Pooja Dasgupta: Gary Lineker's IR35 court wrangle explained

clock • 4 min read

HMRC has added TV presenter and football legend Gary Lineker to its list of recent cases brought against high-profile people for alleged non-compliance with the intermediaries legislation, commonly known as IR35, and associated tax avoidance. Pooja Dasgupta explores the issues

The media recently shone a light on determinations issued by HM Revenue & Customs (HMRC) against Gary Lineker in respect of Lineker's alleged non-compliance with the IR35 legislation. HMRC alleges that Lineker, through his personal service partnership, Gary Lineker Media (GLM), owes HMRC £3,621,735.90 in income tax and £1,313,755.38 in National Insurance contributions (NICs) for work performed for (i) the BBC between the 2013/14 and 2016/17 tax years; and (ii) BT Sport during the 2015/16 and 2017/18 tax years, inclusive. Lineker has appealed the decision. The key question likely to be considered in the substantive appeal is whether Lineker is/was employed by the BBC and/or BT Sport for tax purposes (which may also have implications from an employment law perspective, as mentioned below).

The IR35 regime: key considerations and problem areas

Although Lineker's appeal is yet to be heard, he will undoubtedly be aware that HMRC has recently lost other similar cases brought against other high-profile broadcast presenters, including Lorraine Kelly and Kaye Adams, triggering speculation that the IR35 rules might be overcomplicated, even for HMRC, and give rise to unfounded determinations relating to non-compliance and payments due. What is the purpose of the IR35 legislation? The IR35 legislation is designed to avoid tax avoidance through "disguised employment", ensuring that workers who provide their services through an intermediary, but who would have been an employee if they were providing their services directly to the client, pay broadly the same tax and NICs as employees. Partnership structures, such as that used by Lineker, have in some circumstances been viewed as vehicles to reduce or avoid liability for tax and NICs, as well as preventing the worker obtaining employment rights as against the client.

Determining employment status for tax purposes

The test to determine whether an engagement will fall within the IR35 rules primarily involves the following steps:
  1. Examining the terms of a hypothetical contract between the client (in Lineker's case, the BBC or BT Sport) and the individual providing the service, based on the terms of the contract between the personal service company and the client; and
  2. With reference to well-established principles derived from case law, determining whether that hypothetical contract would constitute a contract of employment.
One of the key issues, which may have contributed to HMRC's spate of recent overturned determinations, is that employment status disputes are highly fact-driven and the tribunal's approach is almost impossible to predict. Tribunals will consider multiple factors when determining employment status for tax purposes, including mutuality of obligation and the client's control over the individual providing the service. Clients and workers, alike, should seek early specialist advice to consider these factors against the factual matrix, and understand the complex legislation.

Determining employment status for employment law purposes

Classification of an individual as an employee for tax purposes will not directly confer any employee rights on that individual, and this may be an unattractive "halfway house" for contractors. In such circumstances, individuals may consider that an employment relationship would provide them with greater job security and statutory protection in a somewhat uncertain economic climate. Similarly, depending on their risk appetite, clients may prefer to enter into employment contracts with contractors who may fall within the IR35 rules, to reflect the reality of the working relationship and retain talent, provided the additional costs of doing so are proportionate. A report prepared by the London School of Economics Centre for Economic Performance (CEP), six months into the Covid-19 pandemic, found that one-fifth of workers (out of 1,500 self-employed workers who participated) consider it likely that they will leave self-employment. This sentiment is likely to be exacerbated by the increasing complexity of the off-payroll working rules, which, as of 6 April 2021, were extended to medium and large private sector clients.

Potential areas for future reform

The Taylor Review, published in July 2017, called for greater clarification and simplicity in this context, with recommendations including that the definition of self-employed should be the same for both employment rights and tax purposes. Whilst the government subsequently agreed in its consultation on employment status that there was "a compelling case" for greater clarity around employment status tests, it made no decisions as to whether or how to reform employment status. The government stated in its Good Work Plan in December 2018 that it would "legislate to improve the clarity of the employment status tests, reflecting the reality of modern working relationships"; however, there have been no further details or concrete proposals made since then, not least presumably due to the change in government, and the huge shift in their priorities since these commitments were originally made. The timescale for reform, therefore, remains uncertain, and companies and individuals will need to continue to follow the IR35 legislation, as complex as it is and to skillfully apply case law principles to each specific set of facts when determining status. Pooja Dasgupta is an associate at CM Murray

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