In HMRC v S&L Barnes, the Upper Tribunal (UT) concluded that the First-tier Tribunal (Tax Chamber) (FTT) erred in finding that IR35 did not apply to the work that Stuart Barnes did for Sky as a sports broadcaster. This is an important decision for tax and employment practitioners, which provides detailed guidance on the proper approach to carrying out the balancing exercise at the third stage of the Ready-Mixed Concrete [RMC] test for determining employment status. 

S&L Barnes Limited [SLB], the personal service company of Stuart Barnes, provided his services to Sky under a series of contracts. During the period of appeal, this was one of three of Mr Barnes’ main engagements; the others being writing engagements for the Times and the Sunday Times.  

As to the RMC test, the FTT agreed with the parties that the requirements of mutuality and control were satisfied (stages 1 and 2), but when considering the third stage of the RMC test, the FTT determined that the hypothetical contract would not have been one of employment.   

HMRC challenged the decision on two grounds: an Edwards v Bairstow challenge to the construction of the hypothetical contract concerning Sky’s right of first call over Mr Barnes and purported variations to the contract (ground 1) and a challenge to the FTT’s interpretation and/or application of the third stage of the RMC test (ground 2)  

HMRC succeeded on the second ground.  

The UT offered some helpful general guidance on how to approach the third stage of RMC (at [108]), which is summarised as follows:  

1. The third stage is to be assessed by reference to the hypothetical contract and all the circumstances that form part of the admissible factual matrix; 
2. There must be a consideration of which provisions of the hypothetical contract are consistent with an employment contract and which are consistent with a contract for services. The starting point should be the material provisions of the hypothetical contract; 
3. As to the analysis, an approach which identifies and divides material provisions of the hypothetical contract and other circumstances between those which are consistent with employment, those which are not and those which are neutral may minimise the risk of the analysis proceeding from the wrong starting point or straying too far from the statutory question;  
4. Where a consideration of whether an individual is in business on their own account is relevant, the principles in HMRC v Basic Broadcasting Limited [2024] UKUT 00165 (TC) at [48] should be considered;  
5. Mutuality of obligation and control may be relevant at the third stage of the RMC test;  
6. No single factor will be decisive at the third stage. The exercise should be conducted by painting a picture from the accumulation of detail and then standing back to make an informed qualitative assessment.  
7. While acknowledging that the FTT had correctly directed itself as to the approach to be taken at the third stage, the UT expressed puzzlement at some of the factors that the FTT considered pointed away from employment (such as the fact that Mr Barnes would agree to be interviewed by Sky or the fact that he was a co-commentator rather than a lead commentator).  

Further, the UT noted that the FTT did not follow its own self-direction to weigh terms which pointed away from employment against those which favoured a conclusion of employment.  

The UT found that the FTT had made material errors of law, so set aside the FTT decision and re-made it.  

In re-making the decision the UT highlighted several of the most significant terms which pointed towards employment (including the length of the contracts, the obligation for  personal service, rights of first call and exclusivity) weighed them against the most significant factors pointing away from employment and acknowledged the remaining terms as being broadly neutral or immaterial.  

The UT then went on to consider the circumstances relevant to the hypothetical contracts, including Mr Barnes being in business on his own account outside his Sky commitments and his lengthy service at Sky.  

Drawing all the factors together and standing back the UT concluded that the relationship under the hypothetical contract would have been one of employment.  

In providing practical guidance on how to apply the third stage of the RMC test, this decision should introduce must-needed consistency in the approach of tax tribunals to  IR35 appeals. 

Christopher Stone KC and Bayo Randle appeared for HMRC. 

A full copy of the judgement can be found here.