Gary Lineker v IR35 – are partnerships caught by the IR35 regime?

Gary Lineker v IR35 – are partnerships caught by the IR35 regime?

Gary Lineker continues to be a hot topic for employment lawyers, this time being in the press for winning a long-fought battle with HMRC over an alleged failure to pay £4.9 million of income tax. HMRC had argued that Mr Lineker was an employee of the BBC and BT Sport (rather than a self-employed contractor) under IR35 legislation and therefore should have paid employee income tax and National Insurance Contributions (NICs) on sums paid to him under those arrangements.

Like many other broadcasters and TV personalities, Mr Lineker set up a partnership (Gary Lineker Media (GLM)) with his former partner, which contracted with the BBC and BT Sport for his anchor services. The key question in this case was whether the partnership could be subject to the IR35 regime in these circumstances – if it could, Mr Lineker would face a huge pay-out to HMRC.

IR35 - the basics

The IR35 regime was introduced to prevent individuals who would otherwise be considered employees of a company (for tax purposes) from supplying their services through intermediaries (usually personal service companies (PSCs)) to avoid paying employee income tax. Since April 2021, these IR35 rules have applied in both the public and private sectors.

The regime applies to contractors who are engaged via intermediaries, where the intermediary contracts directly with the end-client for the provision of the individuals’ services. There are several factors to be considered to determine whether the relationship is really one of an employee and employer, resulting in it being caught under the regime. This evaluation often involves a complex legal assessment of the contractual documents and reality of the relationship. HMRC provides a helpful tool that can be used as a first step to determine the status of an individual (see here).

If an individual is deemed to be an employee (for tax purposes), then it generally falls to the intermediary to account to HMRC for the unpaid income tax and NICs on the amount paid to the individual.

Although PSCs are usually used in these circumstances, partnerships can also be caught by IR35. However, this case has put the spotlight on an exception to the rules.

Note that an individual having deemed employment status for the purposes of IR35 does not necessarily mean they are an “employee” for the purposes of relevant employment legislation – the test for “employee” status is different from a tax and employment law perspective, and IR35 is concerned with the former. 

Direct contract argument

Mr Lineker and his former partner were joint partners of GLM. Mr Lineker, on behalf of the partnership, had signed the agreements between GLM, the BBC and BT Sport. The judge held that when Mr Lineker signed the agreements as a partner of GLM, he created direct contracts with the broadcasters in his personal capacity, thus the IR35 regime did not apply. In short, there was no intermediary so IR35 could not be applicable.

This decision highlights a limitation of the applicability of the IR35 regime to partnerships. The judge did confirm that the regime could apply to partnerships, but only where only a partner who was not providing the service signed the agreement with the end-client (for example, if only Mr Lineker’s partner had signed on behalf of GLM). This would fit into the situation envisaged by IR35 – that of an individual personally providing services under a contract between the intermediary and the end-client.

What next?

This is the first time the direct contract argument has been used to escape the grasp of IR35 and it highlights the gap open for partnerships under IR35. This case may therefore be a catalyst for proposed changes or reform (though no changes or reform are currently proposed). However, HMRC has also indicated that it will appeal the decision. Watch this space!