PD & MJ Limited v The Commissioners for HMRC

Under the IR35 intermediaries legislation, the tribunal must determine whether the worker would have been an employee under a hypothetical direct contract with the client. The exercise involves three stages: identifying the actual contractual arrangements, constructing the hypothetical contract by considering the contractual terms and relevant circumstances, and applying the employment test.

A sufficient framework of control need not include a right to direct every aspect of skilled work. At the final stage, contractual and other factors must be assessed together as consistent with, inconsistent with, or neutral towards employment. The Upper Tribunal will not interfere with the First-tier Tribunal’s evaluative judgment absent a material error of law.

PD & MJ Limited appealed against the First-tier Tribunal’s decision dated 11 December 2023, which dismissed its appeal against PAYE and national insurance assessments totalling £294,306.68 for 2013–14 to 2017–18.

The assessments arose under the intermediaries legislation because the appellant supplied the services of Phil Thompson, a football pundit, to Sky UK Limited through the appellant company. The FTT held that, under hypothetical contracts between Mr Thompson and Sky, he would have been regarded as an employee.

The appeal alleged errors concerning the construction of the actual contracts, the hypothetical contracts, the framework of control, and the multifactorial employment assessment.

Appeal dismissed. The FTT had made no material error of law in concluding that the intermediaries legislation applied.

1. Actual contracts. The phrase “ad hoc as and when required” meant that services were not fixed in advance but had to be provided when Sky reasonably required them. The contract, read as a whole, including provisions concerning travel, first call, directions, and termination, did not give Mr Thompson an unfettered right to refuse work or require mutual agreement. Reasonableness terms could properly be implied, and the contracts were not void for uncertainty. The courts should be reluctant to strike down agreements which the parties intended to bind them and had performed.
2. Hypothetical contract. The actual contracts were a safe starting point. The FTT was entitled to conclude that a direct negotiation would not have produced substantially different terms. The informal practice of accommodating rare non-attendances did not establish a contractual right to refuse work or vary the written rights. The parties’ subjective understanding and performance could be relevant, but they were not invariably determinative and had to be treated with care.
3. Control. A sufficient framework of control existed. Sky could reasonably determine when and where the services were performed, prevent competing work, and control confidential information and intellectual property. Under Professional Game Match Officials Ltd v HMRC [2024] UKSC 29, control is flexible and need not involve intimate direction of skilled performance.
4. Other factors. Applying HMRC v S & L Barnes Ltd [2024] UKUT 262, the FTT was entitled to classify the factors and weigh them overall. Providing personal opinions, choosing preparation methods, a block fee, the opportunity to undertake other work, and restrictions on exploiting analysis were not inconsistent with employment on these facts. Although the FTT erred in considering the precise percentage of Mr Thompson’s income derived from Sky, the error was immaterial because Sky’s financial significance and other commitments were relevant.
5. The FTT’s overall conclusion was within the reasonable range of evaluative judgments open to it. The PAYE and national insurance assessments therefore stood.

• First-tier Tribunal: On 11 December 2023, the FTT dismissed the appellant’s appeal and confirmed PAYE and national insurance assessments of £294,306.68 under Income Tax (Earnings and Pensions) Act 2003 and the Social Security Contributions (Intermediaries) Regulations 2000.
• Upper Tribunal: The appeal against the FTT’s decision was dismissed.