Should IT contractors worry about Sky Sports’ Phil Thompson losing his IR35 case to HMRC?

Another IR35 case involving a TV sports presenter and former footballer just before the whistle has blown on 2023 has struck, but this time it’s a win for HMRC and it’s a big win of nearly £300,000, writes Rebecca Seeley Harris of off-payroll rules advisory ReLegal Consulting.

The taxpayer in the case is Phil Thompson, ex-Liverpool defender and Sky Soccer Saturday pundit. Mr Thompson was engaged through his personal service company PD & MJ Ltd by Sky as a pundit on the Soccer Saturday programme, among other programmes on Sky.

Old IR35 not new OPW rules (fortunately for Sky)

HMRC have pursued Mr Thompson under the Chapter 8 ITEPA IR35 rules, which pre-date the new off-payroll working rules under Chapter 10 ITEPA. If it was under Chapter 10, Sky would probably have been liable. 

HMRC says that Mr Thompson owes them £294, 306.68 in PAYE and NICs between 2014-2018. 

Can HMRC recover IR35 debts from contractors personally, when their PSCs are liquidated?

What is interesting about this case is that PD & MJ Ltd is in liquidation so, can HMRC recover the debt from Mr Thompson personally?

The tribunal first of all looked at what is called the ‘hypothetical contract’ to establish whether there should have been a contract of employment between Sky and Mr Thompson.  To establish the hypothetical contract, the tribunal has to look at the terms of the written contract. Then the ‘actual contract’ -- this is where they look at how the contract worked in practice. And then to establish the terms of the hypothetical contract.

After this process, which is required under the IR35 legislation and laid down by the Court of Appeal in the Kaye Adams case of Atholl House Productions, the tribunal then has to look at the three-stage test in Ready Mixed Concrete (RMC).

Ready Mixed Concrete test – stage one

The first stage of RMC is to look at mutuality of obligations. 

All parties in Mr Thompson’s case accepted that mutuality of obligations were present. So, the tribunal then looked at the ‘control’ element and found that there was considerable control. Sky could choose both the performance of the services and the location and they regularly did so. Although there was consensus, Sky had the contractual right to control.

Even though both mutuality and control were present, this does not automatically indicate a contract of employment. 

The tribunal then had to look at the third stage of the RMC test, which is to look at whether the other terms of the relationship were consistent with it being a contract of employment.

Phil Thompson is no Stuart Barnes

The hypothetical contract restricted Mr Thompson from expressing his opinion in other media. Contrast this with the Stuart Barnes IR35 case where Mr Barnes was known as the ‘voice of rugby’ generally and was not restricted at all and was regularly seen in other media outlets. Mr Thompson, by contrast, was known by the general public as being the Sky football pundit on Soccer Saturday.

Although the payment was a block fee which was paid regardless of air time, the FTT considered that this was a neutral factor. The fact of whether it was a salary or not depended on whether the relationship was one of employment or as an independent contractor. 

Chicken & Egg

It was felt by the court that it was not dictated by the label put on it in the contract. In my view, this is a bit ‘chicken and egg’!  Ordinarily, a block fee would indicate a contract for services.

The fees from Sky made up the majority of Mr Thompson’s professional income and he did not have other self-employed engagements.

Although there was an absence of employee perks and rights, this was outweighed by the other factors.

No longer limited, and not in-business either

The tribunal then stood back and looked at the whole picture and decided that the factors combined to make a contract of employment. The tribunal did not take into account the fact that Mr Thompson was subsequently made an employee because it post-dated the relevant time.

The tribunal referred to the Stuart Barnes case but, rejected it on the facts. Mr Barnes was in business on his own account whereas Mr Thompson had not shown this factor to apply in his case.

Interestingly, the tribunal only referred to the Atholl House Productions judgment from the Court of Appeal so, this case pre-dated the latest FTT decision in the Kaye Adams case. But it is doubtful that Adams’ victory would have made a difference because in both cases of Adams and Barnes, they were seen to be a brand in their own right – unfortuantely not something that the typical IT contractor can claim to be!

Positvely for them, and Mr Thompson himself, the FTT decision is not binding and does not set a precedent. In addition, at the time of writing, Mr Thompson has 56 days to appeal.

So, should IT contractors be worried about Thompson’s £300k IR35 defeat?

Although this case does not set a precedent, there are some points that may be of interest.  Aside to Mr Thompson not being a brand -- as IT contractors typically aren’t either -- the position that the courts are taking on mutuality of obligations is firming up.

Following the Court of Appeal in Atholl House Productions and, of course, PGMOL, the courts are leaning more towards the basic obligations in a contractual relationship, i.e. that the client pays you and you provide the service, as satisfying the IR35 test on mutuality. 

This is coming around to HMRC’s way of thinking. But; and it’s a big ‘but’, we are still waiting for the PGMOL judgment from the Supreme Court. I very muuch hope that in that this judgment, mutuality of obligations is clarified.

Other than that, the most critical point of the Thompson case is whether HMRC can pursue the director personally and unfortunately, despite a request to HMRC for it to comment, a response is yet to be provided.