Upper Tribunal decides on rugby commentator employment status

What was the background to the case?

In the case of HMRC v S&L Barnes Ltd, the Upper Tribunal (a tribunal set up to deal with issues relating to tax) has overturned and re-made a decision by the First-tier Tribunal regarding the employment status of prominent rugby commentator Stuart Barnes (SB). Through his personal service company, S&L Barnes Limited (SLB), SB provides services to a number of media organisations. SLB provided SB's services to Sky TV under two contracts.

HMRC considered that the two Sky TV contracts fell within the scope of the IR35 legislation. The purpose of the IR35 rules is to prevent tax and National Insurance avoidance by individuals who attempt to disguise their employment status by supplying services through intermediary personal service companies.

HMRC's determination meant that SB's income was taxable as if he was an employee.  SLB appealed against this decision to the First-tier Tribunal. The First-tier Tribunal allowed the appeal and HMRC appealed to the Upper Tribunal.

How do we know whether the IR35 rules apply?

For the rules to apply there must be an intermediary between the worker and the client, for example a personal service company. 

There is a three-stage analysis which informs whether the IR35 legislation applies, namely:

1. Find the terms of the actual contractual arrangements and the relevant circumstances in which the individual worked (it is common that there are two actual contracts - one between the individual and their personal service company and a second between the personal service company and the client)
2. Ascertain the terms of a 'hypothetical contract' (ie decide what the terms of the contract would be if the individual was providing their services directly to the client without any intermediary)
3. Consider whether the hypothetical contract would be a contract of employment or a contract for services

If the hypothetical contract amounts to a contract of employment the IR35 rules will apply. 

In order to determine whether the hypothetical contract amounts to a contract of employment, it is necessary to consider whether:

• There is an agreement to provide work or skill in return for a wage or remuneration
• The client has control over the individual
• The other provisions of the contract are consistent with its being an employment contract

The Upper Tribunal's decisions

The Upper Tribunal found SB's services did fall within the scope of IR35, meaning that the payment from Sky TV needed to be taxed as employment income. 

In its reassessment, the Upper Tribunal identified the following factors as being indicative of an employment relationship:  

• A long-term engagement (four years, extendable by two)
• Requirement for personal service without substitution
• Sky's priority claim on SB's time (228 days annually)
• Exclusivity for broadcasting services
• Limited financial risk for SB
• Fixed annual fee paid monthly, regardless of actual days worked

In contrast, the factors indicating self-employment were:

• SB's retention of intellectual property rights
• The flexibility in SB's ability to determine his availability to cover live matches

As the factors indicating employment were more significant than those indicating self-employment, the Upper Tribunal found that the hypothetical contract was one of employment and that therefore the IR35 rules were engaged.

Learning Points for Employers

This decision highlights the importance of ensuring robust contractual documentation is in place that properly reflects the reality of the working relationship between two parties. This will enable all relevant factors to be taken into consideration when deciding on the tax status of a worker.

For more information or advice, please contact Sian Knight-James in our Employment team on 020 7665 080, or complete the form below.