Not least of all, it is likely to be more difficult for a contractor such as Lineker, who works as a TV presenter and is closely associated with the programmes he presents, to demonstrate the absence of mutuality of obligation and lack of integration.
Likewise, an unfettered right to provide a substitute will not apply, but for a typical contractor, particularly where the work is unskilled, this will still be a key factor when determining status both for tax and employment rights purposes.
Nonetheless, Lorraine Kelly, who presents the television show Lorraine, succeeded in her own defence against HRMC under IR35.
It is also important to note that in April 2021 important changes were made to IR35.
Previously, except in the case of public sector organisations, where IR35 was found to apply the responsibility for compliance and paying the relevant tax contributions would fall on the intermediary company being used by the contractor.
Since April 2021, with the exception of small private organisations, this responsibility and the obligation to determine the contractor’s status has transferred to the client.
Lineker’s case is being considered under the pre-April 2021 rules.
In the future, intermediary companies may in many cases no longer be liable for the same compliance and tax burden as Lineker’s company if IR35 is found to apply.
At the same time, clients may be more cautious around their use of contractors given the April 2021 changes to the rules and the compliance costs and risks associated with them.
Practical risk mitigation for contractors and clients
Given the uncertainty faced by contractors and clients and the potentially steep costs if they judge their IR35 position incorrectly, they would be well advised to take all reasonable steps to reduce their risk of falling within IR35.
The contractual arrangements between contractor and client must reflect the reality of the working relationship.
Equally, there will inevitably be a trade-off between mitigating the legal risk of falling within IR35 and preserving the commerciality of the contract.
With the foregoing in mind, parties seeking to remain outside IR35 should consider the following when setting up and conducting the contractual relationship between them:
- Include a right for the contractor to substitute another individual to perform the work in question with as few restrictions as possible
- Impose as little control on the contractor as practical, for example by giving the contractor freedom to determine how, when, and where work will be done and keeping supervision of the contractor to a minimum
- Avoid any obligation on the parties to accept or provide work
- Include a right for either party to terminate the contract with little or, ideally, no notice
- Characterise the duration of and pay for the contract in terms of a discrete piece of work or several discrete projects, rather than a period of time or retainer relationship
- Limit any restrictions on who else the contractor may work for to cases of clear conflict or avoid them completely
- Include some form of financial risk on the contractor, for example for late completion of work
- Require the contractor to provide his or her own equipment and insurance
- Limit the integration of the contractor into the client as much as possible
Whatever the outcome of the Lineker case, it is fair to say that IR35 is a complicated area of law and one which contractors, clients, and HMRC have often interpreted incorrectly. It is hoped that cases such as Lineker’s will lend further weight to calls for greater clarity. .