One won their case, one lost – what happened?

Former England captain and Match of the Day host, Gary Lineker, has had an eventful few weeks. 

As well as the furore about missing an episode, he also saw a potentially very expensive legal case go in his favour which has implications for several independent contractors and sole traders too. 

HMRC had brought a claim against Gary Lineker for £4.9 million in unpaid tax covering the period of 2013 to 2018.  

The basis of the case as argued by HMRC was that under IR35 legislation, Mr Lineker should have been classed as an employee of both the BBC and BT Sport – not a self-employed contractor.  

The case came before the First Tier Tribunal (FTT) last week where it found for Lineker and against HMRC. 

What is IR35?

First introduced in 2000, IR35 rules were brought in to close a tax loophole where individuals who would otherwise have been classed as employees of a business were avoiding paying income tax and national insurance contributions (NICs) by setting up a Personal Services Company (PSC) and being paid through dividends as a separate entity rather than as an employee. 

The legislation says that IR35 rules apply when:

  • An individual performs services for a client (or is obliged to)
  • Those services are provided under arrangements involving an “intermediary” such as a PSC
  • The circumstances are that if the arrangements had been directly between the individual and the client then the individual would normally have been regarded as “employed” for the purposes of income tax and national insurance contributions. 

What happened?

In 2012, Gary Lineker and his former wife set up Gary Lineker Media (GLM) as a partnership.  

The BBC and BT Sport contracted with GLM for the provision of Mr Lineker’s services as a sports presenter for Match of the Day and FA Cup matches on BBC and Champions League coverage on BT Sport. 

HMRC asserted that Mr Lineker was effectively an employee of the two broadcasters and should have paid tax at the same level as an employee on the payroll. The defence argument was that all appropriate income taxes and NICs were paid on his income via the GLM partnership.

The FTT found that in this case IR35 did not apply because Mr Lineker had direct contracts set up with the two broadcasters through the partnerships.  He had signed them himself thus making himself the principal and making it a contract directly between him and the clients – BBC/BT Sport.  

They found there was no intermediary and 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. 

The case is unusual in one particular aspect. That this was the first time that a “direct contract” argument had been raised in an IR35 appeal.

In all previous cases, the intermediary has been a limited company and because these have separate legal personalities from connected individuals (who may be directors of this company) the question of whether there was a direct contract between the client and individual didn’t arise. 

HMRC intends to appeal given the implications of this decision for the provision of services through a partnership arrangement and the sums involved. 

All IR35 cases are reminders that all employers must operate within the scope of the legislation and that all payments to PSCs are subject to deduction of payroll taxes if deemed employment status applies and these contracts no longer fall within IR35. 

Different case, different result

While Gary Lineker was celebrating a good win, Manchester United superfan Eamonn Holmes had to consider an IR35 defeat in his appeal against an FTT decision from 2020 that found that he should have been operating within IRr35 when presenting This Morning on ITV from 2011 to 2015. 

Holmes contested that FTT had made a mistake in his case by failing to distinguish between ITV’s editorial control and control over a worker – which was the basis for his case. 

He argued that he had considerable autonomy in how he worked and “brought his own stamp and interpretation” to the role and that he “did not seek permission from ITV in relations to his other commercial activities” and that ITV did not regard him as requiring their permission to pursue other engagements across broadcast media at the time.

The FTT rejected these grounds deeming that Holmes was in fact subject to control, citing previous case law which found that regulatory control including editorial “was a relevant factor in considering the sufficiency of control.”

The case notes also reference that in the contract between Holmes and ITV was for a personal service and there was no provision for him to provide a substitute presenter. 

Chris Horner, insolvency director with BusinessRescueExpert, said: “IR35 is a strange rule that has to be taken seriously by everyone involved or it could end up being quite expensive. 

“In the mini-budget in September 2022, the then Chancellor Kwasi Kwarteng announced that the IR35 rules were being repealed from April 2023

“In the latest budget last month, there was no mention of IR35 in the new Chancellor’s speech nor in any of the supporting documents so – for now – it’s business as usual.

“Gary Lineker didn’t win his case because he proved he was genuinely self-employed but because he signed the contract himself. As the principal in the partnership and the worker. If his partner had signed instead then IR35 could have come into play but she didn’t.

“Companies that worry about being caught out by IR35 – understandably given the sums involved – could look to make sure that contracts genuinely reflect a self-employed/contractor relationship by amending them or if they can’t then consider hiring them as a direct employee. 

“Similarly any contractor should be able to provide evidence to support their independent status (records of working for other employers or any substitutes provided if they couldn’t work on one project for example.)

“The most important thing we can say about any company or contractor who is worried about their status is to get some professional advice to establish their situation once and for all and what they can do about it.

Not every business faces issues as complicated as IR35 but that doesn’t matter – our free initial consultation is open to any director or business owner to take advantage of no matter what trials their business is going through. 

Once our advisors have a clearer idea of your unique circumstances then they will be able to give you a tailored range of options available to you to implement – often immediately – that could strengthen your company and give you a platform to grow in the rest of 2023.