Unsporting behaviour? HMRC and IR35

16 June 2023

Since the IR35 Budget press release in 1999 and the subsequent introduction of the intermediaries legislation it heralded in 2000, the IR35 rules have been regularly tested through the UK courts - in around 40 different cases by early 2022. The fact that a single area of legislation is capable of creating so much contention after such a long period of existence shows just how difficult it can be to navigate the rules.


The IR35 rules are intended to ensure fair play by showing a red card to cases where the services of an individual worker, who would otherwise be an employee of the end-user, are provided ‘off-payroll’ through an intermediary such as a personal service company (PSC) for tax purposes. This is important because employees are subject to income tax and employee National Insurance contributions (NICs) on earnings, and employers also have to pay employer NICs. The IR35 rules are designed to replicate this employee tax and NICs treatment for off-payroll workers who would otherwise be employed by the end-user (on which the obligation to determine the individual worker’s status for these purposes will often arise). By contrast, where IR35 does not apply, no NICs are due on services provided by a PSC, and companies pay corporation tax rather than income tax, generally at a much lower rate. Nevertheless, workers operating through a PSC will also generally have income tax and possibly NICs to pay on amounts they are then paid by the PSC. 

With such complex rules, the problem is that, like a referee judging a foul, it can be difficult to decide when those rules are being broken. And just like the video assistant referee (VAR) decisions in football, the judgments of the tax tribunals can sometimes appear inconsistent and hard to follow.

The latest tax tribunal rulings on IR35 both involve sports and the media. HMRC successfully challenged the use of a PSC by Sky Sports tennis commentator, Barry Cowan, but failed in a challenge against Match of the Day presenter, Gary Lineker. As is often the case with IR35, the decisions were highly fact-specific, and there is a good chance that HMRC will appeal against the Lineker ruling. However, there are some lessons we can learn.


When it comes to IR35, facts matter. HMRC and the courts have to judge the implications of using an intermediary, and like any referee they do so by considering a range of factors. For IR35 this includes looking at the terms of the contract, but also how it is implemented, and in the Lineker case, the nature of the intermediary entity and how its contracts were entered into. Some factors carry more weight than others, too: it is very unlikely that a company director will escape employment treatment by using a PSC, but a contractor engaged for a single project often will.

It may be possible to con a referee, but the courts are generally harder to convince, so a contract without substance is like diving to win a free kick: you might be successful, but if caught out you can expect to be penalised. 

Playing fair

It might seem like the obvious solution to the complexities of IR35 is therefore not to get involved. If you never make a tackle, you don’t risk committing a foul. Unfortunately though, life is not that simple. There are many good commercial reasons for providing services through a company or partnership, and in some industries, contractors have little option about how they operate due to requirements of the end-user. 

Ideally the solution would be wholesale reform of the rules, to provide all parties with clarity and to make it easier to comply. Such changes seem unlikely though, especially with the planned abolition of some IR35 administrative rules by the Liz Truss government being reversed by Jeremy Hunt on becoming Chancellor. For now, the rules remain as confusing as the offside law, and anyone trying to ensure income is not taxed as that of an employment risks scoring an expensive own goal unless they take advice in advance and then play by the rules.

For more information, please get in touch with Andrew Robins or your usual RSM contact.