IR35 - where are we in 2025? Sky TV pundit finds out.
The UK has an extensive legislative arsenal when it comes to tax compliance. Following the 2025 Spring Statement the current Government has made it clear that it intends to take a rigorous approach to ensure compliance with the tax rules, in an attempt to draw in more revenue. Signs of this prioritised focus are already clear from the recent tightening up of umbrella company compliance and an increase in HMRC’s debt and compliance staff.
One area of focus for HMRC is the minefield of employment status and the "off payroll" working rules, more commonly known as "IR35". We analyse one recent IR35 case and consider what it means in the current landscape.
What is IR35?
The IR35 rules aim to prevent income tax and National Insurance Contributions ("NICs") avoidance by individuals who work as contractors through their own limited companies but who would typically be regarded as an employee had they been engaged directly by the client. Changes to the rules in 2017 and 2021 shifted the burden of assessing the employment status of contractors (for tax purposes) onto the client, and requiring PAYE to be operated in some cases. Whilst the IR35 rules are notably extensive and frequently critiqued due to their complexity, nevertheless it seems that they are here to stay. With a crack-down on tax non-compliance being so clearly communicated, it is imperative that businesses engaging contractors properly get to grips with IR35 and how these rules apply to their business operations.
One of the main points of tension between employment law and tax law is that UK tax law does not factor in worker status so under UK tax law someone is only ever regarded as employed or self-employed.
PD & MJ Ltd v HMRC
There is an abundance of recent case law which can demonstrate the various intricacies of the IR35 rules and give insight into the courts’ application of the law. One case worthy of note is the recent case of PD & MJ Ltd v Revenue and Customs Commissioners [2025] UKUT 94 (TCC) which concerned well-known football star and professional pundit Phil Thompson and his working relationship with Sky TV.
Mr Thompson appeared on Sky TV for a number of years as a pundit on their show "Soccer Saturday". For a large period of this time, Mr Thompson provided these services to Sky through his limited company, PD & MJ Ltd. HMRC considered that the IR35 rules applied to the arrangement between both parties and as such considered the company to be liable for taxpayer and NICs.
PD & MJ Ltd challenged this at the First Tier Tribunal and subsequently at appeal to the Upper Tribunal.
The Tribunal's "Hat Trick" approach
It is made clear early in the tribunal's judgment that there is now a significant body of case law on the application of IR35. The tribunal applied the Court of Appeal case Revenue and Customs Commissioners v Atholl House Productions Ltd [2022] EWCA Civ 501 which confirms the correct tests and considerations for the tribunals to apply to decipher the parties' true relationship.
Essentially this is a three stage process:
- The tribunal first had to review and interpret the actual contractual relationship that existed between Sky and Mr Thompson's company.
- Then they would effectively use the terms of the actual contract to construct a "hypothetical contract" as if between Sky and Mr Thompson himself as an individual.
- Once having constructed this hypothetical contract the tribunal would finally consider an employment test to conclude whether the hypothetical contract would be a contract of employment.
Having taken this 3 step approach, the Tribunal concluded that the hypothetical contract would not differ far from the actual contract in that Mr Thompson was expected to provide services on an ad hoc basis. As Sky had sufficient control over the nature of Mr Thompson's services it was also deemed that this would be an employment contract. The appeal therefore failed and HMRC's success was upheld.
“As sick as a parrot”?
Cases like this highlight the complexity of IR35 and the importance placed on the contractual terms. More than that, it evidences the lengthy and intricate due process that can exist for the interpretation and application of IR35 by HMRC and the courts.
The Phil Thompson case concerned a PAYE and NIC liability of £294,306.68 - a significant sum. However, for other businesses the application of IR35 may well expose them to liability far larger.
It is clear: IR35 is complicated and failure to comply can be costly. Businesses engaging with contractors or umbrella companies should heed the warning from the Spring Statement and seek advice on IR35 and employment status for tax purposes to ensure to remain compliant.
How DWF can help
If you have any concerns about IR35, employment status or your recruitment practices, please do not hesitate to get in touch. Our Employment and Tax teams have deep experience in employment status and regularly work with employers of all types and sizes in relation to IR35 and payroll compliance.
We can support and advise on developing policies and best practices for ongoing monitoring to ensure that your business remains compliant with IR35 and all of its tax obligations.
If the worst happens however, our team of experts can support your business through an HMRC enquiry or investigation and are experienced in supporting employers where there are allegations of non-compliance. We recommend that you seek privileged legal advice before providing any information to HMRC or speaking to a HMRC officer as part of a payroll or other tax enquiry.
Please do not hesitate to contact Caroline Colliston or your usual DWF contact.
*This article was authored by Adam MacDonald, Trainee solicitor.
