Exploring IR35 and tax status in sport

The application of IR35 legislation and the determination of tax status are continually subjects of significant interest and discussion, particularly within the realm of professional sports. This commentary looks at the implications and considerations surrounding IR35 and tax status.

IR35, also known as the “intermediaries legislation”, was introduced by HM Revenue and Customs (HMRC) to address tax avoidance by individuals who work through intermediaries such as personal service companies (PSCs). The legislation seeks to determine whether a worker is genuinely self-employed or should be considered an employee for tax purposes. This distinction is crucial, as it affects tax liabilities, National Insurance contributions, and other statutory obligations.

The sporting industry presents unique challenges when it comes to applying IR35 and determining tax status. Athletes, commentators, and other professionals involved in sports often operate as self-employed individuals through PSCs. Their engagements can vary significantly, ranging from event appearances and endorsement deals to media contracts and coaching services. As a result, it becomes crucial to assess the nature of these engagements to determine whether they fall within the scope of IR35.

The recent IR35 victory of rugby expert and Sky Sports rugby commentator Stuart Barnes at the First-tier Tax Tribunal (FTT), has sparked a debate among advisers about the importance of in-business factors. In-business factors like those explored below help to establish IR35 status and suggest that you are not in fact an employee.

Barnes provided commentary services to Sky TV through his personal service company, S&L Barnes Limited, and also wrote rugby columns for The Times and Sunday Times. Barnes was engaged by Sky due to his reputation and expertise of rugby gained through being a professional rugby player.  The FTT found that the terms of his contract with Sky obliged Barnes’ personal service, and there was a sufficient framework of control to satisfy employment. However, they also found that Barnes was in business on his own account and therefore could not be an employee of Sky.

The presence or absence of in-business factors is crucial in determining whether a worker is ‘in business on their own account’ and whether they have the ability to profit from sound management. This forms the third aspect of the test from the Ready Mixed Concrete judgment, which states that “the other provisions of the contract are consistent with it being a contract of service.” If the ‘other’ provisions are inconsistent with a contract of employment, then the engagement is unlikely to be employment.

The FTT found that Barnes:

1. was not financially reliant on Sky during the tax years in question,
2. the services he provided were different from those of his colleague, Miles Harrison,
3. his success or failure depended on his profile, and
4. he used his presence at the live games as a fact-gathering exercise for his articles.

These factors suggest that Barnes was more than ‘just a commentator,’ and his success or failure depended on his own efforts and expertise.

This judgment places significant weight on secondary factors, and proves that in-business factors do matter. These features of a contract demonstrate that you are an independent business, and in borderline cases, this third test may be crucial in coming to a decision.

While determining status should never be a tick-box exercise, Stuart Barnes successfully tackled HMRC’s contention that IR35 applied. Despite the successful appeal, it remains to be seen if HMRC will appeal the decision and ‘try’ again on account of the tribunal’s finding of both personal service and control.