The Commissioners for HMRC v S & L Barnes Limited

For IR35 purposes, the third stage of the Ready Mixed Concrete test requires an evaluative assessment anchored in the hypothetical contract. The tribunal must identify material terms and admissible circumstances which point towards employment, away from it, or are neutral, and explain its overall conclusion.

Factors concerning the worker’s wider business may be relevant context, but cannot displace the statutory enquiry into the hypothetical direct contract. A legal error arises where irrelevant factors are treated as indicators against employment, or material employment indicators are not weighed. If the error might have affected the result, the decision must be set aside.

S & L Barnes Limited supplied the services of Stuart Barnes, a rugby commentator and pundit, to Sky through a personal service company. HMRC issued PAYE determinations and NIC decisions for 2013–2019 on the basis that the intermediaries legislation applied.

The First-tier Tribunal allowed the company’s appeal. It constructed a hypothetical direct contract and held that, although mutuality of obligation and control existed, the third stage of the Ready Mixed Concrete test showed a contract for services. HMRC appealed.

The Upper Tribunal considered whether the FTT could modify Sky’s contractual right of first call when constructing the hypothetical contract, and whether its third-stage employment-status analysis was legally defective.

1. Appeal allowed. The Upper Tribunal dismissed HMRC’s first ground. The FTT had a rational evidential basis for finding that, in the hypothetical contract, Sky’s right of first call would be subject to Mr Barnes’s established newspaper and major-tournament commitments. A written-variation clause in the actual contract could not preclude that conclusion when the statutory task was to construct a hypothetical direct contract from all relevant circumstances.
2. The FTT nevertheless erred in its application of the third stage of the Ready Mixed Concrete test. That stage requires an assessment anchored in the hypothetical contract and all admissible circumstances. The tribunal should identify the factors consistent with employment, inconsistent with it, and neutral, before making an explained qualitative assessment.
3. The FTT wrongly treated six matters as pointing away from employment: the distinction between roles in commentary, the character of the annual fee, the regular interviews, the ability to profit through efficient use of time in the wider business, and reputational risk. Those matters were either neutral or equally consistent with employment. It also failed properly to weigh the material contractual indicators of employment.
4. The errors were material because they might have affected the FTT’s conclusion. The decision was set aside and remade. The fixed and renewable term, personal service without substitution, first-call and exclusivity rights, fixed monthly fee, limited financial risk, and long relationship with Sky collectively outweighed the freedom to reuse work product, agreed availability, and the worker’s wider business.
5. The hypothetical direct relationship would therefore have been one of employment. The Upper Tribunal remade the decision by dismissing SLB’s appeal against HMRC’s determinations and NIC decisions. An express non-employment-intention clause would in any event carry only limited weight in a borderline case; this was not borderline.

• Upper Tribunal (Tax and Chancery Chamber): HMRC’s appeal was allowed. The FTT’s decision was set aside and remade so that SLB’s appeal was dismissed: [2024] UKUT 262 (TCC).
• First-tier Tribunal (Tax Chamber): Allowed S & L Barnes Limited’s appeal against HMRC’s PAYE determinations and NIC decisions. The decision was released on 20 January 2023; no citation was stated in the judgment.