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Why it is essential to have your contract reviewed – The IR35 case of Dave Clark and Little Piece of Paradise Ltd

by | Nov 23, 2021 | IR35

Dave Clark has recently lost his appeal between his company Little Piece of Paradise Ltd (LPPL) and HMRC. In its verdict, The First-Tier Tribunal (FTT) has reviewed the contractual service agreements between LPPL and Sky; covering a five-year period from 2013 to 2018.
In the court’s decision, Judge Heidi Poon concluded that there wasn’t sufficient evidence to support an outside IR35 service agreement between LPPL and Sky.

In this article, we will review the three pillars of off-payroll employmentControl, Substitution and Mutuality of Obligation (MOO), and how the judges evaluated the actual working practices implemented between LPPL and Sky.

Case Overview

In 2003 and per Sky’s request, LPPL was incorporated as a personal service company (PSC) for Dave Clark to provide broadcasting services.
Within the period of 2003 to 2018, HMRC has requested PAYE and class1 NIC payments for tax years 2013-14 until 2017-18. Claiming that Mr Clark’s contractual agreement should have been determined as inside IR35 for these specific tax years.

Here is the full breakdown

Tax year Date of notice PAYE Class 1 NIC Class 1A NIC
2013-14 21 March 2018  £31,609 £16,579.83
2014-15 26 February 2019  £40,847 £19,266.88* £868.57**
2015-16 26 February 2019  £39,880 £19,266.88* £868.57**
2016-17 26 February 2019 £37,450 £19,266.88*
2017-18 26 February 2019 £35,914 £19,266.87*
Category Total £185,700 £93,647.34 £1,737.14

*Aggregate over 4 years

** Aggregate over 2 years

IR35 – service agreement elements

Exclusivity and Control

This principle considers the level of control you, (i.e. the contractor) may have over the method of performance of the service and what is the level of detachment between your company as a business entity and your client.

More specifically, this clause looks into whether the contract stipulates specific working hours or days, whether the client can dictate the location of work or if you would have to seek your client’s approval for specific tasks.

In LPPL’s case, the judges have concluded that Mr Clark’s ability to provide sports commentary services, elsewhere but Sky, was restricted by specific covenants within the employment contract. Furthermore, Mr Clark was bound by Sky’s official consent, when it comes to engaging in other business activities and providing sports commentary services elsewhere.

Right of Substitution

This principle considers if you are unable to provide the services yourself, could you send a substitute and are there any restrictions by the client or agency. Additionally, it looks at if your company would bear the costs of subcontracting the service provided, or would it be the client who will pay the substitute’s fees.

In the appeal, the judges reviewed a broadcast during the 2015 World Dart’s Championship where Mr Clark was not able to cover an afternoon broadcasting session on a specific day and suggested Mr Rod Studd as a substitute. Sky’s response for the judges was that in that period of time, Mr Studd had already been working with Sky on a freelance basis. Furthermore, a separate fee was agreed upon between Sky and Mr Studd for this additional service, that did not involve LPPL.

Mutuality of Obligation (MOO)

Mutuality of Obligation is a concept where the employer is obliged to offer work and you are obligated to accept it, within the scope of an employment agreement. This is in opposition to an outside IR35 agreement where the contract constitutes specific tasks, within a specific project. Once the project ends, so does the contractual agreement between your limited company and the client, unless a new contract is being offered.

In regards to the mutual level obligation between Sky and LPPL, the FTT concluded that during the six-year tax period, the contractual agreements between both sides were renewed to provide a continuous period of employment, regardless of a specific broadcasting project.

We find therefore that mutuality of obligation existed between Sky and Mr Clark for each contractual period. Since each contract was renewed on its expiry to provide a continuum for the six years in question.

Furthermore, Sky was obliged to pay Mr Clark’s annual fee in a form of monthly invoices submitted by LPPL. In return, the court’s concluded that Mr Clark was obligated to provide Sky with ‘the first call’ in regards to his services.

We find that the irreducible minimum of obligation did obtain between Sky and Mr Clark, and specifically Mr Clark was obliged ‘to provide his own work and skill.

Other Business Factors

There are additional factors that can support your independent responsibilities as an external service provider, (in business on its own account). These include the requirement to maintain adequate business insurance throughout the contract, responsibility for repairing defect work at your own cost and in your own time, and responsibility for providing training and equipment in relation to the services provided.

LPPL took out public liability insurance and used a home studio for research, though this was deemed not relevant.

Final thoughts

In this case, it might have been that the agreement was bundled together with an off-the-shelf contract, with insufficient consideration to IR35. This then remained in place for a number of years, with nobody updating or checking current guidelines.

Remaining compliant is a crucial factor for a sustainable and successful contracting career, and it shouldn’t be a significant challenge for contractors.

Whether your contractual agreement of service falls inside or outside IR35, this goes to show the value of having it thoroughly reviewed by an IR35 specialist. It could keep you compliant with the off-payroll regulation, provide you with essential, tax advice and the next best steps.

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