How current IR35 court cases could irreversibly shape the sector
- 13 Jul 2023
Since IR35’s inception as part of the Finance Act in 2000, court cases on IR35 have proved pivotal in determining the key principals that indicate whether IR35 applies. A recent flurry of high-profile IR35 court cases are likely to have significant implications on the importance placed on Mutuality of Obligation (MoO) and being in business on own account whilst also providing clarity on whether general partnerships might also need to think about IR35.
Below, we outline the IR35 cases that are currently going through the courts and review the potential implications for the sector.
HMRC appealing Gary Lineker’s IR35 case
Following HMRC’s six-year long tax case against Gary Lineker, the First-Tier tax tribunal ruled in favour of Lineker in what was widely seen as a fairly emphatic judgement. HMRC is, however, appealing the ruling (investing even more time, energy and taxpayers’ money!) and the case is now likely to head to the Upper Tribunal.
Unlike other IR35 cases, this was a rather unusual case that centred not on employment status rules, but on the business structure adopted by Lineker and his ex-wife – a general partnership – and the parties in the written contract.
In the ruling, Lineker was deemed to have acted as ‘a principal’ of the partnership when he signed the contracts in question with the BBC and BT sport. Consequently, the judge ruled that the worker (Lineker) had a direct contract with the clients and therefore there was no intermediary – meaning IR35 could not apply.
If instead the contracts had been signed by Lineker’s partner – his ex-wife Danielle Bux – then the judge explained that the ruling would be different. In this scenario, the worker (Lineker) would not have had a direct contract with the client, the partnership would have been deemed as an intermediary and normal employment status factors – MoO, personal service, control etc – would have to be considered.
HMRC’s decision to appeal the case has come as little surprise to many familiar with these cases. The judge even acknowledged in his ruling that it could appear contradictory. On the one hand it rules that IR35 can apply to a partnership but then on the other hand, the ruling seems to say that because Lineker acted as a principal to the partnership, it cannot apply.
HMRC are obviously keen to avoid a situation where contractors could potentially utilise a general partnership to circumvent the IR35 legislation…
Atholl House vs HMRC heading back to First-Tier
This case involves presenter and journalist Kaye Adams (you may be familiar with her work from ITV’s Loose Women or an appearance on Strictly a few years ago) and centres on being able to demonstrate being ‘in business on own account’.
After two successive tribunals ruling in favour of Kaye Adams (First-Tier and the Upper Tribunal) and HMRC subsequently appealing both rulings, the latest appeal from HMRC has now resulted in the case being sent back to the First-Tier. In their latest judgement, the Court of Appeal has found that both the initial First-Tier and the Upper Tribunal incorrectly applied the law.
The case could be crucial for contractors in determining the importance of being ‘in business on own account’ as a key test when determining IR35 status. Along with issues like control and personal service, if a contractor can prove that they are in business in their own right, they can demonstrate that they are not an employee and therefore not within IR35.
The reason this case is important to HMRC is because end-clients are now responsible for determinations since the 2017 and 2021 IR35 reforms. If being in business on own account is considered an important test for determining IR35 status, how could end-clients possibly know whether the contractor they are engaging is in business on their own account without knowing about their working arrangements or previous roles?
Any greater importance placed on this IR35 test would therefore only strengthen calls that the contractors themselves should be responsible for determinations.
It is therefore no great surprise that HMRC have vigorously fought this case as it directly challenges the Chapter 10 reforms that were introduced in 2017 and 2021.
The Court of Appeal’s decision to send the case back to the First-Tier now means that this has not been established as legal precedent, but nonetheless the judgement will still have important ramifications.
HMRC vs PGMOL heard by the Supreme Court
This is the case brought against the Professional Game Match Officials (PGMOL) – the body responsible for football referees working in the Premier League and the EFL. This case centres on referees working in the lower leagues of English football.
After both the First-Tier and the Upper Tribunal sided on the side of PGMOL and ruled that the referees were genuinely self-employed, HMRC then appealed this judgement.
The Court of Appeal subsequently ruled that both the First-Tier and Upper tribunal erred in their judgement and that the case be returned to the First-Tier tribunal and be heard again. However, PGMOL successfully argued that the case should instead be sent to the Supreme Court.
These hearings have largely focused on the test of MoO. Prior to the Court of Appeal’s ruling, this case was considered damning for HMRC’s Check Employment Status for Tax (CEST) tool, with the tool failing to ask any questions about the nature of obligations on both sides.
Similarly, the case casts doubt over HMRC’s current stance on employment status when it comes to MoO, with the rulings at the First-Tier and Upper Tribunal rejecting the HMRC position on MoO and the Court of Appeal stopping short of comprehensively agreeing with HMRC’s stance.
It’s important to note, however, that the working arrangements of the referees are rather different to that of a traditional contractor so any implications on MoO or the CEST tool are still largely unknown.
This case has also become extremely complex and it will be interesting to see which areas the Supreme Court choses to focus on in the judgement. The case was heard at the Supreme Court just two weeks ago so we expect a judgement in the next few months - certainly one to watch...
Keeping the sector up-to-date on any developments
As always, IPSE will be closely keeping tabs on these pivotal IR35 cases and will continue to update IPSE members on any developments with the cases.
We expect these rulings to have significant implications on the importance placed on certain IR35 tests and ultimately shape how the sector navigates the IR35 rules going forward.
To keep up to date with all things IR35, please keep an eye on our IR35 latest news page or visit our IR35 hub.
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