HMRC score hat-trick in IR35 case

• In the case of Alan Parry Productions Ltd v HMRC [2022] the First Tier Tribunal (“FTT”) has ruled that Mr Parry’s working arrangements were that of an employee of BSkyB leaving Mr Parry with a tax bill of £356,420.
• The FTT applied the three-staged Ready Mixed Contract (RMC) test which was recently clarified in the Atholl House Ltd v HMRC [2022] Court of Appeal decision
• The three stages are as follows;
  • Find the terms of the actual contractual arrangements which existed at the relevant time and the relevant circumstances within which the worker carried out his services
  • Ascertain the terms of the hypothetical contract between the client (BskyB) and the worker (Mr Parry)
  • Consider whether that hypothetical contract would have been a contract of employment
• The FTT found two major inconsistencies in the contractual terms available in this case which were;
  • The services were defined as “the services of Alan Parry” but later clauses in the contract merely required Mr Parry’s limited company to “use its best endeavours to use Alan Parry to provide the services”
  • The definition of the “Services” to be provided was inconsistent
• The FTT found that Mr Parry was not carrying on a business on his own account when he provided services for BskyB and was in fact supplying services on an employment basis. In reaching this conclusion, the following features of the engagement were considered;
  • There was mutuality of obligation between BSkyB and Mr Parry – Mr Parry agreed to perform services in return for BSkyB paying specified amounts of remuneration
  • BSkyB had control over “what, how, when and where”
  • BSkyB provided the equipment
  • the relationship was longstanding in nature
  • nearly all of Mr Parry’s income from the tax years in question were from BSkyB
  • Mr Parry’s ability to obtain other engagements was curtailed as he required prior written consent of BSkyB
  • Mr Parry did not take any meaningful commercial risk in carrying out the services
  • Mr Parry was "part and parcel” of the BSkyB organisation

See full case here.

Aspire Comment

This case continues to demonstrate the complexity in determining whether IR35 applies and the multitude of factors that must be considered on a case-by-case basis. We expect the number of cases being passed between judges in relation to IR35 will only increase as a result of the extension to the off-payroll reforms into the private sector in April 2021. HMRC’s light touch approach to penalties has also come to an end now meaning that we are likely to see more and more IR35 challenges in both the public and private sectors.

Make sure you get in touch with Aspire if you have any IR35 training requirements or would like to discuss an ongoing IR35 enquiry with us.