Sunday, June 16 2024

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Did HMRC deserve their red card?

Andy Vessey ATT – Head of Tax at Kingsbridge Contractor Insurance, and Industry leading IR35 expert said, “Like many others, including myself, HMRC most likely believed that IR35 was applicable in relation to partnerships where:
• The worker, alone or with one or more relatives is entitled to 60% or more of the partnership profits; or
• Most of the profits of the partnership derive from the provision of services from relevant engagements with a single client & that client’s associates; or
• Under the profits sharing arrangements the income of any partner is based upon the income generated by that partner from relevant engagements, then IR35 is applicable, provided the general conditions laid down by S.49(1) ITEPA 2003 are also met.

Andy continued, “ What HMRC did not foresee and again, perhaps like many others, is whether or not the Intermediaries Legislation applies, comes down to who signs the contract on behalf of the partnership. Both the BBC & BT Sport contracted with Gary Lineker Media (GLM), which was a partnership and in each case, Lineker put his signature to the contracts. As such, he was deemed to be acting as a ‘principal’ of the partnership thereby entering into a direct contract with both of the broadcasters.”

“This was enough to nullify S.49(1)(b) ITEPA 2003 which states that for an engagement to fall within the IR35 Legislation the services must be provided, not under a direct contract between client & worker, but under arrangements involving a third party (the intermediary). The judge went on to say that, had only Danielle Bux, Lineker’s business partner & ex-wife, signed the contracts on behalf of GLM, then Lineker would have been bound to provide the services under a third party arrangement. Thus, IR35 would have been in play.”

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While Andy said IR35 cases involving partnerships are rare, this was the first time that the issue of whether there was a direct contract had been put before the Tribunal.

Andy finished by saying, “I cannot help feeling that when the IR35 Legislation was drafted, this was not what Parliament had in mind or intended, it doesn’t feel to be within the spirit of the law. There may be contractors who actually feel aggrieved by this decision, in that they conduct business in a very similar fashion but because they operate through a different business model, i.e. a limited company, they are still within the clutches of IR35.”

“This may not be the final score, HMRC has 56 days to appeal the Tribunal’s decision. But if they don’t appeal, how will Lineker be treated for tax purposes now? Will they seek to re-classify him as an employee of the two broadcasters and thereby collect PAYE tax & NIC from the broadcasters for those years for which they are not time barred? Going forward, how will Lineker be treated for tax purposes given that much has been made recently of his freelance status with the BBC?”

Andy, who started his career at the Inland Revenue has successfully defended over 550+ contractors against HMRC IR35 enquiries, and in 2018 he successfully represented Jensal Software Ltd at the First Tier Tax tribunal. While we did not defend in this case, Kingsbridge’s IR35 experts have helped businesses, freelancers and contractors alike navigate this complicated piece of legislation.

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