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United Kingdom Upper Tribunal (Tax and Chancery Chamber) |
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You are here: BAILII >> Databases >> United Kingdom Upper Tribunal (Tax and Chancery Chamber) >> Commissioners for His Majesty's Revenue and Customs v S & L Barnes Ltd (INCOME TAX AND NATIONAL INSURANCE - intermediaries legislation - IR35 - personal service company - finding by FTT that a contractual right of first call would be varied in the hypothetical contract - application of and approach to the third stage of the RMC test of employment) [2024] UKUT 262 (TCC) (28 August 2024) URL: http://www.bailii.org/uk/cases/UKUT/TCC/2024/262.html Cite as: [2024] UKUT 262 (TCC) |
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(Tax and Chancery Chamber)
Rolls Building, London Heard on: 24 and 25 April 2024 With further written submissions on 10 And 22 May 2024 |
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B e f o r e :
JUDGE MARK BALDWIN
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| THE COMMISSIONERS FOR HIS MAJESTY'S REVENUE AND CUSTOMS |
Appellants |
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| - and - |
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| S & L BARNES LIMITED |
Respondent |
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For the Appellants: Christopher Stone KC and Bayo Randle, instructed by the General Counsel and Solicitor to His Majesty's Revenue and Customs
For the Respondent: Michael Collins, instructed by Markel Tax
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Crown Copyright ©
INCOME TAX AND NATIONAL INSURANCE – intermediaries legislation – IR35 – personal service company – finding by the FTT that a contractual right of first call would be varied in the hypothetical contract – application of and approach to the third stage of the RMC test of employment – appeal allowed
Introduction
THE LEGISLATION AND THE ISSUE BEFORE THE FTT
…to ensure that individuals who ought to pay tax and NICs as employees cannot, by the assumption of a corporate structure, reduce and defer the liabilities imposed on employees by the United Kingdom's system of personal taxation.
(1) This Chapter applies where —
(a) an individual ("the worker") personally performs, or is under an obligation personally to perform, services for another person ("the client"),
(b) the services are provided not under a contract directly between the client and the worker but under arrangements involving a third party ("the intermediary"), and
(c) the circumstances are such that if the services were provided under a contract directly between the client and the worker, the worker would be regarded for income tax purposes as an employee of the client.
…
(4) The circumstances referred to in subsection (1)(c) include the terms on which the services are provided, having regard to the terms of the contracts forming part of the arrangements under which the services are provided.
THE APPROACH TO DETERMINING WHETHER THE INTERMEDIARIES LEGISLATION APPLIES
(1) Stage 1: Find the terms of the actual contractual arrangements and the relevant circumstances in which the individual worked.
(2) Stage 2: Ascertain the terms of the "hypothetical contract".
(3) Stage 3: Consider whether the hypothetical contract would be a contract of employment or a contract for services.
I must now consider what is meant by a contract of service. A contract of service exists if these three conditions are fulfilled. (i) The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master, (ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other's control in a sufficient degree to make that other master, (iii) The other provisions of the contract are consistent with its being a contract of service.
background facts
(1) Mr Barnes started working as a commentator on Sky Sports in 1994, and worked with them for 25 years. From 1993, he had built up a profile as a freelance writer, in particular as a columnist with the Times and the Sunday Times, and as a television presenter.
(2) In the period relevant to the appeal, SBL entered into two contracts with Sky for the provision of Mr Barnes' services as a sports broadcaster. The first covered the period 1 June 2013 to 31 May 2017 (the "First Contract"), and the second covered the period 1 June 2017 to 31 May 2019 (the "Second Contract") (together the "Contracts").
(3) The principal terms of the Contracts were set out at FTT[29]-[44].
(4) During the period under appeal, Mr Barnes' main engagements were with Sky, the Times and the Sunday Times. Mr Barnes also worked for non-Sky broadcasters in covering the 2015 and 2019 World Cups, and fitted in various commitments with other media organisations.
(5) The FTT made findings at FTT[61]-[65] as to the proportion of SLB's income which arose from Sky. During the relevant period, the income received by SLB from Sky as a percentage of its overall income in the year ranged from 57.3% to 61.5%, dropping in 2019-20 to 33.4% when Sky Sports significantly reduced its coverage of rugby union matches.
(6) The FTT set out Mr Barnes' oral evidence, and made findings of fact, as to the various roles which he fulfilled in relation to the services rendered to Sky; how he interwove Sky and non-Sky work; the rugby season work pattern; the Six Nations; the World Cup; the manner and degree of control which Sky exercised over him, and the Stuart Barnes brand.
the ftt's decision
In Atholl House, the Court of Appeal reviewed the relevant case law applying the RMC test, and the legal principles emanating from the review in Atholl House on the third stage of the RMC test are summarised as follows.
(1) The court or tribunal is required to weigh any terms, which are contrary to a conclusion of employment against those terms, including mutuality of obligation and control, which favour a conclusion of employment; it is a multi- factorial process addressing all the relevant factors: at [76].
(2) The court or tribunal is not restricted in its analysis to the terms of the contract; this is clear from Market Investigations Ltd v Minister for Social Security [1969] 2 QB 173 ('Market Investigations') and many subsequent cases, including Hall v Lorimer [1994] ICR 216: at [113].
(3) It is wrong to treat RMC and the line of cases including Hall v Lorimer as representing two separate tests. Both are 'multifactorial' approaches which recognise mutuality of obligation and the right of control as necessary pre-conditions to a finding that a contract is one of employment: at [122].
(4) A strict reading of the third condition in the RMC test might exclude consideration of any factor beyond the express and implied terms of the contract as in some authorities. In many other authorities, however, a wider range of factors was taken into consideration, such as Matthews v HMRC [2012] UKUT 229 (TCC) ('Matthews'): at [122].
(5) The question for the court or tribunal is whether, judged objectively, the parties intended when reaching their agreement to create a relationship of employment. That intention is to be judged by the contract and the circumstances in which it was made. To be relevant to that issue any circumstance must be one which is known, or could be reasonably be supposed to be known, to both parties: at [123].
grounds of appeal
(1) 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.
(2) 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.
ground 1: right of first call
Contractual provisions
2.7 Notwithstanding any other provision of this Agreement, Sky shall have first call on the Company's Personnel [Mr Barnes[2]] for the provision of the services. … Neither the Company nor any Personnel shall endorse or promote or otherwise grant any rights of association or provide marketing or promotional services to any competitor of Sky, its products, brands or services.
The Assignment will be from 1st June 2013 to 31st May 2017 on an ad hoc and when required basis for up to 228 days. For the purposes of this Agreement, "Year" means each consecutive 12 month period commencing 1st June each year.
The Company shall provide the services of the Personnel as a commentator, interviewer and/or other participant in the making of any editorial, programme and/or video whether in vision or audio and/or whether in studio or on location, live or recorded on an ad hoc as and when required basis by Sky for up to two hundred and twenty eight (228) days per year during the Term.
The above shall include, by way of example only, appearances on Sky Sports News (including reacting to breaking news stories), appearances on other Sky Sports programming and the provision, on request by Sky, of additional bespoke content (including but not limited to columns, blogs and interviews) for use on Sky Sports' digital services.
The Services will be provided on the terms set out in this Agreement subject to any variations agreed by the Parties in writing and to any Associated Company as may be agreed between the parties from time to time.
Basis of appeal
(5) Sky 'shall have first call' on Mr Barnes' Services up to 228 days per annum, which would be inclusive of days being on air of around 90 to 120 days per annum.
(6) The exercise of the 'first call' right by Sky would be subject to Mr Barnes' availability in conjunction with his standing commitments to the newspaper columns, and in co-ordination with Mr Barnes' coverage of high-profile matches of which Sky had no broadcasting rights, (such as the coverage of the Six-Nations, British & Irish Lions, and World Cup matches would take priority over Sky's fixtures).
(7) Such variations to the provision on 'first call' were expressly provided by clause 1.1 under the Key Terms in the First Contract:
'The Services will be provided on the terms set out in this Agreement subject to any variations agreed by the Parties in writing and to any Associated Company as may be agreed between the parties from time to time.'
18. An appeal to this tribunal lies only on a point of law: section 11(1) of the Tribunals, Courts and Enforcement Act 2007 ("TCEA 2007"). While there cannot be an appeal on a pure question of fact which is decided by the FTT, the FTT may arrive at a finding of fact in a way which discloses an error of law. That is clear from Edwards v Bairstow [1956] AC 14. In that case, Viscount Simonds referred to making a finding without any evidence or upon a view of the facts which could not be reasonably entertained, and Lord Radcliffe described as errors of law cases where there was no evidence to support a finding, or where the evidence contradicted the finding or where the only reasonable conclusion contradicted the finding. Lord Diplock has described this ground of challenge as "irrationality"[4].
19. Grounds 1 and 3 of HMRC's appeal are Edwards v Bairstow challenges. In considering those grounds, we have borne in mind the caveats helpfully summarised in Ingenious Games LLP & Others v HMRC [2019] UKUT 226 (TCC), at [54]-[69]. The bar to establishing an error of law based on challenges to findings of fact is deliberately set high, and that is particularly so where the FTT is called on to make a multi-factorial assessment. As stated by Evans LJ in Georgiou v Customs and Excise Commissioners [1996] STC 463, at 476:
… for a question of law to arise in the circumstances, the appellant must first identify the finding which is challenged; secondly, show that it is significant in relation to the conclusion; thirdly, identify the evidence, if any, which was relevant to that finding; and fourthly, show that that finding, on the basis of that evidence, was one which the tribunal was not entitled to make. What is not permitted, in my view, is a roving selection of evidence coupled with a general assertion that the tribunal's conclusion was against the weight of the evidence and was therefore wrong. A failure to appreciate what is the correct approach accounts for much of the time and expense that was occasioned by this appeal to the High Court.
Significance of issue
Arguments of the parties
(1) Stage 1: The finding challenged was the variation of Sky's right of first call in FTT[111(6)].
(2) Stage 2: The significance of the finding was as we have described above at [32] and [33] of this decision.
(3) Stage 3: In relation to the evidence relevant to the challenged finding, it is not easy to discern from the Decision what evidence the FTT relied on. The FTT apparently considered it relevant that Mr Barnes would work on his standing commitments in respect of his newspaper columns and that he would provide coverage of high-profile matches over which Sky had no broadcasting rights, and that clause 1.1 of the Key Terms provided for contractual variations. There was no other evidence relevant to whether there had been a variation of the right of first call.
(4) Stage 4: The finding was not one which the FTT was reasonably entitled to make. Pursuant to clause 1.1 of the Key Terms, any variation to the contractual terms had to be agreed in writing. Further, none of the matters relied on by the FTT were actually in conflict with the contractual right of first call. The lack of any conflict in practice or the sort of "flashpoint" situation identified in Atholl House meant that Sky was not required in practice to insist on its full contractual rights.
…There was the long-standing understanding between the parties that Mr Barnes would be unavailable to Sky during the Six Nations season, and the World Cup tournament, although he could be requested for interviews by Sky Sports News. What Sky lost in terms of Mr Barnes' availability was gained in return through the publicity of having one of its regular commentators as a columnist of these high-profile games, which in turn reflected well on Sky as the broadcaster with the exclusive right to Mr Barnes' services.
When Sky did not have the broadcasting rights for major game events in rugby union, such as the Six Nations tournament for the northern hemisphere, Mr Barnes would be focussing on his newspaper columns to cover the Six Nations tournament, and not be appearing in any Sky Sports game fixtures.
Every Six Nations, I focus 100% on newspaper commitments. This has long been the case and Sky have long understood the imperative of attending these games…I am more likely to be seen chairing a Times/Sunday Times Readers Plus night in either London or Dublin than to be on television around the time of the leading tournaments.
Discussion
…At paragraphs [8], [9], [43] and [54] to [56] in Atholl House UT, the Upper Tribunal held as follows:
(1) in determining the terms of the hypothetical contract, Sections 49(1)(c) and 49(4) of the ITEPA 2003 refer to the "circumstances" in which the services are provided and stipulate that those "circumstances" "include the terms on which the services are provided, having regard to the terms of the contracts forming part of the arrangements under which the services are provided";
(2) it follows that the terms of the actual contracts forming part of the arrangements will generally be highly material in determining the terms of the hypothetical contract but will not be determinative of them;
(3) whereas the terms of the actual contracts should be determined by reference to the ordinary canons of contractual interpretation, those ordinary canons will not, of themselves, determine the contents of the hypothetical contract;
…
(5) when determining the terms of an actual contract, the parties' subjective beliefs as to the meaning of the contract or ignorance of the contract's terms will typically be irrelevant. Similarly, unless giving rise to a variation or some form of waiver or estoppel, the manner in which the actual contract is performed is typically irrelevant to its construction. However, those matters should not be regarded as being necessarily irrelevant in determining the terms of the hypothetical contract and are, in the view of the Upper Tribunal, matters that can appropriately be taken into account. This is because they are part of the "circumstances" which are required to be taken into account in determining the terms of the hypothetical contract. The Upper Tribunal observed that:
"The process of synthesising the hypothetical contract out of the actual contracts in fact agreed involves additional considerations, and not merely the usual processes of interpretation."
As such, the parties' subjective beliefs and conduct are relevant circumstances which need to be considered in determining the terms of the hypothetical contract at Stage 2, even if they do not affect the identification of the terms of the actual contracts at Stage 1;
(6) it is not correct to construct the hypothetical contract simply by reference to the understanding by one of the parties of the terms of the actual contracts. That would be to place too much weight on matters not necessarily relevant to the construction of the hypothetical contract. Instead, the appropriate way to approach the task of constructing the terms of the hypothetical contract is to conduct a "counterfactual" exercise - in other words, to consider what the terms of the contract would have been if the client had contracted directly with the worker. In doing so, where the intermediary is under the control of the worker, the terms of the actual contract between the intermediary and the client is a safe starting point because that is what the client agreed with the intermediary and what the intermediary (which is controlled by the worker) agreed with the client;
(7) in many cases, the worker and the client will have enjoyed a harmonious working relationship in which the precise terms of the actual contracts do not feature prominently as there will be no need for either party to insist on enforcing the strict terms of the actual contracts between the parties. It is therefore helpful in constructing the terms of the hypothetical contract to consider what might have happened in the event of certain hypothetical potential "flashpoints" - which is to say, postulating circumstances where one of the parties might have wished to stand on its rights as set out in the actual contracts against the wishes of the other party and then to consider what might then have occurred…
ground 2: the third rmc stage
Having regard to the cumulative totality of the provisions in the hypothetical contract in the context of the parties' conduct and intention, I conclude that the relevant Contracts would not have been contracts of employment for the duration of the relevant period. In reaching my conclusion I have not given any weight to the express provision in the Contracts in relation to the parties' intention that Mr Barnes as the Personnel shall not be an employee of Sky.
HMRC's appeal
(1) took into account irrelevant factors,
(2) treated factors as inconsistent with employment when they were either consistent with employment or neutral, and
(3) failed to take into account material factors.
Arguments of the parties
…in applying the Ready Mixed Concrete tests the FTT is called upon to reach a broad evaluative conclusion based on all the evidence before it. As the authorities have repeatedly indicated, this Tribunal should be reluctant to interfere with the evaluative judgment of the FTT unless it is clear that the FTT has misdirected itself as to the law, misapplied the law to the facts or has reached a conclusion which is not open to it on the facts found (in accordance with the principles set out in Edwards v Bairstow).
Nature of HMRC's challenge
…we note the focus on appellate caution is directed towards to analysis of weight or matters of degree and, in the context of a multi-factorial evaluation the first-instance court or tribunal's overall evaluation…None of that is controversial. However, the appellant points out there is nothing in these principles which suggests an appellate tribunal should defer where the fact-finding tribunal has taken account of an irrelevant factor, or as they say happened in the instant case, disregarded a relevant factor.
FTT's self-direction
130. In Atholl House, the Court of Appeal reviewed the relevant case law applying the RMC test, and the legal principles emanating from the review in Atholl House on the third stage of the RMC test are summarised as follows.
(1) The court or tribunal is required to weigh any terms, which are contrary to a conclusion of employment against those terms, including mutuality of obligation and control, which favour a conclusion of employment; it is a multi-factorial process addressing all the relevant factors: at [76].
(2) The court or tribunal is not restricted in its analysis to the terms of the contract; this is clear from Market Investigations Ltd v Minister for Social Security [1969] 2 QB 173 ('Market Investigations') and many subsequent cases, including Hall v Lorimer [1994] ICR 216: at [113].
(3) It is wrong to treat RMC and the line of cases including Hall v Lorimer as representing two separate tests. Both are 'multifactorial' approaches which recognise mutuality of obligation and the right of control as necessary pre-conditions to a finding that a contract is one of employment: at [122].
(4) A strict reading of the third condition in the RMC test might exclude consideration of any factor beyond the express and implied terms of the contract as in some authorities. In many other authorities, however, a wider range of factors was taken into consideration, such as Matthews v HMRC [2012] UKUT 229 (TCC) ('Matthews'): at [122].
(5) The question for the court or tribunal is whether, judged objectively, the parties intended when reaching their agreement to create a relationship of employment. That intention is to be judged by the contract and the circumstances in which it was made. To be relevant to that issue any circumstance must be one which is known, or could be reasonably be supposed to be known, to both parties: at [123].
…
133. The case law principles are all reminders of the centrality of the contractual relationship in issue, even at the third stage of the RMC test. The focus at the third stage remains anchored on the contract in issue, but the angle of the focus widens out to take in the context and circumstances in which the contractual relationship is created; the direction of the perspective is to zoom out from the contract in issue. The flaw in the tribunals' approach in Atholl House, as I understand it, is to approach the third stage from the peripherals, focusing on Ms Adams' career outside the relevant contract, and zoom in from the circumstantial factors to construe the relevant contract in the light of Ms Adams having been in business on her own account. The flaw of the UT's approach in Atholl House is analysed by the Court of Appeal at [125] to [139].
[58]…where a tribunal has correctly stated the legal principles to be applied, an appellate tribunal or court should, in my view, be slow to conclude that it has not applied those principles, and should generally do so only where it is clear from the language used that a different principle has been applied to the facts found. Tribunals sometimes make errors, having stated the principles correctly but slipping up in their application, as the case law demonstrates; but if the correct principles were in the tribunal's mind, as demonstrated by their being identified in the express terms of the decision, the tribunal can be expected to have been seeking faithfully to apply them, and to have done so unless the contrary is clear from the language of its decision.
Discussion: the factors identified as relevant by the FTT
Factors (1) and (2)
(1) There is a distinction between a presenter and a commentator in the broadcast of a live match. Mr Barnes started as a presenter with Sky, but moved to become a commentator. During the relevant period, the principal services provided by Mr Barnes to Sky as a co-commentator in live matches were punditry in nature, which I find to be qualitatively different from those provided by Miles Harrison as a presenter.
(2) Mr Harrison was the 'first voice' and provided the running commentary of a match, while Mr Barnes was the 'second voice' giving the analytical insights on the good and bad moments of a game, from team strategy to the execution of moves by individual players. Mr Harrison would be on air most of the time, while Mr Barnes' commentary would come in at the appropriate moments and would often be accompanied by co-ordinated replays.
[A]: The working arrangements are similar but Miles and Stuart carry out different roles. Miles is a "lead commentator" who describes the action onscreen; the "who" and the "what". Stuart's role is to analyse the "how" and the "why" and provide the context of the action.'
Factor (3)
(3) Without Mr Barnes' analytical input, the live commentary of a match with only the first voice would be all the duller, and unlikely to attract as many viewers as a live match with punditry input. In fixing the annual fee payable to Mr Barnes, Sky did not stipulate the minimum days of services, only the maximum. In real terms, the number of days Mr Barnes would appear on air for Sky varied from 90 to 120 days. Taking 120 days as the benchmark, it means Mr Barnes could be working 25% less than the benchmark maximum without any issue being raised by Sky. I do not consider the annual fee resemble a 'salary' in nature as submitted for the respondents. I find the annual fee to be a block fee, for the exclusive right to have first call of Mr Barnes' services for a period of time. To ensure that Mr Barnes' services would not be made available to another UK broadcaster, Sky was content to pay a premium for the assurance of exclusive right, in full knowledge that Mr Barnes' availability on air could vary up to 25%, as reduced by the duration of 6-8 weeks the World Cup tournament.
Factors (4), (5) and (9)
(4) The provisions for intellectual property rights under clause 10 would place no embargo on Mr Barnes' right to reproduce his opinions elsewhere that had been given during a live broadcast for Sky. The work pattern for the match on Saturday 10 November 2018…illustrates the intensity of preparation in the run-up to cover for a live match, and immediately after the match, Mr Barnes would be putting pen to paper to produce his Sunday Times column. In his journalistic output, Mr Barnes would most likely be reproducing aspects of his commentary given in the Sky broadcast on the same match. The phrasing and the emphasis might differ for the column, but it would be the same match from which Mr Barnes had gleaned insights as a live commentator while broadcasting for Sky, and he was not debarred by Sky in reusing any material so gleaned in other domains or avenues. One such avenue would be when Mr Barnes participated as an expert representative to select the 'Player of the Season' for the European Cup. The material that Mr Barnes had used to provide his services for Sky remained his intellectual property, essentially because he is the master and the creator of his opinions as a pundit.
(5) Sky would not consider it to be a conflict of interest when Mr Barnes reproduced in newspapers material which had been gleaned in the course of providing his services to Sky. On the contrary, Sky would be attuned to the publicity benefits conferred on its broadcast when Mr Barnes' column on the match broadcast by Sky would cover the back page of the Sunday Times the next day. Mr Barnes' Times/Sunday Times columns would take some of Sky's games to the newspaper readers, and Sky in turn benefitted from the reputation of Mr Barnes as a renowned columnist on its roster of commentators.
(9) To maintain his profile as a pundit, Mr Barnes' experience as a professional ex-player has stood him in good stead. It is in part his experience as a former player that he can profit from dedicating hours and days to watching replays of matches dimming out the sound, in order to find that unique angle for his commentary, to gain fresh insights so that his opinions do not become stale. There was no demarcation in the research, the thinking, the scripting he did for Sky broadcast and the newspaper columns, or indeed in any other ancillary engagements he undertook, (such as being an expert witness to the court on Farrell; or as representative to select the 'Player of the Season' for the European Cup). It was the one and the same enterprise of being 'Stuart Barnes, the voice of rugby'.
Factor (6)
(6) Mr Barnes had much latitude in stating his availability to cover live matches for Sky. The conduct between the parties in drawing up booking schedules of Mr Barnes' time would appear to be by gentlemanly consensus, with Sky being reasonable in its requests, and Mr Barnes exercising his leeway of refusal pursuant to the express term under Key Terms (c1.1) on 'variations' agreed between the parties from time to time. There was the long-standing understanding between the parties that Mr Barnes would be unavailable to Sky during the Six Nations season, and the World Cup tournament, although he could be requested for interviews by Sky Sports News. What Sky lost in terms of Mr Barnes' availability was gained in return through the publicity of having one of its regular commentators as a columnist of these high-profile games, which in turn reflected well on Sky as the broadcaster with the exclusive right to Mr Barnes' services.
Factor (7)
(7) Depending on his availability, Mr Barnes would agree to be interviewed for Sky Sports News during pre-match on request, especially for matches not broadcast by Sky such as the Six Nations and the World Cup. The news interviewer of Mr Barnes might have been an employee for Sky, but it would be most unusual for an employer to interview its employee regularly on request (if Mr Barnes were Sky's employee). The context in which Mr Barnes became a regular candidate to be interviewed by Sky Sports News was his reputation as a rugby union expert, well-known and well-regarded outside Sky TV. It was Mr Barnes' personal reputation in this respect that Sky contracted with SLB to ensure it could have regular access and first call. The fact that Sky Sports News sought to interview Mr Barnes is a strong indicator that the contractual relationship in real terms was not that of a master-servant relationship in a contract of employment.
Factor (8)
(8) Outside his Sky commitments, Mr Barnes was in business on his own account. The 31 articles published during the 2015 World Cup illustrate the competitiveness of the field to maintain parity as a sought-after sport pundit. Other expert voices were called on to give coverage of the tournament, each jostling for a unique angle to sum up a match, for insightful comments on a player or a team that would prove to be prophetic.
Factor (10)
(10) The profit Mr Barnes can make from the sound management of his business is through the efficient use of his time, and he did so with his engagements with Sky – writing the Sky online column on a Monday, doing the Rugby Club mid-week, fitting his broadcasting engagements round his newspaper commitments.
(1) Opportunity to profit in this context is relevant only insofar as it is an aspect of financial risk. The FTT made no finding of any financial risk.
(2) In PD, the FTT correctly found in relation to a pundit for Sky that the "potential to increase his income through the efficient use of time is neutral…As it is possible to be employed by one principal and self-employed for engagements with other principals, the ability to increase the amount of self-employed work does not cause the employed engagement to change its nature": [68(9)].
(3) Mr Barnes was paid a fixed amount per month by Sky under the hypothetical contract. He had no ability to increase his profit from an engagement with Sky by performing it more quickly, and he had no financial risk since his fee was fixed.
Factor (11)
(11) In Basic Broadcasting Ltd v HMRC [2022] UKFTT 00048 (TC) ('BBL') in relation to the services provided by Adrian Chiles to ITV and the BBC, it is found that '[e]very time [Mr Chiles] presented a programme his reputation was at risk'. In common with this finding in BBL, there was a reputational risk for Mr Barnes every time he appeared on air for Sky, whether it was for a live commentary or for an interview by Sky Sports News. As stated in the questionnaire response, which I accept, 'any editorial issues that emanate from [Mr Barnes'] mouth are his own responsibility' (§47 (6)). The reputational risk is real, and requires vigilance to mitigate, and is part and parcel for being in business on his own account which is staked largely on Mr Barnes' profile as a world expert on rugby.
Factor (12)
(12) Mr Barnes was not financially dependent on Sky during the relevant period, notwithstanding the fact that the income from Sky accounted for some 60% of his overall turnover. In absolute terms, his income from the Times/Sunday Times was by no means modest. His refusal to enter into a new contract with Sky after 2019 to cover 3 second division matches was another indicator that Mr Barnes was not financially dependent on Sky. There was no lack of contacts asking for Mr Barnes' services and he had no need for an agent. If Sky had not procured exclusive right for Mr Barnes' services as a broadcaster during the relevant period, through sound management of his time, Mr Barnes would most probably have found another outlet for his talent, owing to his personal reputation as a world-renowned expert on rugby. The reputation is personal to Mr Barnes, which was not, and is not, dependent on Sky.
The twelve factors: conclusion
Failure to take factors into account?
(1) Sky's right of first call and right of exclusivity.
(2) The duration of the Contracts.
(3) The duration of Mr Barnes' total engagement with Sky.
(4) The degree of control.
(5) Financial risk.
Having regard to the cumulative totality of the provisions in the hypothetical contract in the context of the parties' conduct and intention, I conclude that the relevant Contracts would not have been contracts of employment for the duration of the relevant period.
Approach to the Third RMC Stage
(1) The question posed by section 49 ITEPA 2003 is whether "the circumstances are such that if the services were provided under a contract directly between the client and the worker, the worker would be regarded for income tax purposes as an employee of the client". We are told that "the circumstances…include the terms on which the services are provided, having regard to the terms of the contracts forming part of the arrangements under which the services are provided". The Third RMC Stage is therefore to be assessed by reference to the hypothetical contract and all the circumstances (save insofar as a circumstance is not part of the admissible factual matrix for any of the reasons set out in Atholl House) and not the contract between the service company and the client.
(2) The Third RMC Stage requires a consideration of which provisions of the hypothetical contract are consistent with it being a contract of service and which are consistent with it being a contract of services. The starting point for the Third RMC Stage analysis should be the material provisions of the hypothetical contract as found by the FTT.
(3) In terms of the structure of the analysis, while there is no template, an approach which involves identifying and dividing material provisions of the hypothetical contract and other circumstances between those which point towards (or are, in the RMC terminology, consistent with) employment, those which are not, and those which are neutral, may minimise any risk that the analysis proceeds from the wrong starting point or strays too far from the statutory question. The FTT should explain why, in light of all the factors which it has so identified, it reaches the conclusion which it does on whether the relationship under the hypothetical contract would be one of employment.
(4) Where the Third RMC Stage analysis requires consideration of whether the individual is in business on their own account, it is helpful to keep in mind the principles which were recently summarised in HMRC v Basic Broadcasting Limited [2024] UKUT 00165 (TC), at [48]:
…we consider that the following principles can be drawn from the case law:
(1) Whether or not an individual is in business on their own account can be used in two contexts; in determining the status of the contract in question and in describing the individual's working practices outside that contract.
(2) The relevance of the issue differs depending on which of these contexts applies.
(3) As applied in determining the status of the contract in question, the formulation is one way of approaching the Third RMC Stage. It is not a different test to the Third RMC Stage, but simply one way of answering the question framed by MacKenna J.
(4) In determining the status of the contract in question, asking whether or not the individual was acting in business on their own account under that contract may be a helpful way of answering the question, and may even be "very helpful indeed" (Nethermere). However, that approach "may be of little assistance in the case of one carrying on a profession or vocation" (Nolan LJ in the Court of Appeal in Hall v Lorimer). The extent to which the approach is a helpful way of answering the Third RMC Stage depends on all the facts.
(5) The existence of a business on own account in the second context, namely the individual's working practices outside the contract in question, is a relevant factor in considering the employment status of the contract in question. It is "an important contextual circumstance", but is "no more than that": Synaptek at [20].
(6) While it would be "myopic to ignore" the existence of a business on own account outside the contract in question, the weight to be attached to that factor is a matter for the FTT: Atholl House CA at [124].
(7) The Third RMC Stage is not approached correctly by asking whether the activities under the contract in question are different in some relevant respect from activities performed by the individual outside the contract: Atholl House CA.
(5) While the presence of mutuality and control should have been discussed and decided by the point in the decision where the FTT considers the Third RMC Stage, that does not mean that they do not require any consideration at the Third RMC Stage. In Atholl House, rejecting HMRC's submission to the contrary, Sir David Richards said this, at [76]:
Even on HMRC's argument, the court or tribunal is required to weigh any terms of the contract which are contrary to a conclusion of employment against those terms, including mutuality of obligation and control, which favour a conclusion of employment. What is said is that no account should be taken of the strength or weakness of the finding of control. I am unable to accept this. In some cases, the control may be so pervasive as to make it very difficult, if not impossible, to conclude that it is not a contract of employment. In others, the decision on whether the right of control is sufficient may be borderline. I can think of no good reason why account should not be taken of these differences in what all agree is a multi-factorial process addressing all the relevant factors…
(6) In considering the Third RMC Stage, no single factor is decisive. It is not a mechanical exercise of running through items on a checklist, but rather is about painting a picture from an accumulation of detail and then standing back to make an informed qualitative assessment. No exhaustive list can be compiled of the factors which should be taken into account and it is not possible to lay down rules as to the relative weight which such factors should carry in particular cases, because each case turns on its own particular facts and all relevant factors need to be taken into account: see Market Investigations at 184 and Hall v Lorimer at 216. A helpful summary of factors relevant to the Third RMC Stage which have been addressed in case law is set out by the FTT in Atholl House Remitted at [135(4)].
Discussion
disposition
(1) The FTT found that the hypothetical contract would be for a fixed term of 4 years, extendable by another 2 years, and subject to further renewal by mutual agreement. The duration of an engagement is clearly a relevant factor at the Third RMC Stage: see Hall v Lorimer at 218D. In Kickabout, addressing an argument that a two-year contract did not provide security, Sir David Richards said (at [94]) "in modern employment conditions, many employees would regard a two-year engagement, terminable during the term on not less than four months' notice, as providing significant security". The hypothetical contract was terminable by Sky with immediate effect at any time, but only if in Sky's "reasonable opinion" any of certain specific conditions in the contract applied.
(2) Mr Barnes was contractually obliged to perform the Services personally, and had no right to provide a substitute.
(3) Sky had a right of first call on Mr Barnes' Services for up to 228 days per annum, varied by the arrangements regarding availability: FTT[111(6)], discussed above under Ground 1. That was a significant proportion of each year.
(4) Sky had the exclusive right to Mr Barnes' services as a broadcaster within the UK. Mr Barnes could not provide his services to another broadcaster or radio or media organisation without Sky's written consent, not to be unreasonably withheld. Additionally, Mr Barnes would have to seek permission from Sky before engaging in any "new" commercial activities.
(5) The annual fee payable to Mr Barnes (between £235,000 and £265,000) was payable in monthly instalments. It was fixed in advance and not calibrated to the actual number of days Mr Barnes would be on air for Sky. When Mr Barnes was providing his services on a live sky event, Sky provided all necessary studio equipment and related travel and accommodation bookings. Mr Barnes was therefore subject to very limited financial risk in the performance of the Services under the hypothetical contract.
(1) The provisions in the hypothetical contract relating to intellectual property did not restrict Mr Barnes from exploiting and reusing his work product for Sky. In fact, he did this regularly, with Sky's knowledge and acquiescence, in his newspaper columns. The material which Mr Barnes had used to provide his services for Sky remained his intellectual property. There was no real demarcation between his Sky work and his newspaper columns. We consider this position to be more indicative of a contract for services than employment.
(2) The variation found by the FTT to arise in the hypothetical contract in respect of Sky's right of first call under the Contracts was that Mr Barnes had "much latitude" in stating his availability to cover live matches for Sky, and there was an understanding between the parties that Mr Barnes would be unavailable for match commentaries during various tournaments. This feature was in our opinion more consistent with a contract for services.
(1) Mr Barnes was found by the FTT to be in business on his own account outside his Sky commitments. He was his own brand, "the voice of rugby". While the precise parameters of that business, in particular the tax status of his non-Sky engagements, were not the subject of detailed findings, that was a relevant background factor at the Third RMC Stage.
(2) Mr Barnes worked for Sky for over 20 years up to the periods under appeal. In Kickabout, the Court of Appeal said (at [94]) that the length of the relationship before the relevant contracts began was a factor which the tribunal was entitled to take into account. Such a long relationship is more consistent with a relationship of employment.
(3) In terms of financial dependency on Sky, the Sky income averaged about 60% over the relevant period. As well as constituting around 40% of total income, the non-Sky income was substantial in its own right. The FTT found that Mr Barnes was not "financially dependent" on Sky, but as we have said that status is to a degree in the eye of the beholder. Each party claimed to find support in these figures for their respective positions. In our opinion, this factor, while clearly relevant, was not a strong indicator of employment status one way or another.
(1) The contract would be for a fixed term of 4 years, extendable by another 2 years to coincide with the expiry of Sky's rights to broadcast the European International Championship, and subject to further renewal by mutual agreement.
(2) Mr Barnes would be contractually obliged to personally perform the 'Services' as the named Personnel under the Key Terms.
(3) Mr Barnes had no right to provide a substitute when he was unable to provide the required services personally. Sky would choose and arrange for any substitute and would pay the substitute directly.
(4) The Services to be provided by Mr Barnes would comprise:
(a) Principally, 'punditry service' as a co-commentator and expert analyst in rugby union sport events being broadcast by Sky Sports; as the 'second voice' along with the lead commentator;
(b) For live sport events, Mr Barnes' attendance pre-match for rehearsal, and during the match would be mandatory, (but not post-match);
(c) For all preparatory work, Mr Barnes would carry out the research and script drafting in his own time to ensure that he would provide an engaging commentary on the day on certain themes as agreed with the executive producer prior to a match;
(d) In addition to punditry service, Mr Barnes would provide such other services as approved by the Head of Rugby Union, such as the weekly Monday Column for Sky Magazine online, and the mid-week programme 'The Rugby Club';
(e) Interview requests from Sky Sports News (and to a lesser extent Sky News) on high-profile games, including but not restricted to those broadcast by Sky (such as the European International Championship), and games not broadcast by Sky (such as the World Cup and the Six Nations) for which Mr Barnes would be present from the press box throughout the games, and for any short-notice responses to news-worthy items in the world of rugby which Sky Sports News decided to cover.
(f) Ad hoc requests for special programmes as planned by Sky Sports, or Sky Sports News, such as the 'Sky Sports News HQ review of the year'.
(g) Ad hoc requests for any promotional or publicity events (such as the pre-Guinness Pro 12 PR event with press and radio).
(5) Sky 'shall have first call' on Mr Barnes' Services up to 228 days per annum, which would be inclusive of days being on air of around 90 to 120 days per annum.
(6) The exercise of the 'first call' right by Sky would be subject to Mr Barnes' availability in conjunction with his standing commitments to the newspaper columns, and in co-ordination with Mr Barnes' coverage of high-profile matches of which Sky had no broadcasting rights, (such as the coverage of the Six-Nations, British & Irish Lions, and World Cup matches would take priority over Sky's fixtures).
(7) Such variations to the provision on 'first call' were expressly provided by clause 1.1 under the Key Terms in the First Contract: 'The Services will be provided on the terms set out in this Agreement subject to any variations agreed by the Parties in writing and to any Associated Company as may be agreed between the parties from time to time.'
(8) Sky would have exclusive right of Mr Barnes' services as a broadcaster within the UK. Mr Barnes would not be permitted to render his services to another broadcaster, or radio, and/or all media organisations without the prior written consent of the Head of Sky Sports. Such consent would not be unreasonably withheld, such as consent for Mr Barnes to broadcast during the World Cup season for a broadcaster outside the UK. In the event of any breach of Sky's exclusive right to Mr Barnes' services in this respect, Sky would be entitled to injunctive relief.
(9) Sky would have the right to allocate Mr Barnes from the roster of commentators to cover a specific game to be broadcast by Sky Sports. To that extent, Sky had control over the location, the date, and which match Mr Barnes would cover, subject to any reasonable alternatives being suggested by Mr Barnes, whether it be location (such as not covering matches in Scotland in two consecutive weekends) or the interest of the match (such as switching to cover La Rochelle v Harlequins on Mr Barnes' suggestion).
(10) The contract would be terminable pursuant to clause 5, which would give Sky the right to terminate the contract 'with immediate effect at any time' if in Sky's 'reasonable opinion' any of the stipulated conditions had obtained.
(11) Sky would pay Mr Barnes the annual fee of £235,000 in 2013-14 with an increment of £10,000 per annum to £265,000 in 2016-17 as stated in the Key Terms, and thereafter the annual fee would remain at £265,000 for the two years to 31 May 2019. The fee would be payable in equal monthly instalments in arrears upon the rendering of an invoice by Mr Barnes.
(12) The annual fee payable by Sky would be fixed in advance, and would not be calibrated to the actual number of days Mr Barnes would be on air for Sky.
(13) In relation to programme content, Sky would expect Mr Barnes to adhere to the running order of the live match, and to work to the direction and instructions of the executive producer, whether it be for Sky Sports, Sky News, or for Sky Sports News. The content of the pre-match broadcast, and of the live commentary would be Mr Barnes' sole responsibility, subject to prior clearance with the executive producer in relation to the themes to be covered.
(14) As with the commentary for live matches, the content of any interviews given to Sky News, and Sky Sports News, or in relation to the Monday Column, and the Rugby Club, would be content solely created by Mr Barnes.
(15) Mr Barnes would be subject to restrictions in relation to the handling of confidential information (clause 6) and non-solicitation (clause 7) and restrictions as to the provision of his Services outwith Sky as set out under the 'non-compete' undertakings at paragraph 4.2 of the NDA Schedule.
(16) Mr Barnes would carry out his research, write his own script, and adhere to the Ofcom Guidelines in relation to the Services he would perform in presenting a Sky programme. In other aspects of the delivery of his Services, Mr Barnes was expected to work under the direction of Sky's production manager in charge of the programme. Sky would have full editorial control over any programme and Mr Barnes would have to follow the reasonable requests of the executive producer, such as who to interview.
(17) Sky would provide all necessary studio equipment during the live streaming of a sport event in which Mr Barnes provided his Services, including microphone and earpieces, and the necessary travel and accommodation bookings to enable location performance of the Services to take place. Sky would reimburse any reasonable expenses claimed by Mr Barnes, upon submission of receipts and if approved by Sky.
(18) Mr Barnes would agree to assign to Sky all rights (intellectual property, copyright, etc) to enable Sky to have the exclusive rights in the commercial exploitation of his output emanating from presenting for Sky Sports.
(19) Mr Barnes would have to seek permission from Sky before engaging in any new commercial activities. He would agree not to exploit his image rights in any manner, or to undertake any assignments from other broadcasters, or media outlets, that would cause a breach of the 'non-compete' restrictions pursuant to the Non-Disclosure Agreement.
(20) Pursuant to clause 3.4, the Fixed Fee per annum would be agreed on the basis as to include a sum to satisfy Mr Barnes' 'paid holiday entitlement' under the Working time Regulations 1998. Mr Barnes would have no contractual rights (over and above those rights granted by statute), to be paid for absences caused by sickness.
Note 1 Before February 2015 the company’s name was British Sky Broadcasting Limited. [Back] Note 3 Clause 15.2 of each Contract. [Back] Note 4 Council for Civil Service Unions v Minister for the Civil Service [1985] AC 374, at 410F-411A. [Back] Note 5 In the IR35 context, the Upper Tribunal recently held that the FTT had correctly directed itself, but failed to follow that self-direction: HMRC v RALC Consulting Limited [2024] UKUT 00099 (TCC). [Back]
