Happy New Year to all. Now the dust has settled following the doomed repeal of the off-payroll rules what are we seeing at B&C and are things generally better or worse for the contracting industry?
For the full judgement see: TC08697.pdf (bailii.org)
Just short of £700K saved from HMRC under IR35. This is a First Tier Tribunal case so does not create case law precedent and Barnes had a specialist role as “the voice of rugby” whilst engaged by Sky TV.
Nevertheless, there are always lessons to be learned from all cases and it is always interesting to see HMRC’s approach and how each party handled the case. HMRC’s approach in this one mirrored that of the last presenter case they won – Little Piece of Paradise. We had the same client Sky TV, the same contracts and the same Judge so no doubt HMRC thought this was in the bag. However, there were flaws in HMRCs position, which ranged from not fully understanding the differences in the role of “presenter” v “commentator” through to apparently not taking proper account of the Atholl case, which is precedent and was heard at the Court of Appeal. Atholl is extremely helpful in setting out how status should be decided which, is contrary to HMRCs approach generally.
HMRC made much of comparing the roles of Barnes to his co-presenter Miles Harrison who is employed by Sky and they issued a questionnaire to Sky at the outset of the case directly comparing the two. Judge Poon made clear at point 128 that each case turns on its own facts – extremely basic stuff and something every IR35 advisor knows and everyone affected by IR35 should know. Judge Poon said this approach by HMRC is irrelevant and unsound – “Nor do I find it at all a sound or relevant basis to found Mr Barnes’ contractual relationship with Sky by mapping onto how Mr Harrison had been contracted by Sky; each case turns on its own facts.”
Fundamental to any case is establishing the facts. HMRC started the case with a questionnaire to Sky, which assumed that Mr Barnes was a co-presenter alongside Mr Harrison who was a Sky employee but there were major differences. The Judge found that Mr Harrison was responsible for the “who” and the “what” content (of the broadcast) and Mr Barnes for the “how” and “why” – the latter being things that a presenter would be unable to do! Judge Poon found the roles to be “qualitatively different “ and “Without Mr Barnes’ analytical input, the live commentary of a match with only the first voice (that of Mr Harrison) would be all the duller, and unlikely to attract as many viewers as a live match with punditry input.”
Every IR35 advisor worth their salt always takes care where there are employees apparently undertaking the same services, as contractors, but more often than not differences are easily established and can prove sufficient to show that IR35 does not apply.
The message for contractors and everyone involved in status decisions is to always drill down to the reality, as well as the contract. This case sets out how the process should work and takes into account up to date case law precedent. The case itself does not create case law precedent but there are lessons here for contractors and for HMRC.
We are seeing SDS’s coming completely out of the blue changing status, from outside IR35 to inside IR35, whilst undertaking the same services under the same working practices.
Prevalent are cases in the public sector and many appear following interventions by HMRC i.e.- the PS end client receives an informal visit. It is clear that the advice being received by the public sector is contradictory and differs from PS body to PS body and also from HMRC Officer to Officer.
Prevalent here are cases of previously agreed outsourced contracted out services. Despite past written agreement that it is an outsourced service and holding contractual terms and working practices that support the position, SDS’s are being issued by the end client even though there is no legal requirement to do so.
We have recently seen cases where there is a direct contract between a small end client who is exempt from the off-payroll rules issuing inside IR35 SDS’s, “just to be safe”. Again, this is despite that all the contracts in the chain and the reality of the working practices and indeed the dreaded CEST tool demonstrate an outside IR35 position.
This is a nightmare situation for all in the contractual chain. First and foremost, specialist IR35 advice should be taken. Discussions can then take place and if these fail then use should be made of the dispute process that all PS, medium and large organisations should have in place. If the stance taken emanates from a commercial decision by the client, rather than the administration of the off-payroll process, then nothing can be done other than to try to mitigate the risk over the past period. HMRC have said they will not open IR35 investigation cases where the status has changed from “out” to “in” but we would not recommend reliance upon this statement.
If challenges fail then attempts to renegotiate terms (especially payment terms) should be made and if all fails then (as we have seen) many contractors will walk.
We are seeing lots of cases in the public sector where standard Framework agreements and call-off contracts have been running for 1 year+ being re-issued with the addition of numerous off-payroll provisions including onerous indemnity clauses. In most cases the procurement people at the PS body are being very helpful not least because they would be completely stuck if they lose the consultancies and their contractors. Some are including rights to re-negotiate fees.
Specialist IR35/off-payroll advice is essential here not least because the contracts and large number of appendices, work orders etc often amount to hundreds of pages that all need to be very carefully read and understood and of course negotiated. To date we have been able to facilitate agreement to changes to satisfy both parties.
We are assisting a number of end clients with their processes where they are about to transition from being a small company (exempt from the off-payroll rules) to a medium sized company. This is an easy task where we have been involved with them since the rules came in but there are lots where they have nothing in place so means starting from scratch. Many, just like 2021 have not even heard of the rules. Awareness and getting ahead of the game are the key considerations here.
HMRC are currently investigating two accountancy service providers – Churchill Knight and Boox. These cases are likely to take years to complete assuming they travel through the legal processes. However, they pose potentially serious consequences for contractors and their accountancy service providers and those using other providers. There may already be others under HMRC investigation that have not yet made it into the press. If the MSC rules stick then full tax and NIC is payable on all monies received by the PSC and these rules bite before the IR35 ones. Having “influence” and “control” over payments received is key to this legislation so we always recommend having wholly independent IR35 contract reviews and above all steering clear of any IR35 insurance provided, as part of the accountancy package.
With all the current problems in the UK and the world it is clear that the government is not doing much for the contracting world. We have no action on the loan charge, no sign of regulation of the umbrella industry, no single enforcement body and no sign of any changes to the CEST tool, the HMRC manuals or any general update of their compliance approach.
The good news is that contracting continues with numerous outside IR35 contracts available and end clients are still engaging the talented contractors they need. Lots are changing from blanket bans to realising if you get it right then the risks fall away.
We now have the Budget to look forward to on March 15th.
Let’s hope for some more U-turns.