HMRC loses £4.9m IR35 claim against Gary Lineker

HMRC have suffered another blow to their enforcement of IR35 – with their IR35 claim against Gary Lineker defeat in the courts – following the assessment that Gary Lineker was an employee rather than a contractor and that he underpaid tax between 2013 and 2018.

HMRC had pursued the star over a £4.9 million bill under IR35 legislation, which is designed to clamp down on tax avoidance by “disguised employees” who charge for their services off-payroll.

The First Tier Tribunal (FTT) found in Mr Lineker’s favour, rejecting HMRC’s IR35 claim against Gary Lineker that he should have been classed as an employee of the BBC and BT Sport.

What’s the background to the IR35 claim against Gary Lineker?

Mr Lineker set up the Gary Lineker Media (GLM) partnership in 2012 with Ms Bux, his then wife and used it to channel his earnings from the BBC and his other job with BT Sport.

The partnership was set up to give Ms Bux a £30,000 “fixed profit share” for accompanying her husband to promotional and marketing events.

This arrangement is legal, but HMRC has pursued Mr Lineker and others who have used partnerships and personal service companies, arguing that they were effectively employees and should have paid tax at the same level as those on the payroll.

Throughout the proceedings, Mr Lineker argued that all income taxes and national insurance contributions were paid on the income via the GLM partnership.

It came down to ‘direct contracts’

Judge John Brooks found that the legislation did not apply because Mr Lineker had direct contracts with the two broadcasters through the partnership.

Despite GLM being a partnership, the contracts with the BBC and BT Sport were direct.

It was Mr Lineker, rather than his partnership GLM, who had the direct contracts with the BBC and BT Sport, so with no intermediary, as a matter of law, IR35 cannot apply.

The judge said: ‘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, IR35 cannot apply – it is only applicable ‘where services are provided not under a contract directly between the client and the worker’.

The judge also acknowledged that Mr Lineker had paid all his taxes, saying ‘For each tax year, Mr Lineker accounted for income tax and Class 4 NIC on the entirety of the income from his services, less a fixed amount of £30,000, paid to his then wife, Ms Bux (and on which she paid tax).’

Are there any implications going forward?

This IR35 case was unique because Mr Lineker operated via a general partnership, rather than via a Limited Company and had a direct contract with both the BBC and BT Sport.

Mr Lineker’s case was the first time that the issue of whether there was a direct contract had come before the Tribunal.

General partnership was also important

In previous cases in which the IR35 legislation has been considered, the intermediary has been a limited company. As a result of such a company having a separate legal personality from the client who might be a director or shareholder, the question of whether there was a direct contract between the client and worker has not arisen.

For IR35 to be in play, there needs to be a third party involved which leads to the ‘worker’ not entering into contracts with their hirer directly.

A partnership can therefore avoid IR35 as long as the worker providing the services signs the contract, thereby acting as the principal and making it a contract directly between hirer and worker.

Care needs to be taken though as to what type of partnership. A Limited Liability Partnership, having its own legal personality could have meant that it was the ‘intermediary.’

It was because Mr Lineker was signing as principal of a general partnership which meant that IR35 didn’t apply, as it has no distinct legal personality.

Will HMRC appeal the Gary Lineker case?

HMRC said it is considering an appeal and given that they have sought to appeal the last four cases they have lost at the FTT, it would not be surprising if they seek to do so again.

A spokesperson for HMRC said : ’We do not agree with the decision that the rules cannot apply in this case and we’re considering an appeal. It is our duty to ensure everyone pays the right tax under the law, regardless of wealth or status.’

Our thoughts

We’re not the only tax advisers who believe that Gary Lineker’s tax affairs appear to have been structured in a way that maximised the tax he paid rather than minimise it and, this meant he had already paid more income tax than HMRC would have asked him to pay under IR35.

That’s another story though!

If you need our help in deciding whether IR35 rules apply to you or advice about how to structure your affairs in the most tax efficient way get in contact Lisa Wilson at lisa.wilson@cowgills.co.uk ,or via our website right here.