The recent IR35 case involving former Liverpool footballer and Sky Sports presenter, Phil Thompson, has drawn attention to the complexities and implications of the IR35 legislation.
Thompson, who provided services through his personal service company, PD & MJ, was deemed by HMRC to have been working under a contract of employment rather than as a self-employed contractor.
As a result, Thompson has been ordered to pay approximately £294,306.68 in back taxes for PAYE and national insurance contributions (NICs) covering the period from 2014 to 2018.
IR35, also known as Chapter 8 intermediaries legislation, is designed to determine the employment status of individuals who provide their services through intermediaries, such as personal service companies. It seeks to ensure that individuals who work as employees are taxed as such, even if they operate through a separate legal entity.
The crux of the case revolved around the examination of a hypothetical contract to assess Thompson’s employment status. The first-tier tribunal (FTT) analyzed various factors to determine whether Thompson should have been considered an employee of Sky or a self-employed contractor.
The FTT concluded that, considering the overall picture, the factors pointed towards a contract of employment.
One key factor was the presence of mutuality of obligations, where Thompson was obligated to provide services in accordance with the terms of the contract, while Sky was obligated to pay the agreed fee.
Additionally, control played a significant role, as Sky had the contractual right to require Thompson’s performance of services at a location of their choosing. The FTT also noted that Thompson’s association with Soccer Saturday and the public’s expectation to see him on the program further supported the employment relationship.
Contrasting Cases: Thompson vs Lineker
The outcome of Thompson’s case stands in stark contrast to that of Gary Lineker, who recently won his £4.9 million tax battle with HMRC. Lineker, who provided his services to the BBC and BT Sport through a partnership, was able to convince the judge that there was a direct contract between him and the broadcasters, thereby circumventing the IR35 legislation.
Seb Maley, CEO of IR35 specialist consultancy firm Qdos, commented on the contrasting outcomes, stating, “HMRC consistently pursues high-profile freelance presenters. But this result is in sharp contrast with Gary Lineker’s case a few weeks ago – highlighting just how complex the IR35 rules are, along with HMRC’s persistence in tackling perceived non-compliance.”
Accountants should be on guard
The outcome of the Phil Thompson IR35 case has several implications for accountants and businesses engaging with contractors. It highlights the importance of correctly assessing the employment status of individuals to ensure compliance with IR35 regulations.
The case underscores the need for accurate employment status determination. Accountants should take a holistic approach, considering various factors, including control, mutuality of obligations, and the degree of financial risk taken by the contractor.
By conducting thorough assessments, accountants can provide valuable guidance to their clients, helping them navigate the complexities of IR35.
In light of this case, accountants should also encourage their clients to implement robust compliance measures. This may include regular reviews of contracts, ensuring that they accurately reflect the working relationship, and providing clear evidence of the contractor’s self-employed status.
Given the intricate nature of IR35 regulations, accountants may also consider collaborating with employment law specialists to ensure comprehensive guidance for their clients.