Gary Lineker – the return leg in IR35 case

The tribunal ruling in the IR35 Lineker case unusually centred around partnership employment status but what are the wider implications?

Earlier this year HMRC lost an appeal at the First Tier Tribunal (FTT) concerning the intermediaries legislation, often referred to as IR35 legislation, in respect of the football pundit Gary Lineker and his former wife Danielle Bux.

Unlike the other cases which have gone before the courts, this case was unique as the intermediary at the centre of the dispute was a partnership as opposed to a company, which has normally featured in previous IR35 disputes.

After initially stating their intention to appeal following the FTT judgment, HMRC submitted their application for leave to appeal to the Upper Tier Tribunal on 12 June. A date for the hearing is pending.

Technical position

The intermediaries legislation is normally associated with the services provided by an individual - often referred to as a worker - via a personal services company.

However, the legislation recognises three distinct types of intermediary: a company, a partnership and an individual.

As an aside, limited liability partnerships (LLPs) will not be caught by the intermediaries legislation. This is on the basis that specific legislation is in place where the members of an LLP will be subject to PAYE as a salaried member unless it is reasonable to suspect that 80% of a member’s share of profit is ‘disguised salary,’ they do not have sufficient influence over the LLP’s affairs and their capital is not as least 25% of their disguised salary. 

Where the answer to at least one of the conditions above is no, then the member will be taxed on a self-employed basis.

Partnership tests

Each category has specific conditions within the intermediaries legislation. As far as partnerships are concerned, the legislation will apply in cases where the worker owns 60% or more of the profits (alone or with relatives); the majority of the partnership profits stem from a single client together with any associates of the client; or the income of a partner is based on the income generated by that partner under the partnership’s arrangements for sharing profits.

Furthermore, the need for only one of the tests to be met means the usual conditions for deciding whether the intermediaries legislation applies must also be present.

These include where the worker personally performs, or is under an obligation personally to perform services for the client; the services provided are not under a direct contract between the client and the worker, but under an arrangement involving a third party (or intermediary); and the circumstances are such that if the services were provided under a direct contract between the client and the worker, then the worker would be regarded for income tax purposes as an employee of the client; or the worker is an officeholder who holds that office under the client and the services relate to that office.

HMRC believed that since at least one of the first conditions was satisfied, and all three of the general intermediaries tests were met, then the legislation applied. This was the reason that HMRC took the case to tribunal.

However, tribunal Judge Brooks concluded that whilst the intermediaries legislation could apply to arrangements where an individual’s services are supplied to a client through a partnership - since the engagements were direct contracts between Lineker personally and both BT Sport and the BBC - the intermediaries legislation in fact could not apply.

What is the Upper Tribunal likely to consider?

The Upper Tribunal will be asked to consider whether an error with the FTT’s interpretation of the legislation has arisen. The original decision was based around ‘who entered’ into the contract and this will no doubt form part of HMRC’s case.

The FTT went to some lengths to consider not only the intermediaries legislation but also the application of the 1890 Partnership Act to help better understand the nature of the services provided and in what capacity the contracts had been entered into by Lineker and the partnership.

Where a company is the intermediary, whilst there is a provision of personal services by the worker, they are doing so in their capacity as a director of their personal service company. This is a subtle but distinct difference from the point being considered in the Lineker case. It probably came as a surprise to HMRC that the FTT concluded that the intermediaries legislation did not apply in this case.

The decision could potentially further weaken HMRC’s cases against intermediaries other than personal service companies. This will no doubt be an area the Upper Tribunal will be required to re-examine.

If HMRC’s appeal is successful, the case will be referred to the FTT to reconsider the facts. This will mean the re-opening of the enquiry, which will leave the matter unresolved for some considerable time.

HMRC will be committing lots of resource with the aim of getting the decision overturned by the Upper Tribunal to avoid setting a precarious precedent for future tax cases which consider the intermediaries legislation.

What does this mean to engagers now?

The Lineker case further magnifies the challenges for those who are responsible for considering the intermediaries legislation, such as medium/large businesses, public sector bodies or workers who are contracted to provide their services to a small business.

Those responsible for overseeing the implementation of the legislation are also expected to make the right decisions.

Given the technical complexities of the cases, the tribunal system is still considering how decision makers are expected to get things right.

Currently, they are required to have the necessary procedures in place to review the basis of each engagement undertaken by a worker who provides their services via an intermediary, track and monitor workers who provide their services via an intermediary and determine whether a worker falls inside or outside of the intermediaries legislation.

In addition, the tribunal system must consider how workers are notified of any decision where they fall inside the intermediaries legislation and establish a process for resolving any disputes regarding the status determination reached.

As we head into ‘extra time’ in the Lineker case, one which HMRC is no doubt desperate to win, there remains a great deal of uncertainty for those who are expected to administer the legislation.

Furthermore, if HMRC is successful with its appeal, it is likely they will start to challenge more partnerships and individuals regarding their arrangements. It will only be a matter of time before HMRC starts to review how medium and large businesses are applying the intermediaries legislation, in particular the extent of the policies and procedures they have in place.

For more information on the impact of employment status, visit BrAInbox today where you can find answers to questions like Who can claim unfair dismissal?

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