HMRC has claimed another IR35 victory, this time at the expense of football pundit and former player and manager, Neil McCann.
It wasn’t long ago when we were reporting the IR35 win for HMRC vs Little Piece of Paradise Ltd (LPPL), and now another Sky TV presenter has found himself on the wrong end of an HMRC victory.
The appellant in this latest contest was McCann Media Limited (MML), which was engaged by Sky TV (Sky) for the provision of football punditry services from Neil McCann, a former Scottish premiership footballer with Rangers, who set up MML in August 2009.
The appeal in question was in respect of the tax years 2013/14 to 2017/18 with the hearing taking place via video in October last year.
The case was heard in October 2021 at the First-Tier Tribunal before Judge Jeanette Zaman and Mohammed Farooq. HMRC were represented by Ross Anderson legal counsel and the appellant represented by Chris Leslie of Tax Network Ltd, with the hearing taking place via video hearing.
When considering IR35, it is the responsibility of the Court to create what is known as the ‘hypothetical contract’ between the individual providing the services and the end client. This is achieved by ‘ignoring’ the individual’s company, i.e. the intermediary of the Intermediaries legislation – the formal name for IR35. This is necessary because in reality no contract exists between those parties.
The hypothetical contract is formed by taking into account all of the circumstances that form part of the arrangements relevant to an engagement. This includes all contracts in the contractual chain as well as the actual working practices.
Within the period in question, McCann entered into two contracts with Sky, one from 1 July 2012 to 30 June 2014 and the second from 1 July 2014 to 30 June 2017, along with a non-disclosure agreement for each contract.
The Tribunal concluded that the contracts were of ‘standard form’ which did not reflect what happened in practice, as was also found in the LPPL case.
The Tribunal adopted 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 (employment) exists if these three conditions are fulfilled:
- 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
- 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
- The other provisions of the contract are consistent with it 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’ (personal service).
- The second condition relates to the exercise of control by one party on the other to create the master-servant relationship - in particular, the end client/employer is controlling how the individual undertakes their work.
- 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. These are in-business factors, such of those argued successfully on behalf of Adrian Chiles but recently overturned by the Court of Appeal in Atholl House (Kaye Adams).
In terms of the argument put forward by Mr McCann’s representative the following points were submitted:
- McCann would provide his services primarily as a pundit for Sky as part of their talent pool
- Sky did not have first call on his services as they had access to a talent pool
- McCann could provide services only if he was available and willing
- Mr McCann would inform Sky of any dates that he was unavailable, although this was out of courtesy as there was no obligation for him to do so
- There was no obligation on Sky to offer Mr McCann any work and no obligation on him to accept any work offered
- McCann was paid only for the services he provided, although the fee was divided into 12 equal payments, which were paid pro-rata and in arrears
- McCann had full autonomy over how the content was created, albeit Sky could make suggestions, which he was not obliged to follow
- McCann was expected to adhere to common journalistic standards and was required to ensure work was carried out in a professional manner
- If Sky breached OFCOM guidelines due to the services provided by Mr McCann, any fine given to Sky would be passed onto Mr McCann
The Tribunal found the following facts confirmed the hypothetical contract between MML and Sky was that of a contract of service and, therefore, the IR35 legislation applied during the various tax years under enquiry. It applied the tests in Ready Mixed Concrete as follows:
It was found that McCann’s personal service was required by Sky due to the fact there was no ability to substitute or delegate. In reality Sky would source a replacement from a pool of workers that they already had. A substitute could be suggested but ultimately it would be at Sky’s discretion whether to accept a suggested replacement and in any event, Sky would pay and engage these individuals directly.
Mutuality of obligations
The Tribunal held that a sufficient mutuality of obligations was present between the parties. This was irrespective of the fact that dates or games covered were to be agreed between the parties and considered that this did not deny the existence of the obligation to provide the services on such occasions. It held that McCann was obliged to provide services as reasonably required by Sky. Furthermore, it considered that mutuality existed because Sky was required to pay Mr McCann a monthly fee based on an agreed annual amount, which was payable irrespective of the level of services requested by Sky, or actually performed by McCann.
If McCann did not provide services for a period in excess of four weeks, Sky would be entitled to terminate the agreement.
The factors determining the ‘when’ and ‘where’ the services were provided were dictated by the functions of the location and timing of the games. Moreover, the structure and timing of what was broadcasted was determined by Sky, and the Sky production team decided which guests to use.
Sky determined the roles to be performed by everyone and McCann was required to work within the agreed format of the programme as determined by Sky’s producer.
In relation to the manner in which the services were provided, while it was accepted McCann did provide his own expertise along with his own content (subject to the restrictions set out by OFCOM) the Tribunal considered this point as neutral in the context of ‘professionals engaged to provide their expertise during live broadcasts.’
Sky had editorial control over the broadcasts.
Sky provided all of the equipment although McCann did use his own computer equipment when preparing ahead of a game. The Tribunal held this point as neutral.
The Tribunal concluded that McCann could not be considered to be in business on his own account due to the fact he was entitled to an annual fee from Sky which did not vary according to the amount of services provided. In addition, he was restricted to the range of non-Sky activities he was able to provide due to restrictive covenants.
What can we learn from this case?
It appears that in most of the recent IR35 cases successfully argued by the taxpayer at Tribunal relating to broadcasters/TV presenters, the winning arguments had been based upon ‘in business factors’, but in Mr. McCann’s case, these business factors were unfortunately not present.
As noted above, HMRC have successfully challenged this opinion in the case of Atholl House and we would also reiterate our view that for the typical contractor engaged 40+ hours a week by one end client for a period before moving on to another similar end-client engagement, the in-business factors would be unlikely to succeed.
However, this case does highlight that contracts are still key and form the basis of any enquiry. Therefore, we always advise contracts are carefully reviewed to ensure they accurately reflect the working arrangements. This will play a vital role in establishing the correct application of IR35 and the off-payroll rules.
Finally, the three tests laid out in Ready Mixed Concrete, despite being heard nearly 55 years ago, still set the precedent for deciding employment status and continue to be relevant to this day. This case will always be the starting point when constructing a robust hypothetical contract. Without the right terms supported by strong working practices which deny the key factors that determine a contract of employment, a contractor whose engagement is being tackled by HMRC, could face inevitable defeat.
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