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HMRC Loses £4.9m IR35 Claim Against Gary Lineker

Posted on 06th April 2023 in Employment

Posted by

Joanna Parry

Associate and Solicitor
HMRC Loses £4.9m IR35 Claim Against Gary Lineker

HMRC has lost a claim against Gary Lineker for a £4.9 million tax bill covering the period 2013 to 2018. HMRC argued that under IR35 legislation Mr Lineker should have been classed as an employee of the BBC and BT Sport, not a self-employed contractor. Last week, the First Tier Tribunal (FTT) found in Mr Lineker’s favour.

What is IR35?

IR35 legislation, first introduced in 2000, is designed to close a tax loophole whereby individuals avoid paying employee income tax and national insurance contributions by supplying their services through an intermediary (usually a personal service company) and paying themselves in dividends.

What does the legislation say?

In broad terms, IR35 rules apply where:

  • An individual personally performs services for a client (or is obliged to do so).
  • Those services are provided under arrangements involving an "intermediary"
  • The circumstances are such that if the arrangements had been directly between the individual and the client, the individual would have been regarded as "employed" for income tax and national insurance purposes

Where the legislation is engaged the individual and the intermediary are treated as employee and employer for income tax and national insurance purposes.

What happened in Gary Lineker’s case?

Mr Lineker and his former wife, Ms Bux, set up a partnership, Gary Lineker Media (GLM), in 2012. The BBC and BT Sport contracted with GLM for the provision of Mr Lineker’s services. The contracts were signed by Mr Lineker and Ms Bux as the partners of GLM. This arrangement is legal, but HMRC pursued Mr Lineker arguing that under IR35 legislation he was effectively “employed” by the two broadcasters and should have paid tax at the same level as an employee on the payroll. Mr Lineker argued that all income taxes and national insurance contributions were paid on his income via the GLM partnership.

What did the FTT decide?

The FTT found that the IR35 legislation did not apply because Mr Lineker had direct contracts with the two broadcasters through the partnership. In accordance with the legal principles set out in the Partnership Act 1890, Mr Lineker had signed the contracts himself thereby acting as the principal and making it a contract directly between him (as the individual) and the BBC/BT Sport (as the client). As there is no intermediary, as a matter of law, IR35 cannot apply. It is only applicable where services are provided not under a contract directly between the client and the individual.

What does this mean in practice?

This case is unusual and is the first time the "direct contract" argument has been raised in an IR35 appeal. In all previous cases, the intermediary has been a limited company and, because such a company has a separate legal personality from the individual (who might be a director or shareholder of the company), the question of whether there was a direct contract between the client and individual has not arisen. Given the implications of this decision for the provision of services through a partnership agreement, and given the sums involved in the dispute, HMRC has unsurprisingly indicated that it will appeal.

Practical steps

Whilst this case went against HMRC, it serves as a reminder to employers to ensure that they operate within the scope of the IR35 legislation. All payments made to personal service companies are subject to deduction of payroll taxes if deemed employment status applies and such contracts no longer fall within IR35. In summary, the additional cost and liabilities of getting it wrong could be significant.

We recommend that you:

  • Review your contractual arrangements with contractors to ensure that this is reflective of a genuine self-employed contractor relationship. If it isn’t, either amend the contracts (if this reflects the reality of the relationship) or consider appointing the contractor as a direct employee
  • Consider keeping records and asking the contractor to provide evidence that may support contractor status – e.g., records of any substitutes provided
  • Ensure that the contractor’s documentation is in order – in particular is there a contract of employment between the individual and the intermediary?

How can we help?

If you are in any doubt, contact our Employment team for further advice.

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