Lineker’s win highlights bizarre complexity of IR35 rules

Gary Lineker was back in the news last week and once again it was for non-football related reasons. Lineker won his long-running IR35 case at the First-Tier Tax tribunal. It was a fairly emphatic judgment, but an unusual one in that it centred not on employment status rules, but on the structure used by Lineker’s business and the parties in the written contract.

Not for the first time, HMRC has invested a lot of time, energy and taxpayers’ money on pursuing an IR35 case, only for a tribunal to decide against it.

Does IR35 only apply to limited companies?

As many of you will know, ‘IR35’ is a nickname. The ‘IR’ stands for Inland Revenue (now called HMRC) and ’35’ refers to the number of a press release. The more formal name for the rules is the ‘Intermediaries Legislation’, so-called because it is designed to tackle the use of intermediaries, typically limited companies, which disguise what would otherwise be an employment relationship. The key point is that IR35 – the intermediaries legislation – can only apply when there is an intermediary between the worker and hirer.

Lineker does not use a limited company. Instead, he has a general partnership with his ex-wife, Ms Bux. A general partnership is not a legal entity and the partners do not benefit from limited liability, as they would in a limited company or a limited liability partnership.

Lineker’s team tried to argue that IR35 could not apply to a general partnership, on the grounds that it ‘does not have a separate legal personality’, and therefore, ‘cannot be an intermediary’. Judge John Brooks disagreed, stating: ‘it is in my view clear that the intermediaries legislation does apply to partnerships’, but the issue of ‘separate legal personality’ resurfaces later in the ruling.

Lineker acted as ‘a principal’ of the partnership

All previous IR35 tribunals have involved the use of a limited company, rather than a partnership, and Judge Brooks notes that limited companies do have a separate legal personality from their directors and shareholders. In this case though, Lineker acted as ‘a principal’ of the partnership when he signed the contracts in question with the BBC and BT Sport. This meant, according to Judge Brooks, that the worker had a direct contract with the clients (and that there was no intermediary therefore) so IR35 could not apply.

It's a complex position to understand and one that the judge acknowledges could appear contradictory. On the one hand he says clearly that IR35 can apply to a partnership, on the other he seems to say that because Lineker acted as a principal to the partnership, it cannot.

Judge Brooks explains that if Lineker’s ex-wife, Ms Bux, had signed the contracts – which she could have done as a partner – then it would be different. The worker (Lineker) would not have had a direct contract with client, the partnership would have been an intermediary in this instance, and normal employment status factors – personal service, control, mutuality etc - would have to be considered.

An appeal may be on the way

HMRC has said it disagrees with the judgement and may appeal. We will have to wait and see. Until then, this will go down as an embarrassing defeat for the Revenue as it once again calls in to question how well it understands its own rules.

And if HMRC don’t have a clear view of when the legislation applies, what chance does anyone else have?

The full judgement can be found here.

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