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Contracts between freelance workers and their employers will come under renewed scrutiny by HM Revenue & Customs after Sky Sports commentator Alan Parry lost an appeal against a £356,000 tax bill.
The football commentator, 74, contested an HMRC claim that the contracts held between his limited company, Alan Parry Productions Limited, and BSkyB over the five years to April 2019 amounted to an employment relationship, rather than self-employment.
Under IR35 rules, a set of tax laws which govern off-payroll workers, if a contractor is deemed to be a “disguised employee” for tax purposes, rather than genuinely self-employed, they are liable for income tax and national insurance contributions.
A judgment this week following a first-tier tax tribunal hearing found “the overall impression is that the relationship between BSkyB and Mr Parry was one of employment”. HMRC said Parry owed £222,474 in income tax and £133,945 in national insurance contributions, totalling £356,419.
Professional services experts said the judgment would act as a warning to those with comparable arrangements. “It is a worrying direction of travel for other individuals with similar facts to Mr Parry as this case only encourages HMRC to continue their efforts to review this sector and those working in it,” said Tim Stovold, partner at accountancy firm Moore Kingston Smith.
Parry’s case highlights the staggering cost of getting IR35 wrong. “After Eamonn Holmes, Gary Lineker, Lorraine Kelly and several others, Alan Parry is the latest in a long line of high-profile presenters caught up in IR35 cases with huge tax liabilities,” said Seb Maley, chief executive of insurance and tax adviser Qdos. “It makes you wonder who HMRC will target next.”
Given the complexity of IR35 rules, it can be difficult to know which way a case will go. Several presenters have been caught out by the rules given the nature of their work — the difficulty of finding a substitute, the need to operate within strict editorial guidelines and prevention from working for other broadcasters.
Chris Leslie of Tax Networks Limited, the lawyer who represented Parry, said the BSkyB contracts are “a bit of a problem” because they follow a standard form. Speaking of Parry’s case, Leslie said the contract “contained ambiguity” which gave Sky more control over Parry than was wanted or needed.
Two previous IR35 appeals involving BSkyB contracts with presenter Neil McCann and former presenter Dave Clark went in HMRC’s favour. Dave Chaplin, chief executive of tax compliance company IR35 Shield, said contractors and employers should be aware that the “contract is king”.
Rebecca Seeley Harris, a specialist legal consultant in employment and tax status, said the outcome of Parry’s case “definitely makes it more likely that others will also be found inside IR35 because historically there has not been enough attention placed on the contracts between the parties and the courts are now shining a spotlight on the written terms of the relationship”.
There are currently “hundreds of cases out there in dispute”, according to Dawn Register, partner in the tax dispute resolution team at BDO, including not only TV presenters but a range of contractors from IT technicians to management consultants.
The Parry dispute related to employment between 2014 and 2019. Since April 2021, the decision about whether freelancers working in the private sector should be considered self-employed for tax purposes — known as “outside IR35” — or employed has moved from contractors to their hirers. The switch puts the final responsibility for paying the right tax on the hirers.
“The regularity of these IR35 decisions and the fact that they are creating so much uncertainty is increasing the need for HMRC/HMT to review the law on employment status for tax purposes,” said Penny Simmons, legal director at Pinsent Masons. “Now more than ever, businesses need clarity when making decisions that could affect tax costs.”
Other presenters have had successful appeals. In February, presenter Adrian Chiles won a case against HMRC over a £1.7mn tax bill, when a judge ruled there was “no suggestion Mr Chiles set out to avoid tax”. In 2019, broadcaster Lorraine Kelly won her case over a £1.2mn bill.
The legal battle by TV sports host Gary Lineker over a £4.9mn tax bill continues.
HMRC said the judgment confirmed its view that the off-payroll working rules applied in the Parry case. “These rules are in place to create a level playing field for all workers by ensuring that people who work like employees, but through their own limited company, pay the same amount of tax as an employee would,” it said in a statement.
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