HMRC win IR35 case

Former Scottish footballer-turned-Sky pundit Neil McCann has become yet another high-profile contractor to lose an IR35 appeal against HMRC, leaving him with a tax bill of around £210,000.

This latest ruling by the Upper Tier Tribunal (UTT) follows a previous hearing at a First Tier Tribunal (FTT) held in 2022 which found in HMRC’s favour.

This is not the first case taken by HMRC against freelance sports presenters used by Sky and the outcome appears to follow a similar pattern. HMRC have been successful in most of their other challenges, except in the case of Stuart Barnes, a rugby commentor whose initial win at FTT has been appealed by HMRC with a UTT hearing scheduled.

By way of background, Mr McCann had provided his services to Sky as a commentator and pundit through his personal service company McCann Media Ltd (MML) from the 2013/14 to 2017/18 tax years. In turn, HMRC had issued various determinations to MML to recover PAYE and NIC liabilities it considered due for incorrectly operating outside IR35 across the contracts and tax years in question.

In the original FTT appeal, the judge found that there existed excessive contractual control, that McCann was entitled to an annual fee from Sky, and overall could not be considered to be in business on his own account.

Based on these facts the FTT considered that the hypothetical contract between McCann and Sky was “consistent with a contract of employment”.

Not satisfied with the decision, Mr McCann appealed to the UTT on three grounds.

Firstly, Mr McCann’s advisers suggested that he believed the FTT had “erred in law” in its considerations on Mutuality of Obligation (MOO) and its interpretation of existing case law found in both the seminal tax cases of Ready Mixed Concrete and the more recent Kickabout Productions Ltd.

The representative for MML argued that the FTT had failed to take into account Mr McCann’s engagements with other clients. This included his appointment as interim manager of Dundee FC alongside his punditry work for Sky.

This argument was firmly rejected by the UTT who reasoned that Mr McCann provided his services to other clients to a “very limited extent” for the duration of the Sky contracts.

We can gather from that comment that claiming to have other clients needs to be substantiated by meaningful engagements and not occasional odd jobs here and there.

Next to be challenged by Mr McCann’s representative was the FTT’s interpretation of Ready Mixed Concrete (RMC). Here, Mr McCann’s defence contested that the FTT didn’t “properly apply the third limb of RMC” which looks at whether the contractual terms indicate employment. Here, the defence argued that Mr McCann’s contracts with Sky contained “core and salient provisions” which were “inconsistent with a contract of employment”.

Unfortunately for Mr McCann the UTT was not persuaded to agree, and the argument was rejected. The last ground for appeal was whether the FTT had correctly applied another case law test that was found in the case of Kickabout Productions Ltd (KPL), an IR35 case involving Talksport presenter Paul Hawksbee. The significance of the KPL case was the importance of ensuring that the working practices align with the contract itself.

In the case of Mr McCann, the representative argued that the FTT “blurred” the actual and hypothetical contracts. As a result, the decision reached was built on shaky foundations and was “incorrect as a matter of law”. However, this too was dismissed, with the UTT stating that the FTT “clearly understood” those “observations” and had not incorrectly applied this test.

So, what can we take from this latest defeat for a Sky Sports pundit, you may ask?

Other than the obvious cost of getting things wrong, it remains vitally important that any contractual agreements in place actually reflect the reality of the engagement.

In addition, agreements between parties must avoid clauses and arrangements that one would expect to see in an employment contract, particularly with regard to the way payment is structured.

As is always the case where complex legislation is involved, professional advice should be sought before entering any agreements. Here at The Guild, we have a team of both legal and ex-HMRC compliance staff who will be able to advise you on the best way forward.