McCann Media case highlights complexity of IR35 rules

A tax tribunal has dismissed an IR35 appeal by a former Scottish TV expert and his company. The case illustrates once again the complexity of the IR35 tax rules and the general level of uncertainty inherent in determining IR35 status. We will see why.

The Daily Record and the Scottish Financial News talk about it. Neil McCann is a former Scottish footballer who now works in the media through his personal services company McCann Media Ltd. He lost his IR35 appeal in the First Tier Court against HMRC over services provided to broadcaster Sky for tax years spanning eight years. The taxman had ruled that McCann’s relationship with Sky fell within IR35, and the tax court ruled they were correct. McCann now faces a substantial tax bill.

A reminder. IR35 rules require employment taxes to be paid by persons who provide services to a business through a PSC or other intermediary if that person would otherwise have been considered an employee for tax purposes of the committing company. From April 6, 2021, engaging businesses became responsible for determining whether the IR35 rules apply, operating PAYE, and paying employer NICs for contractors falling within the scope of the rules.

Looking at the judgement, there were three main reasons why the court found that McCann’s contract with Sky was an employment contract, inside IR35:

1. The contracts between McCann’s personal services company and Sky largely reflected the agreement between the two parties, despite the 6-week stint McCann had as interim manager of Dundee Football Club.

2. Sky had final editorial control over all products containing McCann’s contributions.

3. Although there was no absolute right for Sky to determine the dates on which McCann was to attend and act as a panellist, nevertheless this did not negate the proper level of reciprocity of obligations. Sky still had a high enough level of control over McCann, which meant the relationship between them was an employment relationship.

Thus, in summary, the absence of a strong reciprocity of obligations and the absence of control were at the heart of the court’s conclusion in favor of the tax authorities.

The decision contrasts sharply with the recent case of presenter Adrian Chiles who, unlike McCann, was found to be in business on his own account, albeit after successfully appealing the first level tax court’s decision. Unlike McCann, Chiles turned out to be outside the IR35. In February, tax lawyer Penny Simmons wrote about the case for Outlaw, highlighting the complexity of the IR35 rules and the uncertainty employers face when determining status. So let’s take that again. Penny joined me via video link to help explain why the Adrian Chiles case doesn’t fall under IR35, unlike McCann, and why the rules are complex:

Penny Simmons: “The reason I say these rules are complex is because I’m talking about the rules for determining whether someone is an employee for tax purposes, which falls under the IR35 rules, and the reason these rules are complicated is that there is no precise definition of employment status for tax purposes. A series of factors and all the circumstances of the case must be considered to determine whether or not someone is an employee for tax purposes. Now, we know that the taxman will generally look at a few factors, three main factors, and they will place particular importance on those factors, those factors being: is there a mutuality of obligation? What level of control did the company have over the individual? Also, personal service and whether the individual could provide a substitute. It used to be that you looked at it and said, well, if those three factors were present, then in all likelihood that person would be an employee for tax purposes, but what happened in the Adrian Chiles case, that’s is that the court said, okay, well, yes, those factors may be present, but let’s take a step back and look at all the facts and circumstances of the case and say, was Adrian Chiles in business for his own account and, if he was, then notwithstanding control, mutuality of obligation and personal service, it will be said that he was not an employee for tax purposes and therefore the rules of IR35 didn’t apply and that’s what happened here and that’s what makes this case so interesting. This goes to show why these rules are notoriously complex, and it’s also what makes it even more difficult for companies when trying to determine whether people hired through CSPs would be employees for tax purposes.

Joe Glavina: You say in your Outlaw article that this ruling won’t be helpful to companies trying to enforce the rules and manage IR35 tax risks because, essentially, it creates a lot of uncertainty. So what can employers do about it? What is the solution ? »

Penny Simmons: “That’s a great question, what’s the solution? Not to be useless, I’m not sure there’s an absolute solution yet. It will be interesting to see what happens with the Adrian Chiles case and if the IRS will appeal. I think the message to companies has to be to take the status determinations you make under IR35 when you hire individuals through CSP, take those determinations seriously, and look at all the facts of the case. case and not to make drastic decisions based on one factor alone because, really, what we can see, you have to step back and you have to look at all of the circumstances that are going to affect how that person is engaged by the company and how it provides services to the company. It’s not a perfect answer, a perfect business solution, but at the moment I think it’s the best we have.

Joe Glavina: “Since it’s so complex, employers should get expert advice to help them get it right. So someone like you would help decide? »

Penny Simmons: “Again, we have to look for a practical and pragmatic solution while minimizing the risks as much as possible. Now, of course, I can do those reviews and I can look at the status of terminations for clients, but sometimes it’s going to be impossible to have a lawyer, or another adviser, review everything, every status determination that’s made. What my business advice would be to seek advice or step back and think about it. Think about it carefully, because it can be gray, and you often have to think about it very carefully and consider all the facts and circumstances of the case.

Penny’s article on the Adrian Chiles case we mentioned earlier is titled “IR35 win for Adrian Chiles shows complexity of UK rules” and is available now on the Outlaw website.


– Link to the judgment: McCann Media Ltd v HMRC

Sharon D. Cole