In a recent case, the First Tier Tribunal found that the working relationship between presenter Dave Clark and Sky Sports to be based around an IR35 contract, specifically between 2013 and 2018. As a result of this, Clark is faced with a tax bill of over £280,000. This case is one of many similar ones that have been conducted recently, with the HRMC making their presence known, which should be a warning to similar tax avoidance arrangements in the UK and those who could be in danger of being deemed tax avoiders without being fully aware of the situation.
This blog will explore the meaning of an IR35 contract and the case itself, which is interesting from a legal standpoint and may hold some lessons for self-employed workers.
What is an IR35 contract?
IR35 is the name given to the UK’s anti-avoidance tax legislation designed to tax ‘disguised’ employment at a rate similar to employment. Here, “disguised employees” means workers who receive payments from a client via an intermediary, i.e., their own company, and whose relationship with their client would equate to being an employee of that client if they were only paid directly, instead of being paid via their own company.
To put it simply, an IR35 case can be launched when someone is using their own company as a barrier between themselves and a client, in order to pay less tax on their earnings paid by that client.
Little Piece of Paradise Ltd v HMRC
In this case, which is made high profile by the celebrity status of those involved, involved Dave Clarke and Sky Sports. Clark is known for presenting darts for Sky, and had been doing so for a 6 year period. His services were paid for by Sky, but these payments would go through Clark’s production company, Little Piece of Paradise, instead of directly to him.
Sky had 64 days of production where they expected Clark to come and work for them, paying him for his knowledge on the sport and his presenting skills. Clark, however, was paid via monthly instalments, and would receive payment each month whether he had worked or not.
Also, Sky retained complete control over what programmes Clark would be required to present. Sky had the right to first call on his services, so once Sky had their schedule booked in it was up to Clark to make himself available to fit that schedule. The contracts also contained restrictive covenants to limit what Clark could do outside programme hours. For example he was not free to fill a similar presenting role for another broadcaster.
What did the tribunal decide?
As a result of the above facts in terms of the working relationship between Clark and Sky, the FTT deemed that Clark essentially was an employee of Sky and should be treated as one, instead of him reaping the benefits of working through a personal service company. As a result of this, Clark is expected to repay HMRC missing income tax and national insurance contributions for the period in question.
Aftermath
In response to the proposed new off-payroll working rules that eventually took effect in the private sector on 6 April 2021, the Sky informed all its ‘on-air talent’ that they would not be able to engage with them through a Personal Service Companies in future. It was acknowledged by the FTT that this could be indicative that Sky was admitting that its contractual relationship with Clark should have been treated as under a contract of service all along, but no further action has been taken.
What can we learn from this?
The amount of IR35 cases that have occurred, and are still occurring lately, indicates that the HMRC has them as a top priority. In terms of business relationships it is always best to lay out a contract which is fair and professional, as often the consequences of making other arrangements to limit tax can lead to serious consequences.
This is a high profile victory for HMRC, and may well ignite concerns among contractors and businesses. However, it is worth remembering that Clark’s relationship with Sky does not necessarily mirror the relationships between other businesses and freelancers.
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