On the face of it, the outcome in Alan Parry Productions Limited v HMRC was not unexpected, but it did represent a shift back to the ‘old school’ approach to IR35: placing the three key status tests of mutuality, personal service and control at the top of the agenda above in business factors; whilst yet again reaffirming the importance of the contract and being able to rely on its terms to make your case.
It seems that HMRC have quite a thing for British Sky Broadcasting Limited (BSkyB) sports commentators with this now being the third case that has been taken to the First Tier Tribunal (FTT). This case refers to Alan Parry Productions Ltd (APPL), engaged by Sky since 1996 for the provision of commentary services via its director Alan Parry, a well-known sports commentator. This case follows in the footsteps of two previous IR35 cases concerning Sky commentators whose arrangements with Sky were not to dissimilar to those in this case, Little Piece of Paradise and McCann Media.
Case specifics
The case was heard over three days at the end of May 2022 before Judge Beare with APPL being represented by Mr. Chris Leslie of The Tax Networks Ltd and HMRC by barrister Mr. Bayo Randle. The period of HMRC’s enquiry covered tax years 2013/14 to 2018/19 with HMRC arguing that tax amounting to £222,474.40 and National Insurance Contributions totalling £133,945.97 were owed.
Setting out his stall
Judge Beare effectively established his decision-making process in three stages:
- Determining the actual contractual arrangements between the parties as well as the actual working arrangements
- Ascertaining the terms of the hypothetical contract (i.e., if there had been no intermediary in the contractual chain – here APPL – and the relationship had been directly between BSkyB and Alan Parry); and
- Consider what that the hypothetical contract would have looked like: employment or self-employment?
There were references to other recent broadcasting cases such as HMRC v. Kickabout Productions Limited [2020] UKUT 216 (TCC) (‘Kickabout’) involving Paul Hawksbee and several references to HMRC v Atholl House (Kaye Adams) during the first two stages. However, the third stage was undertaken via a detailed analysis of the seminal case of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497.
This judgement underpins the majority of employment status cases and was heavily relied upon by Judge Beare, in considering comparing the evidence presented against the three key status tests laid out by McKenna J - those being mutual obligations, personal service and control which must be present in order to demonstrate the existence of a contract of service.
For those that may not have a detailed knowledge of IR35, and specifically with regards to past IR35 and status judgements, this case provides a useful reference point given the number of other historical cases which Judge Beare referenced. These included Christa Ackroyd Media vs HMRC, Dragonfly Consultancy Ltd vs HMRC, Usetech Ltd vs Young, Synaptek Ltd vs Young and more senior judgements such as PGMOL vs HMRC, Hall vs Lorimer and Montgomery vs Johnson Underwood.
The analysis was applied as follows:
Substitution
The contracts between APPL and Sky allowed for the provision of a substitute, but the right itself contained many restrictions such as ‘consent’ being required, signing an NDA and suitability, which when taken into combined consideration meant that the right to substitute was too fettered to be seen as genuine.
One of the main issues here is what determined ‘suitability’, this was left open to interpretation when specifics were not disclosed. Furthermore, it seemed that Sky would have first call on any personnel it engaged for the provision of the services as they had a ‘pool of talent’ that they could pick from if they chose to. It seemed that, as much as Parry believed a genuine right of substitution existed (albeit not tested), if substitution became necessary, it would simply be down to Sky to organise any replacement. It was later accepted by Parry that the right of substitution provided wasn’t as strong as he had tried to argue, even as far as being replaced by Sky when he was ill.
Control
Parry had worked for Sky as a commentator purely down to the freedom it gave him, despite there being restrictive covenants within the contracts with regard to providing services to competitors. However, Parry did in fact provide services to both Talksport and IMG during APP’s engagements with Sky and claimed to have not always informed Sky that he was doing so. However, the fees generated from these separate client engagements accounted for never more than 5% of the company’s total income for the five tax years in question and in three of the years, there was no other fee income than from BSkyB.
It is unclear whether Parry meant freedom in terms of working for them whenever he wished or freedom in the sense of being able deliver the sports commentaries as he saw fit. The contracts required him to not only comply with ‘rules and regulations’, but also to be subject to direction by Sky. However, it seems in reality that a lot of what was written was simply there just to provide some sort of contract rather than much thought given in terms of control. It was claimed by Parry that he only had informal chats about the running of the show and only read the programme running order if it was ‘lying around’.
Mutuality of obligations
It was argued that Parry worked “on an ad-hoc basis as and when required”. In other words, Parry only provided services when he decided he could and, if he couldn’t, APPL simply would not be paid. The hypothetical contracts determined that he could decline any request from Sky and vice versa, they did not have to pay him specified fees until he provided services.
In business on your own account (IBOYA)
Described by the Judge as a “negative condition”, i.e., the test which is considered when the three key tests prove inconclusive, the judge nevertheless ‘completed the picture’ and considered the relevant evidence.
The significance of Judge Beare’s approach is that until recently we had started to see the emergence of the IBOYOA test becoming increasingly important in deciding status cases, demonstrated by Adrian Chiles’ IR35 win in Basic Broadcasting Ltd vs HMRC, where Chiles was able to prove significant IBOYOA factors including multiple clients that made up a large portion of his company’s trading income.
However, the recent Court of Appeal case of Atholl House has somewhat stopped that notion in its tracks by returning back to the more traditional and expected method of deciding status cases which is the tripartite test that McKenna J had set out in Ready Mixed Concrete.
In this specific case, Parry was unable to replicate the same level of end client variety or alternative income streams as Chiles, meaning that even if the IBOYOA test was the preferred test for deciding status in this case, it is not clear whether the facts of this case would have resulted in a different outcome.
The judgement
Even with evidence in Parry’s favour to support the engagements as being outside of IR35, Judge Beare ruled that taking into account all of the facts presented, the services provided between tax years 2013/14 - 2018/19 were in fact ‘caught’ by the legislation. This judgement follows in the footsteps of the two previous IR35 cases decided by the FTT concerning Sky commentators, referred to above.
What has become apparent from these trio of Sky commentator cases is that contracts must reflect the reality of the day-to-day arrangements. Where a standard generic contract is offered, it is important that, where appropriate, time is taken to negotiate with the other party to ensure that the terms are accurate of the engagement. It is also vital to continue with due diligence during the engagement itself and to record and keep any evidence that helps demonstrate that IR35 should not apply. This will make it much easier to defend your position should you face an HMRC enquiry in the future.
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