IR35: What are the key factors at critical examination stage?

Six factors, versus 12 factors previously, will now be considered at the third RMC stage in all future IR35 cases.

They won a mention last week on Kingsbridge’s blog.

And rightly so, because they have proved to be significant.

These are the 12 factors in the IR35 case of rugby pundit Stuart Barnes, writes Andy Vessey, Head of Tax at Kingsbridge.

But what are the 12 factors in the Barnes case, or the “12 steps” in the Barnes case as described here (by respected off-payroll working rules advisory ReLegal Consulting) on Feb 19^th 2025?

Stuart Barnes’ IR35 case 12 factors/steps: origin

The source of the 12 factors is First-Tier Tribunal (FTT) judge Heidi Poon.

Judge Poon was the first to float the 12, in her ruling determining Sky rugby pundit Stuart Barnes as outside IR35.

This favourable IR35 ruling for the “Voice of Rugby” has since been overturned by the Upper Tribunal — which found Barnes was actually inside IR35.

Nonetheless, FTT judge Poon came up with the 12 factors (see p36 of her judgment), as being the dozen things that she deemed relevant to consider at the third stage of the Ready Mixed Concrete (RMC) test.

Same twelve factors, two different looks by two different courts

In effect, the FTT considered that each of the 12 factors — essentially 12 aspects of Barnes’s engagement with Sky — suggested or supported a conclusion that the hypothetical contract would NOT have been one of employment.

However, in the ruling against Barnes that stands today — the ruling that found him inside IR35 and went in favour of HMRC, the Upper Tribunal considered whether each of the dozen factors (as set out by FTT judge Poon), was supportive of the hypothetical contract BEING one of employment.

TL:DR: What were the 12 factors in Stuart Barnes’s IR35 case?

To reiterate, the 12 factors are 12 things from Barnes’s engagement with Sky that were deemed relevant by the FTT in considering the third stage of the Ready Mixed Concrete test.

And as our IR35 insurance business is currently warning contractors, all major emphasis in future IR35 cases is generally going to be on this third stage of RMC.

Crucially, this third stage requires that the other provisions of the contract are consistent with it being one of employment.

How to approach third stage of Ready Mixed Concrete, by the UT

Ultimately in the Barnes case, the Upper Tribunal helpfully offered some general guidance on how the third stage of RMC should actually be approached.

The UC went for six factors, down from the FTT’s 12 factors.

The six factors are on p22 of the UT’s judgment but they are summarised here for contractors – and brevity, below.

Six factors for Third RMC Stage, ranked

1. The “Third RMC Stage” is to be assessed by reference to the hypothetical contract and all the circumstances that form part of the admissible factual matrix.
2. There must exist a consideration of which provisions of the hypothetical contract are consistent both with an employment contract and a contract for services. The starting point should be the material provisions of the hypothetical contract.
3. The recommended analytic approach involves identifying and dividing material provisions of the hypothetical contract and other circumstances between those which point towards employment(1), those which are not (2), and those which are neutral (3). This three-tiered approach should minimise the risk of the analysis starting on the wrong foot. It should also prevent the analysis from straying too far from the statutory question.
4. When considering whether an individual is ‘in business on their own account,’ the principles in HMRC v Basic Broadcasting Limited [2024] should be considered.
5. While the presence of Mutuality Of Obligation and Control will have been discussed and decided before this third stage of the RMC test, it does not mean that these factors (MOO and Control) do not require further consideration at this third stage.
6. No single factor is decisive at stage three of RMC. Related, it is not a mechanical exercise of running through items on a checklist but rather is about “painting a picture” from an accumulation of detail and then standing back to make an informed qualitative assessment. No exhaustive list can be compiled of the factors which should be taken into account and it isn’t possible to lay down rules as to the relative weight which such factors should carry in particular cases, because each case turns on its own particular facts and all relevant factors need to be taken into account.

Normal IR35 status tests of economic reality, be like…

So, in addition to Mutuality Of Obligation (MOO), right of Control and Personal Service, the normal status tests of economic reality will continue to be explored.

And these status tests can be summarised by the following factors — factors that each have a bearing on IR35 status and which prudent PSCs should therefore check against themselves, their contracts and their working arrangements.

To summarise these status tests of economic reality, I’ve gone for 12 factors, in a nod to the FTT which pioneered the initial dozen.

Economic reality status tests: Twelve top IR35 factors

1. Business On Own Account

Is the worker genuinely operating a business, bearing responsibility for the success or failure of the enterprise? Are the normal characteristics of a genuine business present? For example, advertising of their services, incurring other expenditure to win work? This ‘In Business On Own Account’ test will overlap with other factors such as Equipment, and Financial Risk (see below).

2. Provision of Equipment

Does the worker provide any necessary equipment that is fundamental to the service provided? To be relevant, the equipment would need to be significantly expensive.

3. Financial Risk

What is the worker’s exposure to financial risk? For example, is the worker required to correct sub-standard work in their own time and at their own cost?

4. Basis of Payment

A fixed-priced fee – one that is more than an agreed hourly/weekly rate, is linked to financial risk.

5. Integration

Is it obvious that the worker is carrying on a business outside and separate from the organisation of their client, or are they an integral part of that client organisation?

N.B. While a worker may appear to be a ‘fixture,’ in that their work brings them into regular contact with their client, provided they take on no additional responsibilities or benefits as a result, this will not result in them being “part and parcel” of the end-client organisation.

6. Opportunity to Profit from Sound Management

Can the worker increase their profit from efficient management of a task? This test is linked to genuine fixed pricing (see point 4, above).

7. Length of Engagement

Although generally neutral, lengthy engagements could evoke the presence of Control and Mutuality Of Obligation.

8. Right to Terminate a Contract

Either party being able to bring a contract to an end for any reason whatsoever would be a pointer towards a business-to-business arrangement. On the other hand, lengthy notice periods are more indicative of an employment relationship.

9. Exclusive Services

Is the worker prevented from providing their services to other clients simultaneously or does the worker’s client demand the exclusive service of the worker for the duration of the contract?

10. Employee-Type Benefits

Is the worker entitled to statutory benefits, such as holiday pay, or sickness pay, both of which are a feature of an employment relationship?

11. Intention of the Parties

This is a tie-breaker test and seeks to establish if both parties truly sought to establish a business relationship from the outset.

12. Personal Factors

Has the worker been engaged because of their professional skills, reputation etc, or are personal factors the reason for their appointment?

In short, know your factors (FTT x 12, UT x 6, Mine x 12)

The FTT’s 12 factors in the Stuart Barnes case were those that were considered at the third stage of RMC, although the UT (which overturned the FTT’s ruling) has since offered general guidance on how this third stage of RMC should be approached in the shape of six factors.

This isn’t a new test by the UT.

Instead, it’s half a dozen factors that constitute advice under RMC stage three which, as I advised this month, is the stage where the critical examination of the wider picture occurs in IR35 cases.

As to my 12 factors, immediately above and relating to economic reality, these have been handed down and established through decades of employment law and tax cases.

As modern working patterns evolve and change, then so will these status tests and their significance.

What’s next?

In PGMOL specifically — which inspired HMRC to update its Employment Status Manual on Feb 6th 2025, the taxpayer still has the opportunity to contend that the ‘overall picture’ (see the UT’s factor six, above), is one of self-employment.

For PGMOL and other taxpayers who find their status before a court with a question mark hanging over it, successfully overcoming the hurdle at ‘RMC three’ will countermand setbacks at the two initial stages of this seminal test.

How Kingsbridge can help

Navigating IR35 legislation and ensuring compliance can be challenging for contractors and businesses alike. Kingsbridge offers tailored support, including expert guidance on IR35 status assessments, compliance strategies, and risk mitigation. Our team is dedicated to helping contractors and businesses understand and adapt to the evolving tax landscape.

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To find out more, get a quote or contact us today.