Focus on IR35 tax cases
A deep dive into the rulings involving Gary Lineker and Eamonn Holmes
April has been a busy time on the IR35 front with rulings involving both Gary Lineker (or rather Gary Lineker Media – GLM) and Eamonn Holmes (aka Red White & Green Limited). As such, it is worth trying to understand what lessons can be learnt from these two cases and whether there are any take-aways which might be useful to advisors, freelance consultants and those businesses which use such contingent support.
Gary Lineker Media (GLM)
GLM was a partnership involving Gary Lineker and his (now ex) wife, Danielle Bux. While this was classified as an IR35 case – and HMRC were certainly going after Mr Lineker (and Ms Bux) under the IR35 regulations – it is worth noting that it was quite unique in a number of ways. These include:
- It was a general partnership (whereas most IR35 cases, involve personal service companies (PSCs)
- As a general partnership, Income Taxes had been paid on broadly the same basis as an employee (though the NICs position would be different)
- Mr Lineker had signed the contracts personally with both the BBC and BT Sport (these were signed either jointly with Ms Bux or purely by himself).
While HMRC were looking to argue that the IR35 rules still applied – and hence GLM was ‘guilty’ of payroll failures and had, for example, additional NICs to pay – it is interesting to note that the Tax Tribunal held that as a matter of core contract law, these contracts were in effect directly between Mr Lineker and the end businesses. That is, the Tribunal held:
- As Mr Lineker had directly signed both contracts, the arrangement was between him and the end companies as a principal (so he was in effect – at least in a manner of speaking – signing these as a ‘sole trader’)
- Hence there was in this particular case no ‘intermediary’ as demanded by the IR35 regulations
- Therefore, HMRC were incorrect in pursuing GLM under IR35 and, if they believed Mr Lineker was a ‘deemed employee’, they should have pursued the BBC and / or BT Sports for the payroll failures.
As a final point, it is worth noting that the Tribunal did however hold that the IR35 regulations could in principle apply to general partnerships. However, for IR35 to have applied, the general partnership would need to have a ‘third party’ (e.g., Ms Bux in her own right and alone), signing the agreement re the provision of Mr Lineker’s presenting services.
For better or worse, the Tax Tribunal did not therefore address the issue of whether Mr Lineker was genuinely self-employed or a ‘deemed employee’ for the purposes of the IR35 regulations. As such, while Mr Lineker has won his case (subject to any possible HMRC appeal) – and the ruling may be of interest for any future cases involving general partnerships where the contract is signed by a principal – I would suggest the GLM case is of relatively limited value to most taxpayers and freelance contractors.
Red, White & Green Limited (aka Eamonn Holmes)
In contrast, the Eamonn Holmes case – which was an appeal to Upper Tribunal – may be of wider relevance to taxpayers, advisors and end clients. In addition, it is easy to imagine that HMRC will try and ‘use’ the judge’s findings in this case in other IR35 cases, though the reality remains that the issue of employment versus self-employment (and hence IR35 rulings) remains very subjective.
As a tax appeal, the Red, White & Green case was focused on whether the original ruling – which was focussed on Mr Holmes’s work for ITV (specifically with regard to ‘This Morning’) – had correctly interpreted the laws applying to employment versus self-employment. As such, it didn’t involve the presentation, for example, of any new ‘facts’ and in reaching its conclusions, the Upper Tribunal held that the judgement in the original was correct and had applied the rules on deemed employment correctly.
So, what can we take away from the Red, White & Green case?
- The Control that ITV had in this case was held to be significant (e.g., covering editorial control, what other services / employers he could work for and the type of clothes which he wore – no ‘branded clothes’ for example)
- There was significant ‘Mutuality of Obligation’ in this case – i.e., ITV needed to offer work under specific circumstances and Mr Holmes was obliged to accept it
- There were no real costs or risks for Mr Holmes vis-à-vis the ITV contract, as a driver typically picked him up for this work and he received his payments from ITV ‘automatically’ – for example, Mr Holmes wasn’t even required to formally invoice the company for his fixed programme fees, and
- The fact that Mr Holmes had a number of other engagements – which HMRC have accepted were self-employment in nature – doesn’t mean that you couldn’t be employed vis-à-vis the ITV contract.
It is interesting to note that in the Red, White & Green case, the decisions have basically ignored factors which, in other cases, have been held to be factors supporting self-employment. For example, the fact that Mr Holmes had an agent for which he had to bear the costs personally was not counted as a factor supporting self-employment, though it had been in the case of Adrian Chiles. Similarly, the fact that Mr Holmes did not receive sick pay, nor holiday pay and was not offered a workplace pension was considered but disregarded by the Tribunal as being insufficient to support ‘self-employment’, though such factors had been considered relevant in the Lorraine Kelly case (and helped support her claim to be self-employed).
So where are we now?
While the Lineker ruling is unlikely to have wide significance – simply because very few freelancers have been operating through general partnerships – one can expect the Revenue to try and use the Red, White & Green case quite pro-actively in their assessments of other IR35 / employment versus self-employment cases.
While the ruling in Red, White & Green on these areas should not be taken as ‘absolute statements of the tax law’ in these type of situations, the fact that the tribunal has, in very broad terms, ignored issues such as Mr Holmes’s agent costs, the fact that he is clearly in a wider perspective ‘in business in his own right’ and the lack of things such as holiday pay and sick pay in assessing Mr Holmes’s status as a deemed employee are the type of ‘nuggets’ which HMRC love. Moreover, experience shows that they will ‘pick & choose’ the case law and only apply those pieces which fit their preconceptions.
Would you like to know more?
If you would like to discuss the application of the IR35 rules, please get in touch with your usual Blick Rothenberg contact, Robert Salter using the form below.