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The minefield of off-payroll tax rules, known as IR35, has been thrust back into the spotlight this week after television presenter Gary Lineker won a £4.9mn appeal against HM Revenue & Customs, while broadcaster Eamonn Holmes lost out.
But the media stars are just two of a host of contractors caught up in the complex rules designed to make “disguised employees” pay their fair share of tax. Other workers potentially in the net include project staff, software developers and engineers.
The difficulty is that the difference between employment and self-employed contract working relies on years of case law, so there is little certainty which way a case might go.
Why did Gary Lineker win his appeal?
The Match of the Day presenter’s case was unusual, because he contracted with the BBC and BT Sport through a general partnership, not a limited company. The judge confirmed that partnerships could fall within IR35, but because Lineker entered into contracts directly with the broadcasters the judge ruled that IR35 legislation did not apply.
Because Lineker contracted through a partnership, he had already paid as much income tax as would have been payable under the IR35, but he would have had more to pay in national insurance had the decision gone against him.
Is the case over, and what does it mean for other IR35 disputes?
HMRC has said it does not agree with the judges and is considering an appeal. If a hearing takes place, a judge would then have to determine if Lineker should have been deemed employed. According to case law, tax experts do not think HMRC has much chance.
Adam Craggs, head of tax disputes at law firm RPC, said the government “may also consider legislation to correct what they will doubtless view as a lacuna”. That would influence future cases but not those currently in dispute.
Few contractors work through partnerships because it leaves them with personal liability, and the taxes are typically higher than contracting through a personal services company.
Why did Eamonn Holmes lose his appeal?
Eamonn Holmes’s case was more similar to other IR35 cases, as he contracted through a limited company (which acts as the “intermediary” under IR35 legislation).
The case hinged on how much control ITV had over him when he presented the broadcaster’s flagship show This Morning between 2011 and 2015. The judges ruled that ITV had sufficient control for him to be deemed employed.
HMRC welcomed the upper tribunal’s judgment and said the rules “ensure that people who work like employees, but through their own limited company, are taxed like employees, creating a level playing field with other workers”.
But this case may not be the last word: other high-profile broadcasters have won similar appeals, including Lorraine Kelly and Adrian Chiles.
How many people are caught by these rules?
We don’t know, but Andy Chamberlain, director of policy at IPSE, a body which represents the self-employed, says there are around 500,000 UK freelance workers.
Seb Maley, chief executive of Qdos, which provides insurance and tax advice, described IR35 investigations as “routine compliance activity” for HMRC and said there will have been “tens of thousands of IR35 investigations over the years”.
Most cases do not make it to tribunal. They are settled as contractors either pay additional tax or convince HMRC that they should not be deemed employed.
About 40 cases have gone to tribunal. HMRC says that since 2020, it has won more than 80 per cent of them.
How much is HMRC spending?
It won’t say. But tribunal cases often span years, so the fees rack up.
Meanwhile, the amounts at stake are less than the headline numbers. In Lineker’s case, HMRC sought £4.9mn in employment taxes, but that excludes tax already paid, which would be deducted from any settlement. Lineker’s lawyers reportedly said the amount at stake was around £700,000. HMRC said it worked to get taxpayers “value for money”.
What are the rules like now?
From 2017 for public sector contracts and 2021 for the private sector (with an exemption for small enterprises), end employers have been responsible for determining a contractor’s employment status, paying any additional tax owed under IR35. So they can be heavy-handed, say experts.
But the complexity of employment status remains. Tim Stovold, head of tax at accounting firm Moore Kingston Smith, said: “The government should revisit the idea of a statutory test of employment, which can be objectively determined to make the IR35 regime function.”
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