Third IR35 case involving BSkyB dismissed by FTT
A third court decision regarding services provided to British Sky Broadcasting Ltd (“Sky”), this time by a football commentator, has been published, with the court not upholding the appeal. Previously dismissed IR35 cases involving the same broadcaster were Little Piece of Paradise (“LPPL”) and McCann Media Limited (“MML”).
This third case concerns Alan Parry (“AP”), a well-known football commentator who commentated for Sky for many years. The appeal related to services provided through Alan Parry Productions Limited (“APPL”) for the tax years 2013/14 to 2018/19.
The court applied the three-step test for ready-mixed concrete, following clarifications in the Athol House Court of Appeal’s decision. He took the multi-factor approach and stood back to appreciate the detailed picture painted, saying the overall impression of Sky’s relationship with Mr Parry was one of employment.
Dave Chaplin, CEO of IR35 Shield, who attended the three-day court, said: “This is the third IR35 case to be brought before the FTT, under nearly identical contractual terms, and also the first FTT hearing after crucial Atholl House court Appeal decision.
“There were full pleadings and submissions made by both parties, not all of which were included in the written decision. Previous cases before Atholl House had looked more into what happened in practice, but this case relied heavily on a literal interpretation of the contract.
Injustice bites again
While the tax amounts on appeal were significant – the final amount due after set-off of corporation tax and income tax already paid is usually around a third of that figure. The taxpayer must also foot the bill for secondary Class 1 National Insurance contributions – a tax that employers, not employees, always pay.
Ironically, if the case went to trial under the new non-payroll working rules, Sky would pick up the tax bill, not APPL.
Unnecessary standard contracts
All freelancers hired by Sky were subject to the same contractual conditions. After the decision of the Atholl House Court of Appeal and the decision Autoclenz does not apply to tax matters, all contractual clauses, however, unsuited to reality, are now highly material. The courts in Sky’s previous cases, LPPL and MML, had concluded that Sky’s standard contracts did not reflect what was happening in practice.
Chaplin says: “From the three tax tribunals involving Sky, we understand that Sky was unwilling to make any changes to the contract and that it was a ‘standard form’. Sky owned the rights to the football, paid well and terms seemed to be offered on a take it or leave it basis.”
In Parry’s case, the contract gave Sky the right to have him work as a commentator, presenter, interviewer, guest or other participant – although Alan insisted he had only been hired as lead commentator. The contract also stipulated that he was to work as and when required and comply with all reasonable instructions, despite the fact that he was hired to play 1-2 games per week, and that he worked collaboratively. with Sky.
Chaplin says: “The contract was overly broad, giving Sky extensive rights and obligations beyond what they needed and what actually happened. But an unexercised right is still a right, and that was very difficult to overcome. contracts were more carefully drafted to align with the actual relationship, the decision could have been different.”
Crucial legal points of the case
The court skimmed the legislation (paragraphs 8 to 25), referring to the seminal case of Ready Mixed Concrete (South East) Ltd v Minister for Pensions and National Insurance (“RMC”) as a framework for determining whether the contract was a “service contract” or a “service contract”. RMC involves considering whether personalized service is present, sufficient mutuality of obligation and control, and other factors. It is then necessary to “take a step back” and decide according to an overall impression.
The method of construction of the hypothetical contract was based on the three stages defined in common law (Revenue and Customs Commissioners v Kickabout Productions Ltd UKUT 216 (TCC) at ): Find the terms of the actual contract provisions and circumstances, then check the terms of the hypothetical contract, then determine whether the hypothetical contract would be an employment contract.
Considerable confidence has been placed in HMRC v Atholl House Productions Ltd  EWCA Civil 501in particular the fact that Autoclenz vs. Belcher is not a competent tax authority. For contractual interpretation, the rules well established in the Supreme Court’s decision in Wood v Capita Insurance Services Limited  UK SC 24 were cited.
After reviewing all of the evidence, including oral testimony provided by witnesses on cross-examination, the court considered the factors in the context ofReady-mixed concrete.
With regard to personal notice, attention was drawn to the fact that the APPL had a contractual right of substitution which, if real, would have nullified the reciprocity of obligations. There have been many discussions in court about this, with HMRC’s lawyer arguing that substitution clauses should not be in the hypothetical contract. The judge disagreed, but when reviewing the clauses later, he applied the “dominant purpose” test of Pimlico Plumbers Limited v Smith  ICR 1511concluding that BSkyB engaged Mr. Parry for his personal services.
On reciprocity of duty, the court went through the current law, as clarified by the Atholl House Court of Appeal case, and split the consideration of reciprocity of duty into two parts: the customer and the worker. [see 106]. On the customer’s side, the court found that BSkyB was “obligated under the hypothetical contracts to pay Mr. Parry the fixed amounts specified in the contracts” and then said that “it is not necessary for the customer to have obligation to provide work where the client is obligated to make payments no matter what.” The second part, relating to the provision of personal services, was already fulfilled due to the conclusion on substitution.
HMRC had sought to claim that the continued offer and acceptance of work had crystallized into a legal obligation, citing St Ives v Haggarty  TO EAT but retracted this assertion in their subsequent submissions. HMRC also claimed in its final submissions that the contract was comprehensive, contrary to the appellant’s assertions. There was a brief discussion with the court stating, “…the same does not apply where the overall contract includes an obligation on the part of the client to pay compensation to the worker whatever happens and an obligation on the part of the worker to do work as you go on demand.”
Chaplin comments: “Absent the obligation to pay, whether the work was done or not, HMRC should have gone home St Ives v Haggarty argument or trying to leverage the PGMOL Court of Appeals decision to assert that the contract was global and that any time Parry commented was an individual engagement. These approaches, in my view, would have been quite ambitious.”
On control, the court said  “…it is clear to me that each hypothetical contract gave BSkyB control over the ‘what, how, when and where’ in accordance with prior authorities, and then listed several examples.
The tribunal considered other factors but concluded that the factors pointing to employment outweighed any indications to the contrary.
Do we have conflicting case law?
Chaplin points to one aspect of the case that concerns him: “An express substitution clause was ruled out by applying the dominant characteristic test of the Supreme Court’s decision of Pimlico Plumbers. It was struck down with reference to the evidence in the notes of HMRC meeting with Sky, who were not cross-examined in court – i.e. it was hearsay. -questioned, Parry insisted that he had this contractual right.
“Yet the literal interpretation of the contract was invoked, citing White against Troubtbeck, in regards to control, which indicated that Sky could ask Parry to work anywhere, anytime, and anyhow in any role they wanted. And despite the “dominant characteristic” of control not matching what was in the contract and Mr. Parry’s cross-examined testimony confirming the mismatch, the contract was not disrupted.
“While the conclusion on the substitution seems fair, the approach taken does not seem to reconcile with that taken for the control, in particular with the reliance on hearsay evidence from Sky, which was not cross-examined To be clear, this is not a criticism of the court, but rather an observation on current case law.
Lessons from the case
The APPL’s central argument was that the contract was commercial, with fluctuating payments linked to the amount of work performed and, in particular, external market forces, as evidenced by a significant reduction in fees when BSkyB lost the right to certain games. The contract also contained numerous commercial clauses related to indemnities and guarantees, which would not generally be found in employment contracts. In addition, Mr Parry paid an assistant around £20,000 a year as a commentator.
Unfortunately, despite the first-hand testimony cross-examined by Parry which showed that the reality of the commitment did not correspond to the general wording of the standard contract, the court had to rely on the contractual clauses, having no longer legal authority to deviate from them using Autoclenz. Parry was not controlled as much as the contract expressed – which went against him.
Chaplin says: “The main lesson to be learned is to ensure that contracts accurately reflect working practices and contain no holes. And if HMRC knocks on the door, make sure all communications are in writing, unambiguous and factually correct.