'Voice of Rugby' wins IR35 tax appeal

In S&L Barnes Ltd v HMRC [2023] UKFTT 42 (TC), the First-tier Tribunal (FTT) held that the intermediaries legislation (IR35) did not apply to a personal service company which supplied the services of former England rugby international Stuart Barnes to Sky TV Ltd (Sky) as a rugby co-commentator and pundit.

Background

Stuart Barnes was a professional rugby player in the 1980s and 1990s, playing for Bath, the English national team and appearing in the British and Irish Lions squad. After retiring from professional rugby, Mr Barnes pursued a successful career as a rugby commentator. He established S & L Barnes Ltd (SLB) in 2005 and provided commentary and punditry services through SLB to a number of different media organisations. 

Mr Barnes entered into two contracts with Sky for the provision of commentary services. The first contract covered the period from 1 June 2013 to 31 May 2017 and the second contract covered the period from 1 June 2017 to 31 May 2019.

HMRC was of the view that IR35 applied to the contractual relationship between Mr Barnes and Sky and issued the following determinations and notices:

(a) Determinations under Regulation 80, Income Tax (PAYE) Regulations 2003, in respect of income tax deductible via Pay As You Earn (the PAYE determinations); and

(b)  Notices under section 8(1)(c), Social Security Contributions (Transfer of Functions) Act 1999, in relation to the associated National Insurance Contributions payable on earnings subject to PAYE (the NIC notices).

SLB appealed the PAYE determinations and the NIC notices to the FTT.

The principal issue in the appeals was whether, on the facts, IR35 applied to the contractual relationship between Mr Barnes, SLB and Sky. 

FTT decision

The appeals were allowed.

The key question for determination by the FTT was whether Mr Barnes was providing services under a contract for services (as SLB submitted) or a contract of service (as submitted by HMRC). In order to determine this question the FTT was required to construe the 'hypothetical contract' between Mr Barnes and Sky. 

The FTT construed the hypothetical contract with the following terms:

• covering a fixed term of four years – extendable by another two years;
• Mr Barnes was obliged to personally perform the services;
• Mr Barnes had no right to provide a substitute when he was unable to provide the services himself;
• the services comprised punditry services, attendance at pre-match rehearsals, research and script drafting, interview requests and other ad hock requests; and
• a series of other provisions regarding termination, programme content and intellectual property rights.  

The FTT applied the test set out in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497, regarding the definition of a contract of service, namely, in order for a contract of service to exist, the following three conditions must be satisfied:

1. Mutuality of obligation: there must be consideration and the individual must be obliged to provide their own "work and skill".

2.  Exercise of control: there must be a "master-servant relationship".

3. Other provisions to be assessed as a negative condition: a contract is a contract of service if the above two conditions are satisfied unless there are other relevant factors to the contrary. 

The FTT concluded that the fixed term and the monthly instalments of Mr Barnes' fixed annual fee established mutuality of obligation. The FTT was also of the view that Sky's ability to decide what and how the services should be provided established "control to a sufficient degree". 

The case therefore turned on the third condition. The FTT considered a number of factors in relation to this condition and concluded that there were sufficient contrary factors pointing away from there being a contract of service. Importantly, the fact that Mr Barnes was in business on his own account was demonstrated by the fact that he was a commentator and not a presenter and that he tended to act as the "second voice" on games, supplementing the commentator providing the running commentary, which was predicated on his unique expertise as a former player. Also, there was no prohibition preventing Mr Barnes from repeating his opinions other than when working for Sky and the FTT also noted that he was not financially dependent on Sky during the period of the contracts.

The FTT concluded that all these factors considered together meant that the contract was for and not of service. In her closing comments, Judge Poon cited Atholl House v HMRC [2022] EWCA Civ 501, in which the Court of Appeal said: "if the person providing the services is known to carry on a business, profession or vocation on their own account as a self-employed person, it would in my judgment be myopic to ignore it". 

Comment

This decision may encourage other taxpayers currently involved in IR35 disputes with HMRC. However, it should be noted that the decision in this case went in favour of the taxpayer on the basis of numerous factors that are highly context-specific. 'Celebrity' IR35 cases tend to be quite different in nature to other IR35 disputes involving self-employed individuals. As the appeals brought by Gary Lineker ([2023] UKFTT 340 (TC)) and Eamon Holmes ([2023] UKUT 00083 (TCC)) have recently demonstrated, the application of IR35 in practice is not a straightforward exercise. It may only be a matter of time before a statutory test for employment is enacted.

The decision can be viewed here.