Michael Lynagh IR35: Rugby commentator facing £230,000 IR35 fine

Former professional rugby player Michael Lynagh has been presented with a bill of £230,000 after a judge ruled he was not eligible to appeal an HMRC tax bill.

Background:

In 2020, HMRC assessed that former rugby player turned sports commentator Michael Lynagh's work for Sky Television was that of a disguised employee.

He'd been working for Sky via his personal service company, MPTL Limited.

His accountants had advised him that his role was that of a genuine independent contractor and was therefore outside IR35.

In addition to his work for Sky Sports, Lynagh's full-time job was as Managing Director for Dow Jones.

Following an investigation, the taxman sent a bill to Mr Lynagh for unpaid income tax and National Insurance from his work for Sky Sports in December 2021.

What is IR35?

IR35, better known as the off payroll working rules, is a set of criteria used by HMRC to determine whether a contractor, like Lynagh, is a genuine independent contractor or a disguised employee.

If a contractor is genuinely independent, the company hiring their services does not have to deduct income tax and National Insurance contributions from their invoice. Contractors instead pay corporation tax at a much lower rate.

HMRC uses a variety of tests to determine a contractor's employment status including whether they can get someone to do work on a project for a client in their absense, how closely they're managed on a project and so on. If a contractor isn't judged to be independent enough under these criteria, they are said to be inside IR35 in which case they pay the same tax as an employee.

What the court case was about

he Lynagh case centred on whether he could appeal against the HMRC verdict.

In the letter which accompanied the December 2021 bill, tax office officials told Lynagh that he may be eligible for dividend reliefs and overpayment reliefs if he entered into a settlement agreement.

This would have reduced his bill from £230,000 although it's unclear by how much.

The letter also informed Lynagh that he could file a notice of appeal but that his appeal must be recieved by a given date. He strongly believed that HMRC was wrong and intended to argue against it however Lynagh's accountants failed to file by the appeal deadline.

The First Tier Tribunal consider the late appeal

The seven chambers of the First-Tier Tribunal, established in 2008, are part of the UK Courts and Tribunal services. They provide judgements on a varied range of cases including disputes between HMRC and tax payers.

Lynagh asked a First-Tier Tribunal hearing to consider his appeal despite the fact that the accountancy firm representing him did not do so within the time limit.

The tribunal judge found that there was no "good reason for the delay" and that his argument did not meet the standards set out in cases where an appeal against the time limit was allowed.

Judge Aleksander did not accept the reason given for the delay, specifically that an HMRC enquiry officer dealing with the case was on sick leave, was strong enough.

The result

The penalties stand meaning that Lynagh's company owes HMRC £230,000.

What we can learn from the Lynagh case

Many IR35 cases have been brought against high-profile individuals in the media for a long time.

Lynagh was the latest in a long line of recent cases featuring personalities like Dave Clark, Gary Lineker, Adrian Chiles and Lorraine Kelly.

Case details vary of course, but, as things stand, HMRC's actions are indicative of a general belief that media personalities acting as contractors trading through their own limited companies should be considered as employees.

This may be because media companies tell them where to be, when they need to be there and to follow orders given to them by directors and floor staff. It's also debatable how substitutable media star roles are in reality as name recognition may draw certain viewers to watch.

Had Mr Lynagh's accountants filed on time, our bet would be that HMRC would prevail given their recent track record on similar IR35 cases. Remember that Alan Parry lost his appeal against HMRC leaving him with a bill in excess of £350,000.

IR35 takeaways from the Lynagh case

Leave to extend the deadline for tax submissions and appeals is rare. If your organisation becomes the object of an IR35 case, then you should no more miss a filing deadline for an appeal against a decision than you would for submitting P.A.Y.E. payments on the 22nd of the month.

If you do enter into a dispute with HMRC, it's important that you have all paperwork, correspondence and documentation with the contractor and HMRC ready for presentation when required.

The Lynagh case will possibly be one of the last from the era where contractors determined their own status. Now, HMRC will chase end clients and fee payers for deemed payments if they believe a contractor's employment status has been wrongly assessed.

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