More IR35 chaos with opposing high-profile tax tribunal decisions
By Justine Riccomini, Head of Tax (Employment and Devolved Taxes)
17 April 2023
Justine Riccomini sets out the decisions in the two latest high-profile IR 35 tax cases, Lineker and Holmes, and explains why the outcomes were so different.
Two cases recently hit the headlines again after hearings at the First and Upper Tier Tax Tribunals. It is not surprising at all that different outcomes were reached, but what was surprising was the reasoning for those decisions being different. These two cases do little to assist those in need of clarity on the off-payroll working spectrum, and nothing to assuage the fears of those giving tax advice in this area. The legislation is clearly unsustainable in its current format and the whole area of employment status becomes more complicated every time a decision is released.
Gary Lineker Media
Gary Lineker formed a partnership with his now ex-wife Danielle Bux, which traded as Gary Lineker Media. The partnership supplied Mr Lineker’s services to BBC and BT Sport. The so-called “IR35” legislation at Ch.8 part 2 ITEPA 2003 is not restricted to corporate entities, it also applies to partnerships, but the interesting thing about this case is that it actually hinged on the partnership aspect of the case rather than on the traditional hypothetical contract aspects where the finer detail of a classic ‘employed v self-employed’ tax status argument is being played out.
Assessments
HMRC had raised assessments amounting to just short of £5 million in income tax and NICs under the IR35 provisions, which was deemed to be due because HMRC considered Mr Lineker’s relationship with the two parties contracting with Gary Lineker Media to be one of subservience.
Preliminary arguments
The preliminary tribunal case was originally held back on the basis of the submissions by Mr Lineker’s lawyers that a decision ought to be made about whether IR35 even applied to this case, because of the way in which the contracts were signed. Was there a direct contract with the individual, in which case IR35 did not apply because there was no intermediary through which the services had been provided? Or was there a general partnership which acted as an intermediary?
The judge decided that before any full hearing could proceed and lengthy employment status arguments could be heard, this hearing would concern itself with whether an intermediary was in fact providing Mr Lineker’s services. The case would not progress if no intermediary was deemed to sit between Mr Lineker and the TV companies. This involved the examination of the basic tenet of IR35 at Section 49(1)(b) Income Tax (Earnings and Pensions) Act 2003.
Decision
The decision did not play out in the way HMRC expected, however. The contracts between Gary Lineker Media and the TV companies were signed by both partners in the partnership, which led the judge to conclude that because Mr Lineker had personally signed a contract with the TV companies, he was essentially representing himself as well as the partnership. Had only Ms Bux signed the documents, the partnership would have been representing Mr Lineker as an intermediary service provider.
The judge stated: “It must therefore follow that, as a matter of law, when Mr Lineker signed the 2013 BBC Contract, the 2015 BBC Contract and the BT Sport contract for the provision of his services, he did so as principal thereby contracting directly with the BBC and BT Sport. As such, the intermediaries’ legislation cannot apply - it is only applicable where services are provided not under a contract directly between client and the worker. In this case Mr Lineker’s services were provided under direct contracts with the BBC and BT Sport.” Moving away from football terminology but sticking with a sporting theme, the judge concluded that a “knock out blow” had been delivered to HMRC’s arguments, and found in favour of Mr Lineker.
We will see whether HMRC chooses to contest the decision or bring a new employment status case altogether based on whether Mr Lineker was an employee of the TV companies or self-employed. In the meantime, it may be the case that the partnerships aspect of Chapter 8 will be amended to avoid follow-on cases arising on the same basis, but as the case is not binding HMRC can in any case continue to mount similar challenges.
Red, White and Green Ltd
In sharp contrast to Lineker, it seems Eamonn Holmes once again failed to convince the courts (this time the Upper Tribunal) that they should not go back to basics and examine the contractual relationship and employment status principles of supervision, direction and control.
Arguments
The Upper Tribunal found that the First Tier Tribunal (FTT) had not erred in law when considering the control and the Mutuality of Obligation (MOO) tests which arise from Ready Mixed Concrete are still valid today.
Control is everything
Unfortunately for Mr Holmes, the Upper Tribunal decided that the FTT had come to the right conclusions, albeit they had not been set out in a particularly clear and unambiguous way. The original FTT conclusion had been that Mr Holmes was clearly working under the supervision, direction and control of the TV company and was not free to make his own decisions about the majority of aspects of his role, despite his insisting the contrary.
Therefore, the £250,000 liability Mr Holmes was aiming to quash still stands.
If you wish to contribute to the debate…why not join an ICAS tax committee and bring your expertise straight to the Tax team?
