The notion that the IR35 rules are or are not capable of applying to a partnership depending on which partner signs the contract on behalf of the partnership is a surprising one - and will surely be appealed.
No: of course we’re not
weighing in on that
tiff. This note is about the First-tier Tribunal case ([2023] UKFTT 340
(TC)) on the tax treatment of the amounts which the BBC (and BT) paid to secure
Mr Lineker’s services. But, in its field, it’s likely to set the cat
among the pigeons quite as much as anything Mr Lineker has tweeted.
Fearing that it might have to
operate PAYE on the payments, the BBC insisted that Mr Lineker should provide
his services via a partnership, so that the PAYE buck should be passed to that
intermediary vehicle. So Gary duly formed a partnership with his
then-wife Danielle which contracted with the BBC and (separately) BT to provide
his services.
HMRC, on investigation,
concluded that the BBC’s concerns had been well-founded: if it had contracted
directly with Mr Lineker instead of with the partnership, that would have been
a ‘contract of service’. Therefore, HMRC said, the infamous ‘IR35’ rules
applied and the partnership was required to account for, broadly, the PAYE and
NIC that would have been payable had there been a direct contract.
Usually in such cases the
argument between the parties is as to whether the notional direct contract
would have been a ‘contract of service’.
But in this case the
First-tier Tribunal (FTT) didn’t get as far as considering that issue. It decided the case on different grounds.
It was argued on behalf of Mr
Lineker that because a partnership is not a legal entity, it could not be an
‘intermediary’ under the IR35 rules. Given that the rules explicitly say
that it can be, and even make special provision as to the manner of their
application to a partnership, this was always going to be a somewhat difficult
argument to make, and it was duly rejected by the FTT.
Almost as brave was the
argument that the relationship between Gary and Danielle was not really a
partnership at all, but something else – even though it was governed by a
written document headed ‘Partnership Agreement’; partnership accounts had been
drawn up; partnership returns had been filed; and the existence of a
partnership had been confirmed at a meeting with HMRC at which Mr Lineker had
been present. Again, the argument was rejected.
So: if this was a partnership
and IR35 can apply to partnerships, why (or indeed how) did the FTT conclude
that the ‘IR35’ rules were not capable of applying to this partnership?
The answer is that, although
in the case of both the BBC and BT the broadcaster concerned contracted with a
partnership for the services of Mr Lineker, and although Mr Lineker signed each
contract in his capacity as a partner, the FTT considered that ‘he did so as
principal thereby contracting directly with the BBC and BT Sport. As such, the
intermediaries legislation cannot apply – it is only applicable "where services
are provided not
under a contract directly between client and the worker” (emphasis added). In
this case Mr Lineker’s services were provided under direct contracts with the
BBC and BT Sport.’
Some will consider this, if
true, to be one of the odder consequences of the IR35 rules. The more so
because the FTT accepted that if the contracts had been signed on behalf of the
partnership not by Gary but only by Danielle (whose signature would have bound
the partnership in exactly the same way), there would not then have been a
direct contract between the client and ‘the worker’ (Mr Lineker) and there
would have been no bar to the application of the IR35 rules.
The notion that the IR35
rules are or are not capable of applying to a partnership depending on which
partner signs the contract on behalf of the partnership is a surprising
one. It will be interesting to hear what the Upper Tribunal has to say
about it on the appeal which is surely inevitable.
The notion that the IR35 rules are or are not capable of applying to a partnership depending on which partner signs the contract on behalf of the partnership is a surprising one - and will surely be appealed.
No: of course we’re not
weighing in on that
tiff. This note is about the First-tier Tribunal case ([2023] UKFTT 340
(TC)) on the tax treatment of the amounts which the BBC (and BT) paid to secure
Mr Lineker’s services. But, in its field, it’s likely to set the cat
among the pigeons quite as much as anything Mr Lineker has tweeted.
Fearing that it might have to
operate PAYE on the payments, the BBC insisted that Mr Lineker should provide
his services via a partnership, so that the PAYE buck should be passed to that
intermediary vehicle. So Gary duly formed a partnership with his
then-wife Danielle which contracted with the BBC and (separately) BT to provide
his services.
HMRC, on investigation,
concluded that the BBC’s concerns had been well-founded: if it had contracted
directly with Mr Lineker instead of with the partnership, that would have been
a ‘contract of service’. Therefore, HMRC said, the infamous ‘IR35’ rules
applied and the partnership was required to account for, broadly, the PAYE and
NIC that would have been payable had there been a direct contract.
Usually in such cases the
argument between the parties is as to whether the notional direct contract
would have been a ‘contract of service’.
But in this case the
First-tier Tribunal (FTT) didn’t get as far as considering that issue. It decided the case on different grounds.
It was argued on behalf of Mr
Lineker that because a partnership is not a legal entity, it could not be an
‘intermediary’ under the IR35 rules. Given that the rules explicitly say
that it can be, and even make special provision as to the manner of their
application to a partnership, this was always going to be a somewhat difficult
argument to make, and it was duly rejected by the FTT.
Almost as brave was the
argument that the relationship between Gary and Danielle was not really a
partnership at all, but something else – even though it was governed by a
written document headed ‘Partnership Agreement’; partnership accounts had been
drawn up; partnership returns had been filed; and the existence of a
partnership had been confirmed at a meeting with HMRC at which Mr Lineker had
been present. Again, the argument was rejected.
So: if this was a partnership
and IR35 can apply to partnerships, why (or indeed how) did the FTT conclude
that the ‘IR35’ rules were not capable of applying to this partnership?
The answer is that, although
in the case of both the BBC and BT the broadcaster concerned contracted with a
partnership for the services of Mr Lineker, and although Mr Lineker signed each
contract in his capacity as a partner, the FTT considered that ‘he did so as
principal thereby contracting directly with the BBC and BT Sport. As such, the
intermediaries legislation cannot apply – it is only applicable "where services
are provided not
under a contract directly between client and the worker” (emphasis added). In
this case Mr Lineker’s services were provided under direct contracts with the
BBC and BT Sport.’
Some will consider this, if
true, to be one of the odder consequences of the IR35 rules. The more so
because the FTT accepted that if the contracts had been signed on behalf of the
partnership not by Gary but only by Danielle (whose signature would have bound
the partnership in exactly the same way), there would not then have been a
direct contract between the client and ‘the worker’ (Mr Lineker) and there
would have been no bar to the application of the IR35 rules.
The notion that the IR35
rules are or are not capable of applying to a partnership depending on which
partner signs the contract on behalf of the partnership is a surprising
one. It will be interesting to hear what the Upper Tribunal has to say
about it on the appeal which is surely inevitable.
