McCann Media Limited (MML), the personal service company of former Scottish footballer and TV pundit Neil McCann, has lost its appeal against a First-tier Tribunal (FTT) decision which found that IR35 applied to McCann's engagements with Sky Sports between 2013 and 2018. The Upper Tribunal (UT) decision dismissed MML's appeal, thereby upholding the March 2022 decision of the First-tier tax tribunal that IR35 applied to the engagements.
Dave Chaplin, CEO of IR35 compliance firm IR35 Shield, who attended both the First-tier and Upper-tier hearings, comments: "Of the six IR35 cases to date that have been appealed to the Upper Tribunal and received final judgments, only one case has ever been successfully appealed, demonstrating the very high bar necessary to overturn a decision by the First-tier tribunal in IR35 cases."
What Happened at the FTT?
In March 2022, the FTT ruled that IR35 applied to McCann's work for Sky. Judge Zaman concluded that the hypothetical contract between McCann and Sky would have been one of employment. Key factors included Sky's control over McCann's work, restrictive covenants preventing him from working for other broadcasters, and sufficient mutuality of obligation. The FTT acknowledged that McCann had some ability to decline work and that he worked for Dundee FC for six weeks but found that, overall, the relationship was consistent with employment.
Grounds of Appeal
MML appealed to the UT on three grounds:
- The Tribunal erred in law with respect to the issue of mutuality of obligation.
- The Tribunal erred in law by failing to take into account and/or properly apply the third limb of RMC, namely other factors of the contractual relationship were inconsistent with employment.
- The Tribunal erred in law in applying the three-stage test set out in Kickabout.
Upper-tier decision in MML
On Ground 1, mutuality of obligation, the UT rejected MML's arguments that McCann's ability to decline work and his engagement with Dundee FC negated mutuality. HMRC said that the FTT had rightly held that an established feature of an employment contract is that the employer is obliged to pay the employee regardless of whether or not the services in question are performed – as per the Court of Appeal in Commissioners for Her Majesty's Revenue and Customs v Atholl House Productions Ltd [2022] EWCA Civ 501 ("Atholl CA").
The UT said: "..we consider that the FTT was correct to hold at [119] that an established feature of an employment contract is that the employer is obliged to pay the employee regardless of whether or not the services in question are performed. That proposition is consistent with the holding in Atholl CA, at [73], that under a contract in which the employer is obliged to pay remuneration, the employer is not required to provide work for the employee in addition to payment of the agreed remuneration."
The UT noted that there were factual findings of the FTT and clauses in the contracts that were inconsistent with the proposition that Sky was under no obligation to offer any work or Mr McCann to perform any.
On Ground 2, regarding the 'other factors' limb of Ready Mixed Concrete, the UT held that the FTT had properly considered the relevant contractual clauses and circumstances. While some clauses (e.g. indemnities) were arguably inconsistent with employment, the UT found no error of law in the FTT's analysis.
Finally, on Ground 3, the UT rejected MML's arguments that the FTT had 'blurred' the actual and hypothetical contracts, stating that "Whilst the use of the term "blurring" may not be an apt description of the Upper Tribunal's observations in Atholl UT the FTT clearly understood the import of those observations" and therefore concluded there was no error in law.
What lessons can be learnt?
The UT's decision confirms the difficulty of overturning an IR35 ruling at the Upper Tribunal.
Of the IR35 cases that have reached the UT, only one, Revenue and Customs v Kickabout Productions Ltd [2020] UKUT 216 (“KPL”), has succeeded. The KPL FTT decision was notable because it was made via a casting vote. It determined that the degree of mutuality of obligation (MOO) did not exceed the 'irreducible minimum' and, therefore, wasn't sufficient to indicate employment. That aspect was found to be an error in law by the UT.
Chaplin says: "In appeals to the higher courts, a common case quoted by the Respondent is Volpi & Anor v Volpi [2022] EWCA Civ 464, which refers to six principles [2] that an appeal court should follow."
- i) An appeal court should not interfere with the trial judge's conclusions on primary facts unless it is satisfied that he was plainly wrong.
- ii) The adverb "plainly" does not refer to the degree of confidence felt by the appeal court that it would not have reached the same conclusion as the trial judge. It does not matter, with whatever degree of certainty, that the appeal court considers that it would have reached a different conclusion. What matters is whether the decision under appeal is one that no reasonable judge could have reached.
- iii) An appeal court is bound, unless there is compelling reason to the contrary, to assume that the trial judge has taken the whole of the evidence into his consideration. The mere fact that a judge does not mention a specific piece of evidence does not mean that he overlooked it.
- iv) The validity of the findings of fact made by a trial judge is not aptly tested by considering whether the judgment presents a balanced account of the evidence. The trial judge must of course consider all the material evidence (although it need not all be discussed in his judgment). The weight which he gives to it is however pre-eminently a matter for him.
- v) An appeal court can therefore set aside a judgment on the basis that the judge failed to give the evidence a balanced consideration only if the judge's conclusion was rationally insupportable.
- vi) Reasons for judgment will always be capable of having been better expressed. An appeal court should not subject a judgment to narrow textual analysis. Nor should it be picked over or construed as though it was a piece of legislation or a contract.
Whilst the appeal to UT in MML was not one based on the facts, the McCann decision in the context of Volpi highlights the fact-specific nature of IR35 cases and the importance of the FTT's factual findings.
Two approaches to mutuality by HMRC?
The McCann case at UT does however highlight what appears to be a duplicitous approach to mutuality of obligation by HMRC.
Chaplin comments on: "In IR35 defence work, we are still seeing HMRC caseworkers retaining HMRC's long-standing position on mutuality, that they believe mutuality only means payment if work is done. Yet, in tax tribunals, we see HMRC's Counsel argue that mutuality is more than that, as per the definition from the Court of Appeal in Atholl House from 22 April 2022.
“The former position is the one adopted by HMRC as they built their Check Employment Status for Tax (CEST) tool – they purposefully omitted mutuality from the tool and have not updated CEST in 5 years, despite the ruling from the Court of Appeal. Given their own barristers are now making representations to tribunal misaligned with HMRCs position in case work, one has to ask why?"
The topic of mutuality of obligation is still subject to the “legal laboratory”, having been central to another tax case, Commissioners for His Majesty's Revenue and Customs (Respondent) v Professional Game Match Officials Ltd, ("PGMOL"), which the Supreme Court heard in June 2023. Whilst the decision in PGMOL is pending, as the judge in MML UT remarked [49], "…we do not accept that it would be an error of law for a FTT to rely on a decision of the Court of Appeal in circumstances where that decision is subject to appeal to the Supreme Court."
Chaplin, who remotely attended both the Court of Appeal and Supreme Court hearings in PGMOL, says: "Hopefully, the Supreme Court will provide some further clarity on mutuality of obligation because the two different approaches adopted by HMRC are failing to deliver fairness and certainty to taxpayers."