It emerged yesterday that HMRC have won their appeal at the Upper Tribunal, involving former rugby star Stuart Barnes, who had previously been found as “outside IR35” at the original hearing in 2022. The case is a stark reminder of the complexities and challenges that contractors and those who engage them face in today’s contracting world. With different courts coming to very different conclusions, it’s clear that navigating IR35 remains as tricky as ever. Here’s what happened in the Barnes case, why it matters, and what lessons we can learn from it.
The case in brief
Stuart Barnes, well-known as “the voice of rugby,” provided his services to Sky TV through his personal service company, S&L Barnes Ltd. Following an HMRC enquiry into his contracts with Sky between 2013 and 2019, the First-tier Tribunal (FTT) initially ruled that he fell outside IR35. The FTT’s decision made sense – Barnes wasn’t just working for Sky. He was juggling multiple roles, writing for newspapers, and fulfilling various other engagements, clearly operating as a self-employed professional.
The FTT looked closely at Barnes’ actual working practices, establishing that he had significant autonomy, managing his own schedule and balancing different commitments. From their perspective, Barnes was running a genuine business, not simply acting as an employee of Sky under the guise of self-employment.
However, things took a turn when HMRC appealed, and the Upper Tribunal (UT) stepped in.
The UT’s approach: contracts over working practices
The UT took a different view, focusing heavily on the contractual framework, particularly the hypothetical contract and the Ready Mixed Concrete (RMC) test – a legal test used to determine employment status. The UT placed significant emphasis on the control Sky had over Barnes, such as their right of first call on his services and their ability to manage aspects of his work like scheduling. They also examined the existence of mutuality of obligation within the overall relationship.
From the UT’s perspective, these contractual elements pointed to an employment relationship, not self-employment. The UT’s decision demonstrates the importance of what’s written in the contract, in this case even over the day-to-day realities of how the work is carried out.
A growing trend of disagreement
What’s particularly concerning is that this isn’t an isolated incident. There’s a growing trend of the UT disagreeing with FTT decisions in IR35 cases, either remitting cases for a re-hearing (for example, the Adrian Chiles and Ralc Consulting Ltd cases) or remaking the decision entirely, as seen in the Barnes case. This trend highlights just how complex and tricky IR35 can be when courts interpret the same situation in different ways.
Lessons for Contractors and Engagers
So, what can we take away from this case? First and foremost, it’s a clear reminder that even if your working practices point towards an outside IR35 position, the contractual framework needs to back this up. The FTT seemed to understand the modern reality of contracting – where professionals like Barnes juggle multiple engagements and commitments. This is how many contractors work today, operating as genuine businesses with a variety of clients and contracts.
However, the UT’s ruling makes it abundantly clear that it’s not enough to just act like a business; your contracts and the way you work need to be bulletproof. They need to clearly reflect a position of independence, leaving no room for interpretation that could suggest otherwise.
For contractors, this means ensuring that your contracts are well-drafted and reflect the autonomy and business-like nature of your work. It’s not just about having the right clauses in place, but also about making sure that the way you work aligns with what’s on paper. This includes demonstrating control over how and when you work, showing that you bear financial risk, and ideally, having multiple clients.
For engagers, it’s crucial to be vigilant about how contracts are structured and to understand the full implications of IR35. While it might seem easier to use standard contracts, these might not always reflect the true nature of the engagement, leading to potential issues if HMRC comes knocking. Engagers should ensure that contracts accurately reflect the working relationship and that they are not inadvertently creating a situation where a contractor could be seen as a disguised employee.
Conclusion
The Stuart Barnes case is a reminder that IR35 decisions are far from straightforward, and getting it right is more important and more challenging than ever. With the growing trend of UT disagreements with FTT rulings, both contractors and engagers must take a proactive approach to ensure that their working arrangements and contracts support their position. In an environment where legal interpretations can vary so widely, the best defence is preparation and due diligence, along with a clear understanding of how IR35 applies to your specific situation.
Whether you’re a contractor or an engager, now is the time to review your contracts and working practices to ensure they’re aligned and robust enough to withstand scrutiny. As the Barnes case shows, the stakes are high, and the consequences of getting it wrong can be significant.