IR35 win for HMRC as contract terms favour employment
In yet another case involving a high-profile Sky Sports presenter, Alan Parry, a well-known football commentator, has lost his Tribunal appeal against HMRC which had determined that IR35 applied to the relationship between Sky and Mr Parry’s personal service company, Alan Parry Productions Ltd (APPL). The appeal covered the tax years 2013/14 to 2018/19 and totalled some £365,000.00.
Taking into account the recent Kickabout and Atholl House court of appeal rulings, the Tribunal applied the three-staged test approach:
- Stage 1: Find the terms of the actual contract which existed at the time and the relevant circumstances within which the worker carried out the services.
- Stage 2: Ascertain the terms of the hypothetical contract.
- Stage 3: Consider whether that hypothetical contract would have been a contract of employment.
In considering stages 1 and 2, the Tribunal recognised (as established in Atholl House) that where IR35 is concerned, the Autoclenz approach of placing little weight on the written contract would not be important in determining the terms of the contractual arrangements. Instead, in a case involving IR35, the actual terms of the contractual arrangements should be used and there is no need to look beyond the terms of the written agreement to find the parties’ “true agreement”.
Once the Tribunal had determined the actual contract terms, it looked to ascertain the terms of the hypothetical contract. Whilst the Tribunal concluded that most of the terms of the actual and hypothetical contracts were the same, it was also noted that there were specific provisions that might not have formed part of the hypothetical contract which needed to be considered, these being:
- The right on the part of Mr Parry to propose a substitute to BSkyB for BSkyB to consider.
- The obligation on the part of Mr Parry to provide services to BSkyB “on an ad-hoc basis as and when required”.
- The roles which Parry could be required to fulfil by BSkyB.
- The obligation on the part of Mr Parry to seek the consent of BSkyB before entering into certain other engagements.
- The obligation on the part of Mr Parry to accept direction from BSkyB when performing the services.
Stage 3 required the judge to consider the Ready Mixed Concrete test to determine whether the hypothetical contracts satisfied the mutuality of obligation and control tests and that the terms of the contract were consistent or inconsistent with a contract of employment.
When considering the factor in respect of mutuality of obligation, the Tribunal separated this aspect into two limbs: the client limb and the worker limb. Under the client limb, the Tribunal found that “BskyB under the hypothetical contract were obliged to pay Mr Parry the Fixed amounts specified in the Contracts” and that this obligation to pay remuneration was sufficient to satisfy the client limb of mutuality of obligation at this stage.
Turning to the worker limb, the Tribunal applied the ‘dominant feature’ test from Pimlico Plumbers. This test outlines whether the dominant feature of the contract in question is one of personal performance.
The evidence showed that Parry himself thought that what BSkyB wanted was his own personal services as a skilled commentator. It was also unrealistic to expect BSkyB to accept a substitute proposed by Parry when they had a pool of other commentators. The reality was that BSkyB would simply replace the services of Parry in the event of him being unable to provide them.
The conclusion is that the ‘dominant feature’ of each hypothetical contract was that BSkyB were engaging Parry for his personal services. That in turn means, according to the judge, that the mutuality of obligations test was satisfied in relation to the hypothetical contract.
When considering the control factor, the Tribunal found the hypothetical contracts allowed for BSkyB to have what amounted to a significant amount of control over the “what, how, when and where” Mr Parry provided his services.
When considering the other factors in this case and taking a step back and looking at the overall detailed picture, the Tribunal found that the overriding impression of the relationship between Sky and APPL was one of employment, reaching this conclusion by appearing to rely heavily on the more literal interpretation of the contractual terms between the parties. Mr Parry was found not to be in business on his own account, when providing his services to BskyB – he was instead providing his services under contracts of service.
It transpires that Mr Parry became an employee of BSkyB prior to the introduction of the new off-payroll rules so none of the liability will fall at their door.
Yet again this case demonstrates just how important the contents of the written contract or agreement are when considering employment status. It is vital that the written agreement actually reflects the reality of the engagement and that both parties are fully aware of their obligations under the agreement. In this case the Tribunal paid heed to the written agreement despite Mr Parry’s evidence to the contrary when detailing the reality of the working arrangements.
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