Hypothetical Contract of Employment Leads to Large Tax Bill for Sky Sports Presenter

In the case of Little Piece of Paradise Ltd v HMRC, which relates to pre April 2021 earnings, the IR35 rules have been applied to a Sky sports presenter, resulting in a tax bill of over £280,000.

Prior to April 2021, if the IR35 rules applied then, broadly, the intermediary (in this case, the personal service company Little Piece of Paradise Ltd) was required to account to HMRC for income tax and National Insurance. See the Best Practice section below for more information about how the rules changed in April 2021.  

What Was The Decision?

The Tribunal found that due to the nature of the relationship between the presenter (Mr Clark) and Sky, he would have been an employee of Sky but for the existence of his personal service company.  In reaching its decision, the Tribunal focused on the three key IR35 status tests.

Mutuality of Obligation

This is where there is an obligation on one party to provide work, and on the other to accept work that is provided. Sky had first call on Mr Clark's personal services and for that paid twelve monthly instalments of an annual fixed fee. They considered that it was important this fee was 'neither reduced for no-show nor increased when Mr Clark had to work over time'. This suggested that he would have likely been paid whether he worked or not, akin to an employee.

Control

The Tribunal considered the level of control exercised by Sky over the services provided by Mr Clark. Mr Clark worked under the direction of Sky's production manager, received instructions from Sky's executive producer and was told which shows he should present. Further, Sky had 'first call' on Mr Clark's time, as he was expected to reserve 64 days in his diary for Sky. There was therefore an element of control to the relationship.

Personal Service

Mr Clark argued he was able to substitute another presenter and had done so on numerous occasions. However, the Tribunal found issue with how the substitution was arranged. Instead of Mr Clark contracting with the substitute directly (which would be expected in business to business engagements), it was Sky who contracted directly with the substitute.  The Tribunal therefore concluded there was no right of substitution under Mr Clark's own contractual relationship with Sky.

Best Practice

From 6 April 2021, it is the responsibility of medium and large private sector clients to determine whether the worker providing services would have been an employee but for the existence of the intermediary. However, this decision serves as a reminder of the key issues the Tribunal is likely to take into account in reaching a decision on employment status. 

It is important contracts are drafted to reflect the true nature of the working relationship between the worker and client. If the intention is to demonstrate a genuine self-employed relationship, the right of substitution should be included (and ideally should be an unfettered right), and care should be taken not to exert control over the worker or establish mutuality of obligation as part of the relationship. If the working relationship between the parties relies on any of these things, then the IR35 rules may apply.

For more information contact Mark Stevens in our Employment team on 0117 314 5401, or complete the form below.