IR35 – when you’ve been waiting at that bus stop for an age and two arrive at once!

Unusual that we have two IR35 cases in one week but are we any further forward and what did we learn?

The first case to be released last week was the Gary Lineker Media (“GLM”) case, where HMRC were challenging the deemed employment status of Gary Lineker who had been engaged to provide his services as a presenter to the BBC and BT via GLM which was a Partnership between Mr. Lineker and his wife at the time, Danielle Bux.

Unlike other media cases where individuals have engaged via Personal Service Companies (“PSCs”) and potentially through Limited Liability Partnerships (“LLPs”), GLM was a general partnership which meant that tax had already paid on most, if not all, of the partnership profits. GLM and Mr. Lineker won their case that IR35 did not apply, but why?

The first point the First Tier Tribunal (“FTT”) considered was whether the IR35 rules could be applied to a General Partnership in the same way as for PSCs and LLPs. The Tribunal confirmed that GLM could be considered as an intermediary for IR35 purposes (Section 49 ITEPA 2003 Engagements to which this Chapter applies i.e. Chapter 8 Application of provisions under arrangements made by intermediaries i.e. IR35).

However, whilst IR35 could have applied to GLM as a general partnership, the case was decided on the fact that as Mr. Lineker had signed both the BBC and BT contracts (he signed one as the sole signatory and the other where both partners had signed). As a matter of contract law, he had signed the contracts in his capacity of a principal of the partnership and, therefore, the contract was directly between him and the clients namely the BBC and BT.

The IR35 legislation can only apply where:

S49 (1) (b) The services are provided not under a contract directly between the client (the BBC and BT) and the worker (Gary Lineker) but under arrangements involving a third party (“the intermediary”)

The FTT held that the contracts were between the clients and the worker without any involvement from an intermediary and therefore, as IR35 cannot apply without the involvement of a third party HMRC lost the case. 1-0 to Lineker, "keeper had no chance" or to mix sporting metaphors: "game, set and match Lineker".

Interestingly though, had Ms. Bux (his fellow partner) been the sole signatory to the contracts under which Mr. Lineker provided his services, IR35 would have applied and then the Tribunal would have considered the tests established under Ready Mixed Concrete, Atholl House et al. So whilst this was a win for the taxpayer, given the specific facts and circumstances on which the case was decided it is unlikely to have a wide application.

The appeal in the Eamonn Holmes case on the other hand, which was heard at the Upper Tribunal, is of wider application and once again highlights the highly subjective nature of IR35 cases.

The case concerned the employment status of Eamonn Holmes in connection with his contract with ITV as a presenter of This Morning. ITV had contracted for Mr. Holmes services via an intermediary “Red White and Green Limited” his Personal Service Company.?At the FTT the Tribunal found in favour of HMRC that the IR35 rules applied, a decision which Red White and Green (Mr. Holmes’ PSC) appealed on the basis that the FTT had incorrectly applied the law. Given the nature of the appeal, no new facts were allowed to be presented and the UTT was asked to consider if the law had been correctly interpreted by the FTT.

In handing down the judgement, the UTT confirmed that the IR35 rules applied on the basis that they considered the FTT’s evaluative judgement to be correct and that they had applied the law appropriately.

It had been accepted by both parties that there was personal service. The FTT’s decision (which was upheld by the Upper Tribunal) was that there was sufficient mutuality of obligation and a framework of control which pointed to an employment relationship and therefore IR35 rules applied. The control included editorial control, who else he worked for, when and where he performed the (majority) of the services and on which specified days all of which were determined by ITV. Control also extended to the clothes he wore on screen (which could not be branded).

Whilst Mr. Holmes had other engagements with other parties, where it appears to have been accepted that these other contracts were on a “self-employed” basis as they had not been assessed by HMRC, the case focused solely on his ITV contract. It was noted by the FTT that Mr. Holmes had received a substantial proportion of his income from the ITV contracts and in the eyes of the Tribunal, he did not demonstrate any of the characteristics of being in “business on his own account” in relation to his work with ITV.

The Tribunal noted that he received a fixed fee per programme (which ITV administered for him without the PSC submitting any invoices), they considered that he had no ability to increase his profits from his work and had no real exposure to economic risk in relation to bad debts. He also did not incur any significant expenditure as ITV paid for a car with a driver for him to travel to the studio, they provided expenses for clothing and also insurance cover. The only equipment he provided personally was an earpiece and, although he paid an Agent to find him work opportunities, the Tribunal considered this would be the case irrespective of whether the work the Agent found was on an employed or self-employed basis. ?

The fact that Mr Holmes did not receive sick pay for a prolonged period after a hip operation, that he did not receive holiday pay and was not offered a workplace pension was considered but disregarded by the Tribunal as being insufficient to support “self-employment”. ?It would be interesting to compare and contrast this case with the Lorraine Kelly case where the lack of sick pay was considered a factor, but that’s for another day.

The appeal by Red White and Green Limited was dismissed as the UTT did not consider there to have been any error of law. The Tribunal also pointed out “for the sake of completeness” that you cannot rely on industry “custom and practice” in using self-employed freelancers to argue that you are self-employed, neither can a taxpayer point to the fact that they are in business on own account in respect of all the work that they do on the basis that some contracts have been accepted as self-employment. The Tribunal made it clear that in their view you can be both an employee and self-employed “for a different period of his or her working week”.

The extent to which the Red White and Green case will be applied to the soon to be heard Kaye Adams (Atholl House Productions Limited) and Adrian Chiles (Basic Broadcasting Limited) IR35 appeals is something we will have to wait and see, but what is clear is that many of the same points will be under consideration. For the time being though it is fair to say that the Eamonn Holmes case would appear to have far significance for HMRC than the Gary Lineker case will be for taxpayers looking to defend their IR35 positions. ?

If you would like to discuss the application of the IR35 rules please get in touch with myself or my colleagues

Sue Robinson Robert Burton Gemma Stack Ricky Jenks Vaneeta Khurana Ian Thomas Ian Hopkinson Jeni Morris - NMW Specialist Robert Riley Joe Sherman

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