“Voice of rugby” Stuart Barnes’ FTT IR35 victory is short-lived
By Justine Riccomini, Head of Tax (Employment and Devolved Taxes)
29 October 2024
Justine Riccomini explains how and why Stuart Barnes, a Sky TV pundit, commentator and presenter lost his IR35 case against HMRC at the Upper Tribunal.
On 28 August 2024, the Upper Tribunal (UT) issued its decision in the case of HMRC v S&L Barnes Ltd. Stuart Barnes is an ex-rugby union player who became “the voice of rugby” on Sky Sports, providing his services through a personal services company.
Mr Barnes originally mounted and won a challenge to HMRC’s assessments deeming him to be within IR35 at the First Tier Tribunal (FTT). £700,000 was at stake. The FTT refused HMRC’s application for permission to appeal – however, this was overturned by the Upper Tribunal on the basis of two grounds, as set out at paragraph 24 of the decision.
Grounds of appeal
Ground 1: The FTT erred in its construction of the hypothetical contract concerning Sky's right of first call over Mr Barnes and purported variations to the contract.
Ground 2: The FTT erred in its interpretation and/or application of the third stage of the RMC test, including by taking into account irrelevant factors and failing to take into account relevant factors.
Cases considered at the Upper Tribunal
Representatives of the opponents in this case brought numerous well-known cases into their arguments, most of which have now become standard in the employment status/IR35 and ‘off-payroll working’ arena.
The 1968 case of Ready Mixed Concrete (RMC), as well as Kickabout, Atholl House, Hall v Lorimer and Edwards v Bairstow were all referred to – the latter case to highlight that an appeal can be mounted on the basis of an error of judgement by a lower court. RMC was, however, once again used as the main point of referral and the three-part test devised by McKenna J in RMC was, once again, applied in this decision.
What had the FTT decided?
The FTT concluded when it looked at the facts to build a hypothetical contract, that the contractual right of first call on Sky’s part was variable. Therefore, the third test in RMC could not conclude that IR35 provisions should apply, even though mutuality of obligations and control existed to sufficient degrees (per parts 1 and 2 of the test). This led them to decide that Mr Barnes’ work for Sky was not subject to Part 2 Chapter 8 of ITEPA 2003 (the IR35 legislation).
Why did the UT consider the FTT had erred in law?
The UT decided that the FTT had not in fact erred in its fact-finding and subsequent building of a hypothetical contract for Mr Barnes. The elements of mutuality of obligations, Sky’s first-call rights and the variability of the contractual arrangements were all present. Ground 1 was dismissed. As for Ground 2, the UT agreed with HMRC that the error made by the FTT was in terms of the law and how it had chosen to apply the third test of RMC, which states: “The other provisions of the contract are consistent with its being a contract of service.” In the round, the UT concluded that the other provisions within the hypothetical contract were in fact consistent with a contract of employment. Ground 2 was thus upheld.
The UT decision
There was no need for the case to be remitted back to the FTT to remake its decision because it had not erred in terms of fact but in terms of law, so it was appropriate for the UT to decide the case. And so, at paragraph 123 of the decision, it says:
“The long duration of the contract, the absence of a right of substitution, the right of first call for 228 days a year (as varied), the rights of exclusivity, the absence of financial risk and the overall length of the relationship with Sky are factors which in our opinion collectively outweigh the right of Mr Barnes to exploit his work product, his agreement regarding availability and the fact that he was in business on his own account outside his relationship with Sky. The evaluation of all relevant admissible factors required at the third RMC stage leads us to conclude that the relationship would have been one of employment.”
Conclusion
Interestingly, the decision provided detailed guidance for tribunals and tax professionals on the proper approach to carrying out the balancing exercise which needs to be carried out in terms of working out whether this applies. This is worth reading – it’s in plain English and gives a very good insight into the judiciary’s approach to problem-solving within the limits of the law. Helpfully, the terms of the hypothetical contract are set out at the end of the decision, below paragraph 125 – which is extremely useful to tax advisers involved in employment status work.
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