Finding of 'direct contract' defeats HMRC's IR35 argument in Lineker case

Thursday, 30 March 2023
UK television presenter Gary Lineker has won the first round of his dispute with HMRC over his off-payroll working arrangements with the BBC and BT Sport.
tax liability

The dispute concerned the periods June 2013 – July 2016, when Lineker worked for the BBC, and the tax years from 2013/14 to 2016/17, when he worked for BT Sport. He provided his services to these clients through an intermediary partnership (GLM) with then-wife Danielle Bux, rather than through a personal service company. HMRC asserted that the arrangement was caught by the IR35 off-payroll working rules created 20 years ago to prevent freelance contractors from avoiding income tax and national insurance contributions (NICs). It assessed Lineker for an extra GBP4.9 million in tax and NICs on top of the tax he had already paid on his whole income from services in the relevant tax years. Bux had received GBP30,000-a-year from the partnership and paid full tax on it.

Points at issue in the case included whether IR35 rules applied to the supply of services through a general partnership of the kind used by Lineker, whether GLM was indeed a partnership and whether Lineker had a direct contract with GLM’s clients.

The First-tier Tax Tribunal (FTT) ruled that IR35 could, in principle, apply to a partnership as intermediary, as both the original 2002 legislation and the amendments made in 2023 expressly dealt with such cases. However, the real crux of the case turned out to be that there was a direct contract between Lineker and his clients. The relevant legislation, s.49(1) Income Tax (Earnings and Pensions) Act 2003, states that the IR35 provisions can apply only where there is no direct contract and a 'hypothetical' contract has to be inferred. Lineker had been a sole trader before forming the partnership and had continued to sign contracts himself directly with the client. Therefore when he signed the contracts with the BBC and BT Sport, he signed personally as a principal under the Partnership Act 1890 and was directly contracting with the companies, without the involvement of a third party.

As a result, the FTT decided the IR35 rules did not apply and quashed HMRC's GBP4.9-million assessment of additional contributions (Lineker v HMRC, 2023 UKFTT 340 TC).


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