HMRC Wins £300k IR35 Case Against Sky Sports Pundit Phil Thompson

2023 has ended with yet another IR35 case against a high-profile media personality, this time involving former professional footballer Phil Thompson, who came under scrutiny for work he carried out as a pundit for Sky Sports between the period 2014 and 2018.  HMRC emerged victorious with the FTT dismissing Thompson’s appeal, securing a significant win amounting to almost £300,000 in PAYE and national insurance contributions (NICs).

This case follows the trend of heightened enforcement activity by HMRC against high-profile media personalities, carrying implications for both others within the industry and businesses navigating the off-payroll working rules.

Thompson, contracted through his personal service company, PD & MJ Ltd, provided services to Sky on Soccer Saturday and other programs for the period in question. The First-tier Tribunal (FTT) scrutinised whether a hypothetical contract of employment existed and, subsequently, if Thompson operated as an employee or a self-employed individual on these engagements.

Key Factors Contributing to HMRC’s Victory:

1. Mutuality of Obligations (MOO): The FTT found that there was mutuality of obligation between Thompson and Sky, with Thompson obligated to provide services according to the contract terms, and Sky obligated to pay the agreed fee.
2. Control: Sky were found to hold a “sufficient framework of control”, exemplified by their contractual right to dictate Thompson’s performance and the location of services, aligning with an employment relationship. Sky also had first call on his services, with Thompson required to seek permission to work for other clients.
3. Nature of Work: Despite Thompson’s role as a pundit, the tribunal emphasised that even highly skilled individuals can be subject to control. The restriction on Thompson’s ability to exploit his opinions and intellectual property supported the employment relationship.
4. Termination and Integration: The hypothetical contract allowed termination by Sky but not by Thompson. Additionally, Thompson’s association with Soccer Saturday, where he became an integral part, weighed in favour of an employment contract.
5. Payment Structure: While payment was a block fee unrelated to airtime, the FTT considered it a neutral factor in determining employment status.
6. Other clients: The substantial majority of PD & MJ Ltd’s earnings came from Thompson’s work at Sky.
7. Benefits: the absence of benefits for Thompson, compared to Sky employees, was outweighed by other factors supporting employment.

Can contractors and engagers learn anything from Phil Thompson’s £300k IR35 defeat?

This case underscores HMRC’s persistent pursuit of compliance, despite recent losses in other high-profile cases. The substantial tax liability highlights the potential cost of non-compliance for both contractors and businesses.

While this case does not establish case law precedent, it adds to the evolving landscape of IR35 interpretations. As the courts lean towards basic contractual obligations in assessing MOO, ongoing cases like PGMOL (for which the latest outcome is still awaited, hinging on the MOO test), will further shape the understanding of the key IR35 status tests. The courts appear to be placing greater importance on the client’s payment for services and the contractor’s provision of those services, considering these factors as significant in evaluating compliance with the IR35 test on MOO.

Unlike the recent IR35 cases of Kaye Adams and Stuart Barnes, where these media personalities were found to be very much in business on their own account and their own “brand”, Mr. Thompson worked almost exclusively for Sky and was seen as part & parcel of their business. It could be said that many IT contractors do not possess a distinct brand, and tend to work for one client at a time.

This evolving perspective underscores the need for IT contractors to stay informed about developments in IR35 legislation and emphasises the importance of conducting thorough assessments of contractual relationships (both written terms and critically, the working practices) to mitigate potential risks associated with IR35 and the off-payroll working rules.