What Was The Dispute About?
HMRC claimed that Lineker had avoided £4.9 million in income tax and national insurance through use of his business, Gary Lineker Media.
Where an individual is hired as a contractor instead of an employee, such as when Gary Lineker was hired by the BBC to host Match of the Day, means your payments are off-payroll, changing the amount of income tax and national insurance you pay. This could be exploited to avoid tax which IR35 aims to prevent.
IR35 is an incredibly complicated law, essentially it puts contractors against key criteria to show whenever they are ‘disguised employees’, ie. when contractors have an employer-employee relationship that is hidden as a contractor-client relationship. Some of the key criteria involves whenever the client is obliged to offer you work or how much control your client has over your day-to-day work.
In the Gary Lineker case, it was unclear when and where IR35 applied, particularly because Gary Lineker operated Gary Lineker Media as a partnership with his wife. This is uncommon, IR35 usually applies to Limited Companies operated by a sole individual, or personal service company.
In past cases with TV presenters caught up in IR35 cases, their defence centred around the IR35 key criteria not being applicable, however Gary Lineker won his case over a technicality, where it was argued he signed a contract with the BBC and BT sport on both the behalf of his business but also as an individual. Creating a direct contract between Gary Lineker and the BBC exempted him from IR35.
If Lineker had been found to meet the criteria of IR35, showing he had concealed an employee relationship with the BBC and BT Sport, then he would have received an expensive tax bill as well as a fine.
What Do I Need To Know About IR35?
If your work involves providing services through an intermediary company or you are a client purchasing services through a contractor, it is crucial you understand IR35, so you are not caught out.
An intermediary company can be a limited company (known as a personal service company) or a partnership. The rules change depending on the size of the business and whether the client is part of the public or private sector.
Public sectors will determine the employment status of the intermediary company, but intermediary companies working with private sector businesses will need to ensure they do not meet the following criteria if they want to stay outside of IR35:
Does the client have right to direct what, how, when and where the work will be done?
Does the contractor have a duty to accept work and does the client have a duty to offer work?
Is a contractor obligated to compete the task themselves and prohibited to outsource work?
Is the contractor working permanently or long term for the client?
Are their rules prohibiting the contractor from offering services to other potential clients?
Does the client determine pay and hold financial risk?
Has the contractor become integrated into the client’s business, such as having access to client facilities or being provided an email address?
If you can answer yes to most of the above criteria, IR35 may apply, it is important to note that when a contractor becomes an office holder within their client's business, IR35 will definitely apply.
Henry Reeves & Co offers professional, expert and trusted accounting services to hundreds of businesses in Kent, nationally and internationally. If you need help complying with legislation, including IR35, you can rely on us to provide an outstanding service. Call 01622 756849 or email info@henry-reeves.co.uk to find out how we can help you.