What McCann Media Ltd losing to HMRC on IR35 means for IT contractors

Football is a game of opinions, particularly for those spectators who can be watching the same game but have two very conflicting views of how the match was played out!

IR35 can be similar because of the subjective nature of some of the tests of employment status. There are occasions, however, when you have to accept kismet, such as the IR35 ruling from the First Tier Tribunal against Sky football pundit and co-commentator Neil McCann, writes Andy Vessey, head of tax at Kingsbridge.

Not one but two IR35 defeats for Sky Sports presenters

McCann is not to be confused with Dave Clark, also probed by HMRC under IR35 for on-air presenting of sports at Sky, but two presenters in row -- both operating for the same broadcasting company -- each losing, does seem noteworthy.

McCann is a former Scottish Premiership footballer and a coach. Like many ex-players who finally hang up their boots, he was very keen to join the ranks of Sky and did so, via McCann Media Limited (MML) in 2009.

The MML-Sky contracts that HMRC probed

However, it was two contracts spanning the periods July 1st 2012 – June 30th 2014 and July 1st 2014 – June 30th 2017, that fell under HMRC’s microscope, for which MML was paid an annual fee starting with £110,000 and which rose each year until its peak at £130,000.

A new contract was due to commence on July 1st 2017 but McCann had decided to accept an appointment as the permanent manager of Dundee F.C, so the new contract fell by the wayside.

During 2018 and 2019, HMRC raised tax and NIC assessments for the period April 6th 2013 – April 5th 2018, totalling £210,000, which were the subject of this appeal.

Three-steps (not to heaven!)

In constructing the ‘hypothetical contract’, as is required by legislation, the tribunal applied a three-step process:

1. Determine the contractual arrangements;
2. Synthesise a single hypothetical contract; and
3. Apply the classic tests of employment status (as set out in the Ready Mixed Concrete case).

Hypothetical contract

The FTT broadly agreed with HMRC’s version of the hypothetical contract, but with some modifications. The final terms, which incorporated not only the Sky contracts but also NDAs, would include:

1. McCann obliged to provide his services as a presenter, commentator, pundit, interviewer, guest or other participation. The dates on which McCann provided his services would be agreed between the two parties. In return, Sky would be obliged to pay an annual fee paid in equal monthly instalments.
2. If McCann did not provide services for longer than four weeks, Sky could terminate the agreement.
3. Sky would have the right to determine where and when the work was done and the role McCann would fulfil on such occasions.
4. Final editorial control over any content containing McCann’s contributions rested with Sky -- and they would retain the IP rights.
5. Ofcom guidelines would have to be complied with by McCann.
6. McCann was prohibited from working for other TV/radio, media, print or betting organisations without the prior written consent from Sky, and Sky controlled McCann’s social media usage.  

Applying the tests of status

1. Personal service and Mutuality of Obligation (MoO)

Sky paid MML what essentially amounted to an annual salary, paid monthly and irrespective of how much work McCann provided in any given month.

There was a requirement for McCann’s personal service, with no genuine right of substitution, or ability to delegate work to others.

Although the dates and games to be covered were agreed between McCann and Sky, this did not negate the existence of the required level of Mutuality of Obligation (MoO).

2. Control

The FTT considered that Sky had a sufficient degree of control over McCann to point towards a contract of employment because:

• Sky decided which pundits to use for particular games (although McCann had the right to decline matches).
• Sky determined the roles to be performed by those involved in the presenting team and McCann had to work within the agreed format of the programme. Both the structure and timing of the broadcast was determined by Sky.
• Although McCann provided his own expertise and content was his own, this was considered neutral in the context of professional adroitness.
• McCann was heavily restricted in carrying out work outside of Sky.

3. Opportunity to profit

McCann could not increase the fee which Sky paid by taking on more work for Sky and therefore, could not profit from his own sound management. The FTT placed some weight on this factor, considering it consistent with a contract of employment.

The key tests of status fell on the employment side of the pitch, and unfortunately for McCann, there were no other factors that could rescue the situation.

McCann could not be considered as being ‘in business on his own account,’ particularly because of the fee structure and that it did not vary according to the number of his appearances. Furthermore, he was restricted from exploiting other revenue-streams.

So what are the lessons for contractors of McCann Media V HMRC?

The world of TV and entertainment does not lend itself easily to the working methods and patterns of other industry sectors, due to its various nuances. However, in this case, I believe many IT contractors would recognise ‘disguised employment’ in the outline provided of McCann’s working practices.

While those paid on a retainer basis regardless of work done, may have some cause for concern in wake of this judgment, it should be remembered that assessing status requires a holistic approach, and so there may be significant factors that still place them in the ‘self-employed’ camp, unlike Neil McCann.

Some contractors work in industries or sectors that have non-negotiable, externally set guidelines or standards that must be adhered to. In the McCann case, HMRC sought to argue that being subject to Ofcom’s restrictions amounted to control. But the FTT accepted this was neutral in the context of professionals providing their expertise during live broadcasts. Potentially reassuringly, the same approach should therefore apply to those highly skilled contractors who work within an environment where industry standards prevail.

Lastly, there's more to come

We know that there are other media sector IR35 cases waiting in the wings. My fear is that the HMRC victory parade will continue if presenters, that worked in a similar way to McCann and cannot displace the key tests with, for example, running a genuine business in the same way Kaye Adams and Adrian Chiles have done, are the subject matter. Familiar with reading and presenting stories on the air, such presenters risk generating headlines of their own – for all the wrong reasons if, like Neil McCann, they cannot demonstrate on multiple fronts that they are a bonafide business.