"You Never Worked, Alone"

Former footballer and Sky Sports pundit Phil Thompson found himself in the spotlight last month, not for his football analysis, but for his tax affairs, facing off against HMRC over the contentious IR35 regulations.

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For those who might not be familiar, IR35 is a piece of tax legislation designed to combat tax avoidance by workers, and the firms hiring them, who supply their services to clients via an intermediary, such as a limited company, but who would be an employee if the intermediary was not used.

It's a topic that's as dry as it is complicated, but its implications are far-reaching, especially for freelancers and contractors across the UK.

The tax savings come in the form of being able to reduce the amount of tax paid by drawing dividends, spreading income over years, splitting income with a spouse and avoiding national insurance contributions.

Sky Sports pundit, Phil Thompson, provided services to Sky on Soccer Saturday and other programmes through his personal service company, PD & MJ Ltd. HMRC argued that IR35 applied and that PD & MJ Ltd owed £294,306.68 for PAYE and national insurance contributions (NICs) between 2014 and 2108 and found in HMRC’s favour.

The First-tier Tribunal (FTT) looked at whether there was a hypothetical contract and whether, under that hypothetical contract, Phil Thompson had a contract of employment with Sky or was self-employed under a contract for services, and it found that the hypothetical contract would have been a contract of employment. This result contrasts with HMRC’s defeat in the Kaye Adams case in November. In the Phil Thompson case, the FTT sighted following reasons for its decision: 

• There was mutuality of obligations (MOO) between the worker to supply services and the engager to pay (the MOO test). Phil Thompson’s obligation under the hypothetical contract would be to provide the services in accordance with the terms of the contract, and Sky’s obligation would be to pay the agreed fee. (Note that it was also agreed that there was mutuality of obligations in the Kay Adams case.)

• Sky’s contractual right to require Phil Thompson’s performance of the services at a location of their choosing was consistent with an employment relationship. The control was regular and although there was consensus, it did not detract from the level of Sky’s contractual right. This level of control was reinforced by the inclusion of a non-compete clause in the contract, giving Sky the right to “prevent Mr Thompson from working for competitors”. (Note that it was also found in the Kaye Adams case that the BBC had “significant” control.)

• The hypothetical contract restricted Phil Thompson’s ability to be able to exploit his opinions and analysis and intellectual property more generally, and this was other than in accordance with its terms.

• The hypothetical contract provided for termination by Sky but, not by Phil Thompson.

• Phil Thompson had become associated with Soccer Saturday and, in his evidence, he said that the viewing public would expect to see him on the programme. (This can be contrasted with the FTT’s decision in the Kaye Adams case, that being “part and parcel” of the BBC was neutral, because although the Kaye Adams show had become integral to the BBC, it was not an organisational part.)

• The payment was paid in a block fee regardless of airtime, but the FTT considered that this was a neutral factor. Whether this was a salary or a fee depended on whether the arrangement was an employment contract or not on the contract’s choice of label.

• Phil Thompson’s work at Sky was the substantial majority (an average of 80% during the relevant periods) of PD & MJ Ltd’s income.

• There was an absence of perks and benefits that Sky gave to employees but, not to Phil Thompson. This was, according to the FTT, outweighed by the other factors.

Looking at the whole picture, the FTT found that these factors combined to create a contract of employment.

The FTT also noted that they had reached a contrary conclusion to that in Stuart Barnes vs HMRC.

Stuart Barnes appeared to have been in business on his own account to a greater degree than in the Phil Thompson case. Stuart Barnes was also entitled to reproduce his opinions in other media and was known as the “voice of rugby” generally rather than being associated with one broadcaster, as Phil Thompson was with Sky.

It also appears that the taxpayer’s success in earlier cases, such as Kaye Adams, Lorraine Kelly and Adrian Chiles, hinged on the basis of the individual being a brand or persona.

Although a well-known former footballer, Phil Thompson was not thought of as a brand or persona. He worked mainly for Sky, and the public perception was that he was a Sky pundit on Soccer Saturday.

Phil Thompson has 56 days from the release of the FTT judgment to appeal.

The verdict in Phil Thompson's case contrasts sharply with Gary Lineker's successful challenge against a £4.9 million tax claim by HMRC. Lineker, leveraging a partnership structure for his engagements with the BBC and BT Sport, successfully argued for a direct contractual relationship with these entities, effectively evading IR35 like a defender in the penalty area.

He does however have have 294,000 reason to consider an appeal and may take heart from HMRC’s decision to drop Loose Women star, Kaye Adams’ case this week.

Phil Thompson however is no Gary Lineker, and he’s certainly no Lorraine.

He may well have to lick his wounds and cough up, else he faces the prospect of further legal fees and interest if a future case also goes against him.