How McCann Media Ltd has lost on IR35 to HMRC -- again

Having lost in the FTT to HMRC back in October2021, Neil McCann, the football pundit for British Sky Broadcasting Limited (Sky), appealed an IR35 bill of £210,000 to the Upper Tribunal through his personal service company -- McCann Media Ltd (MML).

But again, though, according to a judgment released on Friday, MML has lost to HMRC under the Intermediaries legislation, the original IR35 of 2000, writes tax lawyer Rebecca Seeley Harris, founder of ReLegal Consulting.

McCann is another scalp for HMRC, to add to its impressive IR35 record

And so in what represents a continuation of quite a striking trend, HMRC has again won on IR35 in the courts, providing more evidence that contractors and businesses need to take note on employment status.

ContractorUK readers with good memories will remember that the FTT found that, under the terms of the hypothetical contract, Mr McCann could not be considered to be ‘in business on his own account.’ And so the tribunal concluded (in October 2021) that the provisions of the hypothetical contract between MML and Sky were consistent with a contract of employment.

The Appeal

MML appealed to the FTT for permission to appeal but this was refused in October 2022.

Undeterred, MML further appealed to the Upper Tribunal and permission was granted on limited grounds.

For the facts of the case, see the comprehensive ‘What McCann Media Ltd losing to HMRC on IR35 means for contractors.’

Grounds of Appeal

The grounds of appeal upon which permission to appeal was eventually granted to McCann Media Ltd were:

GROUND 1: The FTT erred in law with respect to the issue of mutuality of obligation.

GROUND 2: The FTT erred in law by failing to take into account and/or properly apply the third limb of the Ready Mixed Concrete case -- namely other factors of the contractual relationship were inconsistent with employment.

GROUND 3: The FTT erred in law in applying the three-stage test set out in the IR35 case of Kickabout Productions.

But at the Upper Tribunal in October 2023, MML lost on all three grounds, with the UT judges Phyliss Ramshaw and Nicholas Paines preferring HMRC’s arguments.

It is worth noting here a ground on which the UT refused permission to appeal. Based on substitution, it was not unreasonable for the FTT to find that “Mr McCann would not propose to use a substitute that was not already part of the talent pool”.

Ground 1 – Mutuality of Obligations

It was argued on behalf of MML that Mr McCann’s “contractual autonomy and free agency were wholly inconsistent with the irreducible minimum for the existence of a contract of employment.”

MML then argued that there was no obligation on Sky to provide work because the contract with Sky was on an ‘ad hoc’ basis and that there was similarly no obligation on MML to provide services. So, the contract was entirely inconsistent with the required mutuality of obligation.

HMRC argued that Mr McCann’s apparent ‘contractual autonomy and free agency’ was “hyperbole.”

Ultimately, the UT rejected MML’s argument on mutuality, stating that “it was bound to fail given the findings of the FTT.”

And the findings of the FTT were that:

• The Sky contracts specify an annual fee (increasing annually) and provide for the fee to be payable in equal monthly instalments upon submission of an invoice.
• The FTT did not accept that Mr McCann was only paid for work done – “he regularly invoiced the agreed fee in equal instalments, irrespective of the number of games covered in any month, and this continued outside of the football season.”
• The vast majority of Mr McCann’s income came from the Sky contract and although he was able to take other roles, this was not inconsistent with the contract with Sky being one of employment.

PGMOL on Mutuality

Regarding the argument that the FTT relied on PGMOL in the Court of Appeal when it is subject to the appeal to the Supreme Court, the UT did not accept that there was any error.

The context in which the FTT referred to PGMOL was relevant and the relevance was to mutuality of obligations.

Mr Leslie of Tax Networks Ltd had argued for MML in the FTT that there were five elements to mutuality of obligations:

1. An obligation on the employer to provide ongoing work;

2. An obligation on the employee to accept and perform the work offered;

3. Being paid if work is actually done;

4. An obligation on the employee to make themselves available for work; and finally,

5. An obligation on the employer to pay the employee for making themselves available, whether work is offered or not.

The FTT, with which the UT agreed, did not consider that there were five required components of mutuality.

The Court of Appeal in PGMOL confirmed that:

“Individual contracts can be contracts of employment if they merely provide for a worker to be paid for the work he did, and provisions which enable either side to withdraw before performance do not of themselves negate mutuality of obligations.”

The UT, therefore, preferred HMRC’s submission that the FTT’s evaluation and conclusion was amply supported by its reasoning.

And that there was, therefore, “no error of law in the FTT’s analysis and conclusions on mutuality of obligation.”

The Third Limb of RMC

MML then argued that the FTT erred in law by failing to take into account and properly apply the third limb of ‘RMC’ (Ready Mixed Concrete).

HMRC submitted that the FTT’s approach was consistent with the guidance in Atholl House Productions (the Kaye Adams case) at the Court of Appeal -- and the UT agreed.

In discussion, the UT emphasised that the FTT had found that there was no substitution clause in the hypothetical contract and, crucially, the UT found that there was no error in the FTT’s reasoning.

Ground 3 – Kickabout

Mr Paulin for MML argued that the FTT erred in its application of the three-stage test in Kickabout.

The two essential points he relied upon were the use by the FTT of the word “blurring” and the word “would”. In essence, MML argued that the FTT had blurred the stages of the test by using the word ‘would’ because there was a “paucity of reference to the actual words of the contract.”

Mr Paulin attempted to bolster this ground by inviting the UT to find that the ‘paucity of references to the actual words of the contract’ and the glossing over the terms demonstrates how the FTT blurred the stages. The UT, however, found that he failed to provide any specific, persuasive examples.

‘Helpful Structure’

HMRC argued that the three-stage Kickabout process is a “helpful structure”.

In addition that the observation in Atholl House at the Court of  Appeal that the three limbs of the RMC test were not “an exhaustive and immutable test” also applied with equal force to the three-stage Kickabout test.

So, in relation to the hypothetical contract, the FTT did consider the content of that contract separately and distinctly from the actual contract. The UT, again, agreed with HMRC.

While the use of the word ‘blurring’ may not be an apt description of the observation in Atholl House at the UT, the FTT clearly understood the import of those observations. For the above reasons, that UT found that there was no error of law in the FTT’s decision and the appeal was, therefore, dismissed.

McCann Media losing to HMRC – again: three contractor takeaways

This IR35 judgment in HMRC’s favour and against MML is a very technical overview of what has become the employment status decisions that contractors and businesses are supposed to be familiar with and understand.

So, here are three key points to take away from this judgment:

1. HMRC won hands down – this is the reality and they are winning on mutuality (the CEST tool is correct in assuming that mutuality of obligations is present if there is a contract in existence.)

2. Mutuality of obligations is being regarded as uncomplicated as “individual contracts can be contracts of employment if they merely provide for a worker to be paid for the work he did.” The fact that there are mutual obligations present, however, does not make it a contract of employment.

3. The fact that the contract says it is ‘ad hoc’ does not convert into reality in the actual contract.

Although HMRC are winning the vast majority of these historical IR35 cases, there is valuable insight in the judicial arguments. As ever though, it is down to the working practices being an accurate reflection of the written contract, or the latter won’t be worth much more than the paper it’s printed on – which is unconscionable if you’re facing as large a tax bill as Mr McCann’s £200,000-plus liability.