Phil Thompson, Ex-Defender, Tackles IR35 and Loses the Match
The judgment regarding the recent intermediaries legislation tax case, commonly referred to as IR35, involving former England and Liverpool defender Phil Thompson (case reference: PD & M J Limited v HMRC - UT Neutral citation number: [2025] UKUT 00094 (TCC)) was issued on March 17, 2025. The case was heard in the Upper Tier Tribunal (‘UTT’) on January 23, 2025.
Brief history
The IR35 legislation was introduced in 2000 to combat the use of Personal Service Company (PSC) structures to reduce the Income Tax and National Insurance (NI) liabilities paid by the worker. The objective of the IR35 legislation is to ensure that workers engaged under terms similar to employees pay the same amount of Income Tax and NI, regardless of the structure (i.e. the PSC) in place between the worker and the client.
The IR35 legislation is set out in Sections 48-61 Income Tax (Earnings & Pensions) Act (ITEPA) 2003 with the key provision being Section 49. The NI legislation is contained in Regulation 6 of the Intermediaries Regulations 2000.
Case
PD & M J Limited was appealing the First Tier Tribunal’s (FTT) decision made on December 11, 2023, arguing that it had erred by concluding that, under hypothetical contracts, Mr Thompson was considered an employee of Sky UK Limited (Sky) for the period from 2012-2013 to 2017-2018. The potential underpayment of Income Tax and NI amounted to £294,306.68 excluding any interest and penalties. Mr Thompson was engaged by Sky as a football pundit on Soccer Saturday and other Sky Sports programmes during this period.
Decision
The UTT decision upheld the FTT's ruling, stating there were no errors of law. While the Off-Payroll Working Rules has expanded the IR35 legislation to include both public and private companies, all IR35 cases to date have been assessed according to Chapter 8 ITEPA 2003. It is the worker/PSC's responsibility to determine their IR35 status under Chapter 8 and to pay the appropriate Income Tax and NI to HMRC, if applicable. As a result, PD & M J Limited will be responsible for paying the liabilities, not Sky.
Court’s process for determining employment status
A three-stage approach is typically adopted by courts in accordance with the guidance following the decision in a case involving another TV presenter, Kaye Adams (HMRC v Atholl House Productions Limited [2022] EWCA Civ501, [2022] STC 837).
Firstly, the engagement contract or contracts should be reviewed, especially if another intermediary is involved, such as an agency (i.e. upper and lower contracts), alongside the worker's PSC. Secondly, draft a 'hypothetical contract' reflecting the actual working conditions by gathering information from both parties. The reality of the working relationship does not always match the contract, as highlighted by the Supreme Court's decision in Autoclenz Ltd v Belcher.
Finally, after establishing the hypothetical contract, various employment status indicators can be used to determine whether the contract represents employment or self-employment. Indicators include control, personal service, mutuality of obligation, provision of materials, risk level, ability to profit from effective management, liability to third parties, and operating as a business in its own right.
In this case, the Judges agreed with the FTT’s decision that there was mutuality of obligation (this was agreed by PD & M J Limited at FTT), together with a high level of control in how, where and when the services were to be provided. This finding is consistent with the Supreme Court ruling in the Professional Game Match Officials Ltd v HMRC [2024] UKSC 29, [2024] ICR 1480. Finally, PD & M J Limited derived the majority of its income from Sky with no financial risk from the services provided.
Lessons to be learnt
The case underscored the need for strong contracts that accurately represent engagement terms. HMRC argued that the contractual terms reflected the actual working relationship, which the tribunal upheld. The UTT noted that “practical occurrences do not alter contractual rights”. This emphasised the importance of reviewing contracts before and regularly during the engagement to determine the worker’s status concerning IR35.
Government announcement
In the Autumn Statement of 2024, the Government announced the recruitment of 500 new compliance officers. During HMRC's 20th anniversary celebration, Exchequer Secretary James Murray MP also announced the addition of 600 compliance staff beginning in early 2025, alongside the use of artificial intelligence for better case targeting.
These initiatives, combined with investments in modernizing HMRC systems and new anti-tax avoidance legislation, are expected to generate £6.5 billion annually by 2029/30. Compliance activities are anticipated to increase in the 2025/26 tax year and beyond.
What can companies do to remain compliant?
This case is one of several other cases involving Sky TV presenters who will have been engaged on similar contracts, with little regard for the actual services provided. Engagers should review their contractor supply chain on a regular basis. The review should ensure - as a minimum - that the engager has an accurate record of the contractors it engages but the contracts between the parties accurately reflects the basis upon which services are being provided.
Authors:
Nick Bustin, Employment Tax Director, HaysMac
Dinesh Pancholi, Senior Manager, HaysMac