The complexities around IR35 rules are well known to most contractors and this is highlighted with the final conclusion of the six year case against Gary Lineker after being wrongly accused by HMRC for underpaying £4.9m in tax.
The first-tier tax tribunal hearing for Gary Linekers case was heard by Tribunal Judge John Brooks and the appeal was upheld, meaning HMRC were wrong to pursue him.
The HMRC investigation against Gary Lineker was launched in 2017 and now in 2023 with as Gary Lineker wins his case against HMRC, we explore what this ruling means to IR35 legislation and contractors in general.
The background to the Gary Lineker case
HMRC investigated and claimed that Lineker, who worked for both the BBC and BT Sport, should be classed as an ’employee’, with all earnings subject to PAYE. HMRC then claimed that he owed £3.6m in income tax and £1.3m in NICs. HMRC claimed the liability was accrued across contracts with the BBC contract and BT Sport contract between 2013 to 2018. Lineker was told by HMRC that he should have been classed as an employee of the BBC and BT Sport for his presenting duties, rather than a freelancer.
This was the first time an IR35 case had been brought against a general partnership, rather than a limited company. Linekers earnings were paid to a partnership - G Lineker and another (t/a Gary Lineker Media), which was set up in 2012 with his ex-wife.
Lineker had already paid more income tax than HMRC was asking him to pay under the Intermediaries Legislation. The £4.9m being claimed by HMRC would have been offset against the tax that Lineker had already paid during his contracts via his partnership, reducing the overall liability.
Why did Lineker win his case?
Lineker won his case because his situation was unique, as he operated via a partnership and had a direct contract with both the BBC and BT Sport.
In section 49 of the Intermediaries Legislation "Engagements to which this Chapter applies, "the rules state under section 49(1)(b) that the rules apply where "the services are provided not under a contract directly between the client and the worker but under arrangements involving a third party ("the intermediary")."
Judge Brooks, who presided over the case agreed that IR35 is a consideration for partnerships in certain circumstances, however, the judge ruled that the contracts in question were held between Lineker and his clients directly.
This was the first time that the issue of whether there was a direct contract had come before a Tribunal. In all previous cases, the intermediary has been a limited company and such a company is a separate legal entity from the client who might be a director or shareholder of the limited company. Therefore with a limited company, the question of whether there was a direct contract between the client and worker has not previously arisen.
The judge acknowledged that Lineker had paid all his taxes, saying: "For each tax year, Mr Lineker accounted for income tax and Class 4 national insurance contributions (NIC) on the entirety of the income from his services, less a fixed amount of £30,000, paid to his then ex wife Danielle Bux, for which she paid tax.
Gary Lineker released a statement via a spokesperson saying “I am pleased that the tribunal has confirmed that I have not failed to pay any taxes or national insurance by reason of the IR35 rules.”
What does the case mean for IR35 and contractors in general?
In some ways this case could make you come to such a conclusion that HMRC will change their pursuit of cases or give contractors more hope of winning any case against them from HMRC.
However, this case does not mean that all contractors could win cases in future as this was a very unique and complex case. On the basis that Lineker provided services via a partnership and not a limited company and HMRC still pursued him, questions HMRCs ability to understand their own intermediaries legislation.
What this case does do, is demonstrate HMRCs continuation of pursuing freelancers, especially those in high profile contracts and this does also flow through to everyday contractors in business. This follows similar high profile IR35 cases brought by HMRC against broadcasters including Eamonn Holmes, Kaye Adams, Lorraine Kelly and Adrian Chiles.
Will HMRC appeal the Gary Lineker case?
A HMRC spokesperson said, “We do not agree with its decision that the (IR35) rules cannot apply in this case and we’re considering an appeal.”
We wouldnt be surprised to see HMRC appeal this case as they have appealed on the last four cases they have lost at the First-tier tribunal. However, its not good news for HMRC as Gary Lineker was a high profile case.
HMRC have for many years been pursuing claims against genuine freelancers and contractors via IR35 rules and legislation and this needs to stop. HMRC need to allow contractors to continue to operate and be clearer on where off payroll rules apply.
Our advice to contractors relating to IR35 legislation
Our advice to contractors and freelancers is to seek expert advice on all aspects of IR35 legislation and the contracts you look to undertake to ensure you operate within off payroll rules and IR35 legislation and you pay the right tax. This case is another reminder that HMRC can and does launch retrospective IR35 investigations into contractors.
Here at dns accountants, we will advise you to determine your IR35 status and ensure that all your tax payments are made in a way to maximise earnings, pay the right amount of tax, whilst still being IR35 compliant, so you have peace of mind. Contact our team today for IR35 and off payroll working rules on 03300 886 686, or email on email@example.com.
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