Hot off the press this week, on the heels of the changes to IR35 (off payroll working rules) legislation are reports that HMRC is seeking £3.6m in income tax and £1.3m in national insurance contributions from footballing legend turned pundit Gary Lineker (“Linekar”) for work he performed for the BBC between 2013 and 2017, and for BT Sport during the 2015-16 and 2017-18 tax years.
Tax tribunal documents published in April this year show Lineker has been in dispute with HMRC, the Claimant, for well over a year. HMRC are seeking to argue via proceedings in the tax tribunal that the work done was effectively that of employment and that Linekar was an employee and not ‘self employed’.
The claim(s) relate to the period when Linekar was working for the BBC and BT Talksport via his personal services company (“PSC”) Gary Lineker Media.
What is a PSC
A personal service company (PSC) is a limited company set up by a contractor, in this case Linekar, to provide their services (in this case, as a presenter / commentator / football pundit) to clients (in this case, the TV / Radio stations). The PSC is often the ‘intermediary’ in the context of IR35 (the off-payroll working rules).
IR35
IR35 legislation was created to close the loophole in tax laws which enabled workers, like Linekar, to bill for their services through limited companies. The effect of this is that they were not eligible to pay income tax and national insurance contributions on the full earnings, instead taking a nominal basic salary and drawing the rest as dividends which attracts comparably lower corporate taxes. The practice is characterised as “disguised employment” by HMRC. It is this very method of alleged tax avoidance that Linekar is being investigated for, despite his agent standing firm with the argument that the TV presenter was not employed.
This case highlights potential risks of non compliance – not just to freelancers and contractors, but also to businesses that engage them. It’s vital that well-informed IR35 status decisions are made from the outset.
IR35 changes
HMRC changed the rules for IR35 in the public sector from April 201. If an individual was found to be a ‘deemed employee’ the employer’s national insurance would have to be paid by the firm hiring the contractor which would have been the PSC, so the individual would have a double whammy, the employer and employee national insurance liabilities, as well as additional tax liabilities due being an employee for the full sum earned.
2021 shifting responsibility
If Gary Lineker’s situation was under the IR35 microscope under the new rules as of April 2021 then the BBC would have a tax bill to pay. Every medium and large private sector business in the UK is now responsible for setting the IR35 tax status of the contract workers they engage. It is advisable for businesses to review the arrangements they have with their contractors and consider whether they wish to make any changes to the way they engage them based on the reality of the working relationship.
How to decide employment status
The key factor in determining whether IR35 applies (whether someone is inside or outside IR35) is to ignore the existence of the PSC. The test whether there is an employment relationship (as opposed to a self-employed/consultant relationship) is determined by consideration of the following:
Mutuality of obligation – Where the employer must be obliged to provide the work and the employee must be obliged to carry out the work in return for pay.
Personal service – This means the individual is obliged to perform the work personally.
Sufficient degree of control over the employee in the way that the individual performs the work including when, where and how by the employer.
It is noteworthy reminder that no one factor is determinative. The courts will also look at other factors, including:
- Whether the individual is in business on their own account
- Whether the individual provides their own materials
- Whether the individual is integrated into the business
- The length of the engagement
- Any benefits received by the individual
What should contractors do?
In the meantime, this continues to be a challenging area and more so as an employment tribunal and tax tribunal may not agree on status. It highlights the importance for contractors to carry out their due diligence before and during a contract as well and ensure that the contract contains sufficient terms and provisions to protect their position in the event of a dispute. They should obtain advice from IR35 experts to ensure they are compliant rather than face significant penalties and fines and costly litigation in the event of a claim by HMRC.
For advice on IR35 and employment status please contact a member of the employment team on 020 8363 4444 or complete our online contact form.
Please note that this article does not constitute legal advice and should not be used as such and is for information purposes only.
