HMRC Continue to Pursue Precedent Setting with 3 High Profile IR35 Cases

Since Chancellor Brown in the late 1990s started chasing what was regarded as ‘lost’ NICs, the IR35 regulations have continued their development and increasing complexity to avail the Exchequer with as much tax as possible from the freelance community in the UK. This has proved an uphill struggle for them in many respects as the regulations have taken a leadership role in blurring the lines between employment and being in business on one’s own account. Two separate bodies of law back then, now bridged and confused by the introduction of tax regulations that seem to be very single-minded in their intentions – raising more tax from a group of people who have little lobbying power and therefore can be regarded as low hanging tax fruit for the Treasury.

The Off Payroll Regulations changes initiated in 2017 (public sector) and 2021 in the private and third sectors are the latest effort to achieve increased tax take and seem to be having a positive effect in terms of tax collected.

HMRC are now continuing to pursue 3 cases in particular currently, as the outcomes are likely to have a very significant effect on interpretation of regulations that capture limited partnerships more effectively, pin down mutuality of obligation (MOO) more in the Treasury’s favour, along with being in business on one’s own account.

So, what is happening in each of these areas?

1. Supreme Court Ruling on HMRC v PGMOL.

The case has run for some time and the professional Game Match Officials organisation has financial fire power to run the course. Originally, the debate was whether the football match officials were genuinely in business on their own account (the football officials focussed on are those working in the lower football leagues around the country) and the First and Upper Tier Tribunals both found in PGMOL’s favour, seeing the officials as genuinely self-employed.

HMRC went to the Court of Appeal, who ruled that both the First Tier and Upper Tribunal judgements were in error and that the case be heard again at the First Tier level. PGMOL argued successfully for the case to go before the Supreme Court where it was heard a couple of weeks ago.

The original ruling undermines HMRC’s interpretation of MOO and it is noted that the Court of Appeal did not agree fully with HMRC’s view. Prior to the Court of Appeal’s ruling, this case was considered damning for HMRC’s Check Employment Status for Tax (CEST) tool as it fails to ask any questions about the nature of any obligations on both sides.

The case has become ‘messy’ so it will be revealing to see what approach the Supreme Court follows. And a final point for interims is that the way of working of football match officials is somewhat removed from the interim methodology, so direct applicability of the ruling when it comes in the next few weeks may need to be carefully weighed.

• Atholl House v HMRC Back to First Tier

This is the case between TV presenter and journalist Kaye Adams (ITV’s Loose Women amongst other things) and focusses on showing you are ‘in business on your own account’.

After First and Upper Tier Tribunals finding in Ms. Adams’ favour, HMRC took it to the Court of Appeal who have determined an error in interpretation of the law and sent the case back to the First Tier for a fresh hearing.

The case could be crucial for interims in determining the importance of being ‘in business on one’s own account’ as a key test when determining IR35 status. The strength of this point is similar to supervision, direction or control, and personal service. Demonstrating this (in business on one’s own account) successfully shows that an interim is not an employee and therefore not within IR35.

There is a very significant consequence for the regulations if this case eventually still holds. End-clients are now responsible for determinations since the 2017 and 2021 IR35 reforms. If interims are in business on their own account and this is an important test of IR35 status, how could end-clients possibly know whether the interim to be engaged is in business on their own account without knowing about their working arrangements or previous roles?

The logical consequence of any greater importance being placed on this IR35 test would greatly strengthen calls that all freelancers themselves should be responsible for their own determinations in all circumstances.

The Court of Appeal’s decision to send the case back to the First Tier now means that this has not yet been established as legal precedent. Whatever the outcome this will still have a significant impact.

• HMRC v Gary Lineker

Much taxpayers’ money and 6 years and counting, HMRC are still pursuing Gary Lineker. The First-Tier ruling was very much in favour of Mr. Lineker. The ruling rested on the contract being signed by him, himself as a private individual and not as a partner in his partnership with his ex-wife. This situation means IR35 does not apply as there is no intermediary between the parties (such as a limited company or partnership).

No prizes for predicting an HMRC appeal. The judge even acknowledged in his ruling that it could appear contradictory. Either the court rules that IR35 can apply to a partnership or yet the ruling seems to say that because Mr. Lineker acted as a principal to the partnership, it cannot apply.

To be clear, if this rule stands, all interims/freelancers could establish general partnerships and legitimately avoid the IR35 legislation!