What could Gary Lineker's IR35 court case mean for contractors?

  • Explain how tax rules for contractors have changed
  • Identify examples where IR35 could apply
  • Explain steps to take when setting up contractual agreements
What could Gary Lineker's IR35 court case mean for contractors?
Credit: Reuters/Stefan Wermuth

The central concept of the UK’s off-payroll working tax rules (IR35) is that of the disguised employee – an individual who provides their services to clients through an intermediary, such as a limited company that they own, but in practice fulfils the role of an employee of those clients.

IR35 is intended to ensure that those individuals, or contractors, and the clients they work for pay broadly the same tax as they would were the individual an employee of the client.

However, since IR35’s inception, HM Revenue & Customs’ (HMRC) record of enforcing IR35 in the tax tribunals has been mixed. 

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Alongside its successes, HMRC has suffered several high-profile defeats, including against the television presenters Kaye Adams, Helen Fospero, and Lorraine Kelly. 

In April 2021, documents published by the UK’s tax tribunal revealed that HMRC is pursuing one of its highest value, and highest profile, targets under IR35 to date – a potential tax debt of £4.9m allegedly owed by the former professional footballer and TV presenter Gary Lineker.  

Disguised employees

The complexity involved in determining whether an individual is a disguised employee is where much of the difficulty faced by contractors, clients, and HMRC alike lies. 

The  number of cases being brought, and not infrequently lost, by HMRC reflects the reality that this determination is ultimately a nuanced question of law and fact that parties can and do judge incorrectly.

However, there are broad principles that the courts will apply when considering whether a contractor is a disguised employee and therefore subject to IR35. 

Factors that make it more likely that IR35 will apply are:

  1. Personal Service – Where a contractor is required to provide personal service and is not allowed to provide a substitute or to subcontract the work: where there is a right of substitution, the more restricted it is the more likely it is that IR35 will apply.
  2. Control – Where a client has a contractual right of control over the contractor’s work, for example what will be done, how it will be done, when it will be done, and where it will be done.
  3. Mutuality of Obligation – Where a client has an obligation to provide work when it is available and a contractor has an obligation to accept it.Where there is a notice period before a contractor may be dismissed by a client or may voluntarily cease working for the client, the courts are more likely to find that there is mutuality of obligation.
  4. Nature & Length of Engagement – Where a contractor is engaged on a permanent basis, rather than where the contractor is engaged only for a single discrete piece of work.
  5. Exclusive Service – Where a contractor is restricted by the client from working for others.  However, this is not a decisive factor and the presence in a contract of restrictions on a contractor working, for example, for the client’s competitors will not necessarily guarantee that IR35 applies.
  6. Financial Risk & Pay – Where a client bears the financial risk of the work. Conversely, where a contractor is required to provide his or her own equipment, materials, or insurance cover, or where a contractor is able to set his or her own rates or is paid on a job-by-job basis it is less likely that IR35 will apply.
  7. Integration – Where the contractor is or becomes integrated into a client’s organisation. For example, where the contractor has a client email address, is entitled to benefits enjoyed by the client’s employees, such as access to recreational facilities, or has line management responsibilities for the client’s employees.
  8. Office Holder – Where a contractor is appointed as an “office holder” by a client, IR35 will automatically be found to apply. Case law characterises an office holder as an individual in a post to which a person can be appointed, which he or she can vacate, and to which a successor can be appointed, such as a directorship.

The Gary Lineker case

Recently published documents from the tax tribunal show that HMRC believes that work done by Gary Lineker between 2013 and 2018 for the BBC and BT Sport through his intermediary company Gary Lineker Media falls within IR35. 

If the tribunal ultimately finds in HMRC’s favour, Lineker and his intermediary company would face a substantial tax liability.

Perhaps the most important point to note about this case is that at least one party involved is likely to have misunderstood the application of IR35. 

In the context of many such cases brought by HMRC, with wins and losses on both sides, the mere existence of this case is likely to reinforce concerns that IR35 is ultimately too complex for even well-intentioned parties to reliably comply with or enforce.

Whether or not HMRC is ultimately successful in its case against Lineker, there are likely to be new calls for greater clarity around the rules, potentially at the legislative level. 

Should HMRC be unsuccessful, this may give particular cause for contractors and clients to complain given the potentially severe impact of being taken to tribunal by HMRC.

Beyond the foregoing, and any generally applicable guidance which the tax tribunal may be able to give in the specific context of Lineker’s case, it is likely that the implications of the Lineker case for many contractors and clients will be somewhat limited.