Stuart Barnes loses on IR35 due to the contract outflanking working practices, teeing up a £695,000 HMRC tax bill

The Upper Tribunal has kicked into touch a ruling by the FTT that Sky Sports rugby union commentator Stuart Barnes was outside IR35.

It deals a blow not just to Mr Barnes, whose £695,000 bill is back in play, but to any PSC hoping working practices outflank the contract.

In fact, while Barnes “originally won at the FTT”, observes ReLegal Consulting, the UT overruling it “took a different approach” and found him inside IR35, says Bauer & Cottrell.

'Contractual focus'

B&C director Charlie Hemsworth explained her assessment yesterday to ContractorUK:

“By focusing on the contractual framework, particularly the hypothetical contract and the Ready Mixed Concrete (RMC) test, the UT differed.

“Unlike the First-Tier Tribunal, the UT placed emphasis on contractual rights of control, and MOO, relating to Barnes’ 2013-19 contracts as S&L Barnes Ltd.

“By contrast the FTT focused more on Barnes’ actual working practices, the autonomy he had, and his broader professional engagements beyond Sky.”

'Detailed consideration of the RMC test'

Chris Stone KC represented HMRC at the UT in May 2024, and its judgment in the Revenue’s favour was published on August 28th 2024.

The barrister agrees with Hemsworth, insofar as he reflected that the UT gave “detailed consideration of the RMC test for determining employment status.”

“The Upper Tribunal has allowed HMRC’s appeal and decided that Stuart Barnes did fall within IR35 for the work he did for Sky TV through his personal service company.”

Taking to LinkedIn on Friday, Stone continued: “It provided detailed guidance for tribunals on the proper approach to carrying out the balancing exercise.”

'Irrelevant factors, relevant factors'

Before outlining that ‘proper approach,’ UT judges Thomas Scott and Mark Baldwin were faced with two grounds of appeal.

First, that the FTT erred in construction of the hypothetical contract concerning Sky’s right of first call over Barnes.

Second, that the FTT erred in its interpretation and, or, application of the third stage of the RMC test.

This error, Stone with assistance from HMRC legal representative Bayon Randle argued, included the FTT “taking into account irrelevant factors” and “failing to take into account relevant factors.”

'We can and should remake the FTT's decision'

While the UT dismissed the first ground, the second ground required the UT to assess 12 factors and found misapplication in half of them.

The tribunal said: “We must conclude that the errors of law in relation to six of those factors might have made a difference to the FTT’s decision…[and] we consider that we can and should remake the FTT’s decision.”

A five-part summary of the “most significant factors” more “consistent” with Barnes having a “relationship of employment” with Sky are at 117 of the ruling.

'Stuart Barnes at Sky Sports didn't have the right to substitute'

But IR35 contract review expert Seb Maley says the reasons for the UT finding against Barnes can be even more succinctly put.

“He didn’t have the right to provide a substitute, Sky held the exclusive right to call on his services, and he wasn’t seen to shoulder financial risk – hallmarks of an inside IR35 contract,” Maley says.

“Judge[s] Thomas Scott and…Mark [Baldwin] stated [their own] reasons for their decision,” added Maley, the CEO of Qdos, quoting from the UT’s ruling directly:

“The long duration of the contract, the absence of a right of substitution, the right of first call for 228 days a year…,the rights of exclusivity, the absence of financial risk and the overall length of the relationship with Sky.

“[These] are factors which in our opinion collectively outweigh the right of Mr Barnes to exploit his work product, his agreement regarding availability and the fact that he was in business on his own account outside his relationship with Sky.”

'Contract did not stipulate the minimum days of service'

At the time of the FTT’s ruling (handed down in January 2023 following a hearing in July 2022,) in-business on own account was widely acknowledged to have got Barnes ‘over the line’ of outside IR35.

But this narrow win for the 61-year-old former Rugby union ace, on a ‘non-trinity’ IR35 status factor, was facilitated by other secondary factors.

At the UT, the opposite appears to have happened, with secondary (often contractual) factors seen by UT judges Scott and Baldwin as supporting a reversal of the decision.

For example, the UT rejected Barnes’s fee not resembling a salary, in nature, just “because the contract did not stipulate the minimum days of service”.

Likewise, it declined to uphold any “rational” correlation on IR35 status from Barnes’s input on Sky’s rugby programmes (specifically the “how” and “why” of the game), differing to a colleague’s, directly employed by Sky (who commentated on the “who” and “what”).

'Voice of Rugby'

The UT also rubbished the FT’s finding that the news unit of Sky Sports interviewing Barnes, “the voice of rugby” for his opinion, was a “strong indicator” that the contractual relationship in real terms was not that of a master-servant.

Stone called this finding “perverse” and the UT agreed.

More diplomatically, Qdos’s Mr Maley prefers that the UT “turned the [Barnes] case on its head” by looking at “a different set of factors”.

Referring to the UT ‘setting aside’ the FTT’s ruling (as the UT judges put it) Maley also said the loss for Barnes highlights the “complexity” of the Intermediaries legislation, but also its “many nuances”.

'Growing trend of the UT disagreeing with FTT decisions on IR35 cases'

And they are nuances increasingly being unpicked at UT stage according to B&C’s Ms Hemsworth, who told ContractorUK:

“S&L Barnes Ltd v HMRC  is a clear reminder for limited company contractors and those who engage them -- even if your working practices seem to point towards self-employment, the contractual framework might not always agree.

“Be aware, there’s a growing trend of the UT disagreeing with FTT decisions in IR35 cases, which is concerning.

“It partly goes to show just how complex and tricky IR35 can be when courts are interpreting the same situation differently.

“So it’s a case of poor Mr Barnes. What a frustrating position to be in, having different courts come to such different IR35 status conclusions.”

Ian Goodwin, employment tax partner at Forvis Mazars, echoed: “And [by losing Barnes has not just had a £695,000 tax bill reinstated but] all the mental strain, anxiety and stress [refired too as well as that of the past] years, given the length of time involved. Not to mention tribunal costs”.