical contract which can be found at para  of the judgment.
Mutuality of obligation
The FTT found that there was a mutuality of obligation that existed between Sky and Clark for the contractual periods. One of the main areas of focus was the fees payable by Sky to LPPL. The FTT stated that in return for the monthly instalments of an annual fee, Clark was to perform services personally and that Sky would have the ‘first call’ on his services. The FTT stated that “…we find that the irreducible minimum of obligation did obtain between Sky and Mr Clark, and specifically Mr Clark was obliged ‘to provide his own work and skill’.
The FTT notes that the fee “…was neither reduced for no-show, nor increased when Mr Clark had to work ‘over-time’…”. This would be consistent with an employee-employer relationship.
With regards to the termination clause, the FTT stated that if there was no mutuality of obligation created by the contract, then it would not have been necessary for a termination clause in the contract.
The FTT stated:
“We find therefore that the mutuality of obligation existed between Sky and Mr Clark for each contractual period. Since each contract was renewed on its expiry to provide a continuum for the six years in question, the state of affairs as regards mutuality of obligation obtained for the entire duration of the relevant period…”
The FTT stated that Sky had ultimate control over the programmes that Clark would present.
In addition, the FTT also referred to Sky having ‘first call’ over Clark. Clark was required to reserve 64 days so that he could meet this ‘first call’ for Sky. The FTT stated that this showed a high degree of control on Clark’s services. Furthermore, the FTT stated that Sky would have control over the dates and locations for Clark to perform his services as the main services provided were not pre-recorded and Sky controlled these performances.
Although Clark would write his own script and control his own delivery, the FTT found that Sky still had control over the production process and had the full editorial control and Clark would have to follow the Executive Producer’s decisions.
In other points raised:
- 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’
Overall, the Judge Heidi Poon stated:
“…We are satisfied that no factors existed which were inconsistent with the affirmation conclusion that the contractual arrangements between Sky and Mr Clark would have been a contract of service for the duration of the entire relevant period from 1 August 2012 to 31 July 2018 for the purposes of the IR35 legislation”.
Why Is this Important?
Dave Clark’s case is one of a number of high-profile cases that have been tried in the Tribunal’s and Courts on the intermediaries legislation and will certainly not be the last. With the recent requirements that came in April 2021, many businesses may be uncertain as to whether they will be responsible for determining a worker’s tax status.