Former Liverpool footballer, Phil Thompson, has £300,000 IR35 appeal dismissed
Phil Thompson, former Liverpool football player and Sky Sports pundit, has lost his IR35 case appeal at the Upper Tier Tribunal – leaving him with a tax bill for operating as a ‘disguised employee’ in the region of £300,000.
This follows on from an original ruling against the TV presenter at the First Tier Tax Tribunal in 2023.
Background to the case
After retiring from playing, Thompson transitioned to television, becoming a regular on Sky Sports' Soccer Saturday from 1994 to 1998 and again from 2004 to 2020.
Starting in 2013, he worked with Sky through his limited company, PJ & MD Ltd. However, he soon came under scrutiny from HMRC over an outstanding tax liability of £294,306.68 related to contracts spanning the 2013/14 to 2017/18 tax years. As these engagements pre-dated changes to the off-payroll working rules in the private sector, HMRC pursued Thompson under Chapter 8 ITEPA IR35 rules, making the pundit’s limited company liable, rather than Sky.
Thompson is among several media figures investigated by HMRC for alleged non-compliance, including fellow Sky Sports contributor, commentator Alan Parry.
Recap: What did the First Tier Tax Tribunal decide, and why?
Thompson took his case to the First Tier Tax Tribunal in 2023. However, the ex-player’s legal team was ultimately defeated, with HMRC concluding that, taking into account the overall picture, the factors pointed towards a contract of employment.
- A non-compete clause required Thompson to get written permission from the Head of Sky Sports to work with competitors or offer similar services was considered by the court to be a major element indicating control.
- As demonstrated in both Atholl House and PGMOL, even highly skilled individuals can be subject to control, rendering Thompson’s skills as a pundit irrelevant to the case. Sky also had first claim on Thompson’s services, requiring him to get permission before taking on other work.
- Although it was agreed by both parties that Mutuality of Obligation existed, the tribunal also looked at how the work was actually carried out in practice, concluding that the hypothetical contract implied that services would be “personally performed” by Thompson. While the presenter could technically provide a substitute, Sky controlled who could replace him, and he had become so heavily associated with Soccer Saturday that viewers expected to see him on the programme.
- Other factors also proved important. For example, Thompson’s work at Sky made up the substantial majority of his earnings and payments were fixed in advance and not dependent on air time.
Grounds for appeal
The former footballer appealed this decision based on four grounds:
- The FTT’s interpretation of the actual contract between the Appellant and Sky was wrong in law.
- The FTT’s identification of the terms of the hypothetical contract was wrong in law.
- The FTT’s decision as to whether the necessary framework of control existed was wrong in law.
- The FTT’s application of the third stage of the employment test was wrong in law.
Upper Tier Tribunal verdict
The Tribunal agreed with the FTT’s interpretation of the contract, ruling it did not find a material error of law by the previous Tribunal in making its decision. Though the appeal argued that the FTT misinterpreted key contractual terms, such as the phrase “ad hoc as and when required,” the Upper Tribunal found no errors of law in the original decision. The court agreed that the hypothetical direct contract between Thompson and Sky would not have materially differed from the actual contract, reinforcing the conclusion that he was subject to employment taxes under IR35.
What does this result mean?
Here are a few key takeaways from the case:
- This is yet another example of HMRC targeting high-profile freelance presenters who unknowingly work in a way that aligns more with employment than self-employment. The consequences? A hefty tax bill.
- The tribunal determined that Thompson worked under Sky Sports' control, which is just one crucial factor in determining IR35 status. As part of any status assessment hirers and contractors alike must consider any potential framework of control and degree of control a hirer will have.
- It’s not enough to assess IR35 status once – contracts and working practices should be carefully reviewed before work begins, including the issuance of a Status Determination Statement, and reassessed as the working relationship evolves.
- According to HMRC, the IR35 rules have generated an additional £4.2bn in tax since the reform of the off-payroll rules in the private sector. This means the tax office is unlikely to slow down its investigations, and more compliance checks and cases like this are likely in the future.
- Preparation is the best defence. Hiers and contractors should take proactive steps to ensure contracts, working practices, and IR35 compliance measures are in place to avoid costly disputes with HMRC under both Chapter 8 and Chapter 10 of the rules.
