Unlike Neil McCann, contractors, keep your eye on the IR35 ball of control, mutuality and personal service
The latest round of ‘presenter’ judgments being handed down with defeats on IR35 for a string of high-profile taxpayers appears to have kicked-off with McCann Media Limited, writes David Harmer, associate director at Markel Tax.
In this match-up against HMRC of the ex-footballer turned pundit, Neil McCann, who was providing services to Sky for a number of years through MML, there’s the usual and unusual; the importance of the classic tests, and the importance of avoiding generic agreements. So contractors, you could say there is a hattrick of reasons to pay attention to this former soccer star’s IR35 loss. But first, let’s set this fixture’s key details.
Not great from the kick-off
Following an HMRC enquiry, a number of assessments were raised for periods 2013-2018 inclusive. HMRC determined Mr McCann was operating under a hypothetical contract of employment with Sky (inside IR35) and MML owed over £200,000 in tax and NIC.
During the period, written contracts were in place between MML and Sky, which the tribunal noted were standard form contracts and not bespoke to the engagement -- they did not even contain any information about football or commentator services! Mr McCann also signed NDAs in a personal capacity.
Both HMRC and MML’s representatives had previously conducted meetings with Sky to discuss working practices, and these were submitted to the tribunal to aid in establishing the true nature of the arrangements.
MML put four in the box
As is usual practice, Mr McCann gave witness evidence himself. But then somewhat unusually, MML called a further four witnesses to provide evidence: Mr McCann’s solicitor/agent; MML’s accountant, and two other contractors who had provided services to Sky. These two contractors have their own ongoing IR35 enquires with HMRC.
The tribunal made comment on the relevance of this additional witness evidence. While they found the witnesses credible, they found very little was of use in determining the nature of the engagement between MML and Sky.
The tribunal further noted that neither HMRC nor MML had called a representative of Sky to provide evidence. So the meeting notes obtained by Sky could only be relied upon if there were other evidence found which corroborated what had been stated.
The replay, albeit in hypothetical terms
The tribunal placed reliance on guidance from the IR35 case of Atholl House Productions Ltd (N.B. but only in so far as the Atholl case before the new handing down of April 26th 2022), and so it concluded that the written contracts and NDA generally reflected the reality of the contract that existed between Mr McCann and Sky.
Their summary of the terms and conditions which applied during the engagement included:
- An express right of substitution did not exist. While the written contract contained a right of substitution which had to be agreed with Sky, it was “highly unrealistic” any substitute that was not already part of Sky’s “talent pool” would be proposed or accepted.
- Mr McCann was obliged to provide contributions to television programmes/marketing as required by Sky, on pre-arranged dates.
- Sky retained a right of control over where and when Mr McCann provided services and the type of “role” he would fulfil.
- Sky retained editorial control over any products containing contributions made by Mr McCann.
- Mr McCann was subject to restrictive covenants prohibiting him from providing similar services to other television, radio or media organisations without Sky’s permission, as well as granting Sky control over his social media.
The final score?
The tribunal approached the decision following the guidance laid down in the seminal case of Ready Mixed Concrete and determined the following:
1. Personal service and mutuality of obligations existed
There was no real possibility of substitution or delegation, as the services were obliged to be provided by Mr McCann himself. Sky paid an annual fee (in monthly instalments) regardless of the amount of services provided by Mr McCann, and in turn even though dates, or particular games, were to be confirmed, there still existed an obligation to perform services for Sky.
2. Sky maintained a sufficient degree of control
The tribunal said the fact Mr McCann had to adhere to Ofcom rules was a neutral factor, and that the “when” and “where” aspects of Sky’s control were “largely functions of the location and timing of a game.”
They further held however that Sky determined the functions of a broadcasting team -- and allocated a role to Mr McCann who was required to work within the overall program format determined by Sky.
Further, Sky retained significant restrictive controls which existed throughout the engagement, regardless of whether he provided services – namely not permitting him to work for competitors of Sky, and Sky had control of his social media.
3. Other factors were not inconsistent with a contract of service
The tribunal considered additional factors, commonly call the ‘in business’ factors and concluded that there were insufficient factors evident to demonstrate that MML was operating in business on its own account.
While considering that equipment provided by Sky was neutral and that there may have been some level of financial risk, they placed significant emphasis on the fact Mr McCann had no freedom to provide commentator services to third parties and no opportunity to profit (because the fee which Sky paid was fixed). Overall the terms were not inconsistent with a contract of employment.
Post-match analysis for contractors of McCann Media V HMRC
Much like the other broadcasting cases, the applicability of this judgment may be of limited use to contractors in IT, and outside of the broadcasting industry.
Yet what is clear from this judgment is that standard contracts simply do not provide sufficient protection. Written contracts which are not bespoke to the services being provided will provide no benefit.
Of particular note in this case was that while the written terms contained an express clause stating the intentions of the parties was to be independent of each other, the tribunal concluded that:
“The hypothetical contract we constructed contains no such provision.”
This is because the written contract was so generic it had limited applicability overall.
What we can also glean from this former footballer’s case is that the tried and tested IR35 status tests which we know (and love of course), are still at the forefront of decision-making. Far from being on the bench, Personal Service, Mutuality of Obligations and Control remain the benchmark for IR35 decision-making, and contractors who want to evidence outside IR35 status will need to keep their sights firmly fixed on these three to not be caught offside by the taxman.