The latest in a series of IR35 compliance cases focusing on the broadcasting industry.
As has been widely publicised, HMRC have focused its compliance attention on the broadcasting industry in recent years, with a number of IR35 cases going before tribunals and courts.
The department’s success in the case against Dave Clark, who retired as a TV darts presenter in 2020, is another boost for HMRC’s compliance strategy.
The appellant in question was Little Piece of Paradise Limited (LPPL), engaged by Sky TV (Sky) for the provision of services by Clark as a presenter for mainly darts broadcasts.
Clark was initially engaged as a sole trader in July 1998 by Sky forerunner British Sky Broadcasting Limited (BSkyB). When Sky insisted that to continue providing his services he would need to operate through his own limited company – common practice with other broadcasters and their presenters – Clark set up LPPL in June 2003.
The appeal in question focused on three contracts that fell within the enquiry period for tax years from 2013/14 through to 2017/18. Although it had no direct bearing on the outcome of this case, it should also be noted that Clark was eventually moved onto PAYE by Sky in anticipation of the off-payroll legislation.
The case was heard in October 2020 at the First-Tier Tribunal before Judge Heidi Poon and Simon Bird. HMRC were represented by legal counsel and the appellant by his own accountant, with the hearing taking place publicly via the Video Hearings Services of HMCTS.
Clark was the only witness to provide oral evidence with no representative of Sky called, a missed opportunity for the appellant’s representatives to cross-examine and further explore Sky’s written evidence to HMRC.
The three contract agreements between the parties consisted of (a) the key terms defining the parties, the contract period and fee payable etc, (b) the terms and conditions and (c) the schedule – being a non-disclosure agreement (NDA).
All three agreements were largely consistent and mainly generic with the inclusion of a few amended clauses in the later contracts and revised fee and service requirements resulting from Clark no longer being required to work on boxing broadcasts.
The parties had both presented their cases in accordance with the ‘tripartite test’ and made their submissions by adopting the general approach set out by McKenna J in Ready Mixed Concrete (South East) v Minister of Pensions and National Insurance  2QB 497 at p515, which says:
"A contract of service exists if these three conditions are fulfilled.
(i) The servant agrees that, in consideration of a wage or other remuneration,he will provide his own work and skill in the performance of some service for his master.
(ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master.
(iii) The other provisions of the contract are consistent with its being a contract of services."
McKenna J’s explication of each of the three conditions can be summarised as follows:
- The first condition pertains to mutuality of obligation, whereby there ‘must be consideration’ (a wage or other remuneration), and the servant ‘must be obliged to provide his own work and skill’.
- The second condition relates to the exercise of control by one party on the other to create the master-servant relationship.
- The third condition is to assess other relevant factors as a ‘negative condition’, i.e., if the first two conditions are satisfied, a contract is a contract of employment unless there are other relevant factors to the contrary.
As is now the common and accepted approach in IR35 cases, in constructing the hypothetical contract and reaching her conclusion, Judge Poon adopted the method of considering not only the contractual terms and conditions but also the reality of the actual working practices, which consequently were not all necessarily addressed in the written contracts.
Judge Poon found that the following facts confirmed the hypothetical contract between LPPL and Sky was that of a contract of service and, therefore, the IR35 legislation applied during the various tax years under enquiry.
- Clark’s personal service was required by Sky. The argument presented by the appellant’s representatives that substitution had occurred was rejected by the tribunal on the basis that the contracts only allowed LPPL to ‘propose’ a substitute, which ultimately Sky could reject. On the occasions where it was claimed a substitute was sent it was found that this individual was also a Sky broadcaster, who entered into a direct arrangement with Sky to cover broadcasts which Clark was unavailable for. In addition, Sky would pay the substitute rather than LPPL.
- Sky had ultimate control over what programmes Clark would be required for. Sky chose which darts events it would broadcast, and that Clark would be required in practice to perform those services for said events, equating to 64 days per annum.
- Sky had ‘first call’ upon Clark’s services and Clark had to reserve 64 days in his diary to ensure Sky could meet its broadcast requirements.
- The darts events were lived-streamed and Sky had complete control over the time and location of the performance of the services.
- Although accepted by the tribunal that Clark had the expertise and knowledge in performing the services to a high degree of autonomy, the area of autonomy was contextualised within the compass of wider controls, namely the Ofcom guidelines, editorial guidelines and the directions of the producer for Sky programmes. Ultimately, Judge Poon decided that the what element of control is of far greater weight than control over how – which is an interesting point many may not necessarily agree with.
- Sky would retain absolute control of the exploitation of the output from Clark’s presenting services.
- Clark was not able to undertake other or similar services for third parties without the express prior written permission of Sky.
- Clark was paid an annual fee split into 12 equal monthly payments for 64 days of required services. In fact, LPPL invoiced and was paid the full amount for two months when Sky offered no coverage of darts events and Clark’s services were not required.
- LPPL provided Clark’s personal service to Sky for which payment was received.
- The contracts stated that fees received by LPPL included holiday pay entitlement.
- The tribunal did not consider Clark to be in business on his own account just because he used his own equipment and studio to carry out research and to a certain extent correct any defective work. During the programmes, Sky provided the necessary equipment. According to HMRC, Sky accounted for 98% of LPPL income.
- The intention of the parties was not to create an employer and employee relationship. However, it is the form of the relationship, taking into account all of the circumstances that form part of the arrangements, that dictates this outcome.
The consequence of this decision leaves LPPL with a liability of underpaid tax and NIC in the region of £281,000, although it was noted that this had not yet been confirmed and agreed by the parties and did not consider any interest due, possible penalties or tax and NIC already paid.
Lessons to take away from this case
Having considered all the evidence presented by both parties, including their supporting technical arguments, Judge Poon’s decision on this case makes sense.
The appellant’s representative did not offer any credible evidence to demonstrate why IR35 should not apply. This case represents a clear example of why it is important to seek specialist IR35 advice at the earliest opportunity when faced with a HMRC IR35 enquiry to give the best chance of success against any challenge.
A full review of both contractual terms and conditions, and the reality of day-to-day working arrangements play a vital role in establishing the correct application of IR35 and the off-payroll rules. Due diligence must start prior to signing any contract and continue throughout any engagement. Not having clearly documented evidence can often lead to misconceptions and ambiguity between contractors and their clients when faced with an HMRC enquiry –especially where several years have passed.
Each party’s evidence submissions and arguments can be considered in detail by reading the judgement itself here.
Click here to learn more about IR35 and how to determine your IR35 status.