Danny Batey, senior tax consultant at Markel Tax, analyses a recent case involving the Australian ex-professional rugby player Michael Lynagh, who was left with a £230,000 tax bill.
The old phrase of ‘it’s better to be late than never’ definitely didn’t apply to Australian ex-professional rugby player, Michael Lynagh, and his company MPTL Limited (MPTL).
Case details
HMRC had challenged the IR35 status of MPTL’s engagements with SKY, where Lynagh provided ad-hoc expert punditry for the broadcaster’s rugby programmes. The fees earned via MPTL only equated to a small proportion of his total income, the majority coming from his position as managing director of Dow Jones.
The enquiry had been running for approximately two years prior to this judgment, with HMRC arguing that IR35 applied to the engagements, resulting in an underpayment of tax and NIC totalling a combined liability of £230K.
Lynagh refuted this position, and via representation from his accountant, requested an independent review into the facts of the case to be undertaken by another HMRC officer with no direct connection to the enquiry. Subsequently, the review concluded that HMRC believed it was correct in its stance and that IR35 did apply. Despite HMRC’s offer to enter into a settlement agreement, MPTL decided that it would instead appeal to the First Tier Tribunal (FTT).
Where did things start to go wrong?
Although the accountant had indicated to HMRC in writing that MPTL wanted to proceed to FTT, the firm failed to file a Notice of Appeal to the Tribunal Service within the required timeframe. In an attempt to address this oversight, Lynagh instructed law firm Quinn Emanuel Urquhart and Sullivan LLP (EQUS) to obtain permission for the appeal to be filed late and allow MPTL the opportunity to have its case heard by the FTT.
In making its decision, the FTT applied the three-fold test set out by the Upper Tribunal in William Martland v HMRC [2018] UKUT (TCC) which requires the consideration of the length of the delay, the reasons for the delay and all of the circumstances of the case.
The FTT found that the Notice of Appeal was submitted 59 days late and no evidence was presented as to why Lynagh’s accountant had failed to make the necessary appeal.
EQUS argued this was a simple mistake by the accountant, but this was not accepted as a reasonable excuse. The FTT stated that Lynagh was professionally represented and that his accountant should have been aware of the appeals process. Further, HMRC’s independent review conclusion letter stated what steps MPTL should follow to appeal HMRC’s decision. The fact the ‘mistake’ was made by the accountant had no bearing on the decision of the FTT, meaning MPTL could not distance itself from such an error and therefore held overall accountability.
After considering both parties’ arguments the FTT dismissed the appeal, leaving Lynagh and his company with a hefty tax and NIC liability.
We do not know what the position would have been if Lynagh had been given the opportunity to defend his IR35 position – and neither will he all because of a procedural oversight.
The clear take-away from this case for contractors, accountants and end clients faced with similar IR35 issues, is to ensure that professional advice is sought at the earliest opportunity from IR35 specialists with a track record of handling investigations and preferably with the experience of defending clients at tribunal stage.
Despite the undoubted interest in a high-profile sports personality losing a tax case, the real lessons here are the importance of ensuring deadlines are not missed and that in an area as complex as IR35, ensuring that your advisers have the relevant specialist expertise. As witnessed here, a simple, avoidable error or lack of necessary expertise can have dire and costly consequences.
Markel Tax’s contractor Solutions team are well versed in enquiry and Tribunal representation and you can contact them at IR35@markel.com .
