HMRC shown the red card

HMRC shown the red card

Changes to the Coronavirus Job Retention Scheme are announced

Gary's back in the news, but not on the subject of his social media use. It is HMRC that has been caught off-side... but why?

HMRC attempted to assess Lineker and his former wife (as partners of a partnership, “Gary Lineker Media” note: the partnership element is important) under the "IR35" rules relating to off-payroll working/deemed employment. These tax rules seek to ensure that individuals who perform services like an employee are subject to income tax and NIC like an employee, even though the services are provided via an intermediary (usually a company, but partnerships are possible).

The press is reporting that up to £4.9m of tax and NIC was in dispute. That’s a big number, but scratch the surface and it doesn’t actually look like a £4.9m case. Let me explain…

Lineker had already accounted for all income tax and Class 4 (self-employed) NIC on the relevant income for the periods in question via self-assessment, as partners in a partnership do. 

Zooming forward, if IR35 had applied and required the partnership to operate PAYE per HMRC’s contention, Lineker would not have been required to pay income tax and NIC again when he received that income, because that would be double taxation and the IR35 legislation grants relief for that. I suspect, instead, that the “£4.9m” figure represents the “gross” income/NICs amount, before taking into account the income tax and NIC that had already been paid to HMRC by Lineker via self-assessment.

We don’t have the figures, so I have had to make some assumptions, but it is more likely that the net figure due would have been just the employer NIC element (at 13.8% on the £1,313,755.38 total NIC assessment, that would equate to c.£181k), plus any penalties, interest etc, and maybe some adjustment for non-deductible items…anyway, substantially less than the £4.9m quoted. Perhaps £4.9m makes for a better headline. Or perhaps HMRC fancied the odds on another high profile "status" case...

Either way, unusually for an IR35 case, the question of Lineker's status for tax purposes (employed or self-employed) wasn't even relevant to this decision. Perhaps those arguments will yet see the light of day. It was, instead, Victorian partnerships legislation and that old chestnut of "contract execution" that won the day.


IR35 rules require that "services are provided not under a contract directly between the client [BBC/BT Sport] and the worker [Lineker] but under arrangements involving a third party". In 99% of instances, that third party is a company, owned by the worker alone or with e.g. a spouse. But the legislation also specifically provides that a "partnership" can be a third party. Which is a bit of a legislative fudge (albeit an intentional one) as, unlike a company or a limited liability partnership (LLP), a partnership has no separate legal identity.

Back to IR35...if the contract is directly between the client and the individual worker, the question of tax status (and risk of HMRC thinking you got it wrong) sits with the engaging client. 

That shield goes some, but not all the, way to explaining why clients historically preferred to receive services from company contractors - although the landscape has changed since the "new" IR35 rules were introduced from 2017.

The Beeb was clearly aware of that risk, as (instead of contracting as an individual directly) Lineker was required to form a partnership with whom the Beeb could contract for Lineker's services from 2013, on the face of it a “third party” under IR35. It is curious that a partnership and not a company was floated, but that is apparently consistent with Lineker’s earlier business arrangements. In other media personality IR35 cases, the Beeb had insisted on a company.

As an aside…. by way of a separate "Novation Agreement" in March 2013 made at the behest of the Beeb, the Lineker side also sought to "re-categorise" the basis on which services were provided to the Beeb from November 2012, and also place responsibility for 2007-2012 income tax/NICs on Lineker/the partnership....all of which was presumably designed to protect the BBC's position vis a vis an HMRC status challenge.

So, Lineker's accountant (not a lawyer) drafted a partnership agreement, signed by Lineker and his (then) wife. Despite the legal arguments from Lineker’s team, the tribunal found that this was a genuine partnership, creating real rights and obligations, although it contained some more unusual features.

The agreements for Lineker's services were duly expressed to be between BBC/BT Sport and the partnership. Lineker signed the agreements as partner/on behalf of the partnership. Nothing unusual in that?

A late substitution... enter partnerships law and the 1890 Partnership Act...

The tribunal held that, in signing, Lineker did so both on his own behalf and on behalf of his fellow partner in the partnership (his former wife). Such is the way that partnerships work according to the tribunal, referring to a 1998 case and the Victorian legislation.

According to the tribunal, there was therefore a direct contract between Lineker and each of the BBC and BT Sport, precluding IR35 from applying, notwithstanding that the agreements were expressed to be with the partnership of which he was a partner. As a result, the partners of the partnership (i.e. Lineker and his former wife) were not liable and HMRC’s assessment on them failed.

The tribunal held that the outcome would have been different if the other partner (his former wife) had signed the agreements alone. Perhaps the potential complexities of Lineker executing the agreement on behalf of the partnership were overlooked.

They think it's all over? A match replay?…

Could HMRC appeal? Possibly... HMRC are quoted as saying that they disagree with the decision and are "considering an appeal". They have 56 days to do so.

It is interesting that the agreements incorporated some personal guarantees and other commitments given by Lineker in his personal capacity (such as adherence to BBC Editorial Guidelines), and in the BT Sport agreement the invoicing/payment for services was to be done directly by Lineker and not the partnership. The effect of these provisions on contractual construction was not considered in the decision. Arguably it blurs the contractual picture, but could it be sufficient to generate a direct contract, with the same result?

Alternatively, could HMRC accept the result and turn its attention to the BBC/BT Sport as counterparty of the "direct contract", argue employed tax status under general principles, and chase for PAYE (on the basis of Lineker being a direct employee)? A few questions would then arise: To what extent would HMRC be time-barred from pursuing the BBC/BT Sport? What is the effect of the Novation Agreement if HMRC were to be successful - remember this tried to lay responsibility for income tax/NICs with Lineker. Lastly, if found to be a direct employee and PAYE is found to have been due from the BBC/BT Sport, would credit be available for income tax and Class 4 NICs already paid on that income?

Key takeaways…

This is probably a decision for the technical tax aficionados amongst us. Given that partnerships are not a common contractor vehicle, this decision is unlikely to be of consequence for the majority of contractors or their hirers. And of course, the liability landscape has dramatically altered since 2017 when the new off-payroll working rules were introduced.

However, it is sensible to exercise caution when contracting with contractor partnerships where IR35 liabilities could be in point.

And, as always, watch out for contract execution and any unusual drafting – you never know when your agreement will be poured over and picked apart by an army of lawyers and, of course, the tax man. 

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