Gary Lineker’s tax tribunal case has been widely reported, but some clarification is required in case anyone thinks it contains a solution to IR35 or concludes that this is the end of the matter.
The First-tier Tax Tribunal decided that Mr. Lineker had a direct contract with the BBC and BT Sport and therefore the IR35 rules do not apply. On the face of it this seems a bizarre outcome since Mr. Lineker had, and operated through, a partnership with his former wife. Any student of IR35 will know that IR35 is the common name used to refer to the ‘Intermediaries legislation’ – addressing tax avoidance through the use of intermediaries and that a partnership is stated to be an intermediary. Further where there is a contract between the client and an intermediary for the personal services of the individual, Mr. Lineker in this case, the IR35 rules apply so requiring a hypothetical employment status assessment of the individual to client relationship. So how
did the tribunal reach its conclusion?
The tribunal concluded that there was indeed a partnership, and that there were contracts between the partnership and the clients. However a general partnership, unlike a limited liability partnership (‘LLP’) or company, has no separate legal entity. According to a technical interpretation of partnership law, because Mr. Lineker had signed the contracts for the partnership, he had personally entered into the contracts and so there was a ‘direct’ contract between him and the ‘employers’. The IR35 rules clearly state that they do not apply where there is a direct contract with the individual. Accordingly, HMRC’s claim that IR35 applied was rejected.
The tribunal went on to conclude that had Mr. Lineker not signed the contracts on behalf of the partnership, there would have been no direct contract and the IR35 rules would have applied. This latter point is
perhaps more controversial since the general rule of law is that if A enters into a contract with C on behalf of B with B’s authority, B has a binding contract with C.
Looking at it another way, as a general partnership is not a legal entity, every partner individually has a contract with the clients of the partnership, and therefore on the face of it IR35 cannot apply. The tribunal had to consider the meaning of the word ‘direct’, but it is not clear that for a contract to be ‘direct’ it must be signed by the relevant individual. The real point in my opinion is whether there was an offer which was accepted and acted
upon by the individual, and whether signed or not there was such a contract in both these cases.
The tribunal decision does not set a precedent, and indeed HMRC may appeal it if they feel it is worth it. The partnership/direct contract point looks as if it was not considered when the legislation was drafted or indeed when it was changed to include Chapter 10. On the other hand, was the point deliberately not covered? In contrast the Agency Conduct Regulations permit companies and LLPs to opt out of those regulations, but not general partnerships.
Seemingly, whilst Mr. Lineker is reported to have paid all correct amounts of income tax, no employer NICs will have been paid as there was no employer and the levels of NICs for the self employed are also lower than for employees, so arguably there is a loss to the Exchequer. Having said that, as there is the finding of a direct contract, HMRC could arguably now claim against the BBC and BT Sport for unpaid levels of PAYE and employer and employee NICs without involving IR35 at all; presumably this would have to be a new claim but it may be out of time.
Is it worth throwing further taxpayer’s money at this? An appeal against the current decision to try and get the court to effectively rewrite the law would seem to be a longshot.
Adrian Marlowe, Managing Director, Lawspeed
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