Michael Lynagh’s MPTL Ltd vs HMRC is the £230,000 IR35 case you may have missed

After what was another energy-sapping year in the world of IR35, I won’t hold it against you if you happened to miss the final, but nonetheless significant event of 2022 relating to this controversial tax legislation.

If you did, let me bring you up to speed, because this was an event that highlighted a number of important IR35-related points, particularly for contractors, writes Seb Maley, CEO of Qdos.

In the days leading up to Christmas, it emerged that former professional rugby player and Sky Sports commentator, Michael Lynagh, was facing up to an IR35 bill in the region of £230,000, after his appeal was rejected.

Kick-off was a while back

The case, between Lynagh’s company, MPTL Limited and HMRC, actually began two years before, in 2020.

Then, the tax office took the view that Lynagh, who also works as a managing director at Dow Jones, belonged inside IR35 when providing his commentary services on a freelance basis.

This significant tax bill – made up of what HMRC deemed missing income tax and national insurance contributions – was, according to reports, sent to Lynagh’s company, along with his accountants.

The letter outlining HMRC’s demands included the right to appeal the tax office’s verdict.

Taxman tried tactics

HMRC was also said to have contacted Lynagh’s accountants, explaining that if the former Australian world cup-winning fly-half accepted his fate, he could be eligible for overpayment and dividend reliefs – a potential negotiating tactic from HMRC.

Despite this, Lynagh’s party held firm in their view that the presenter provided his services as a genuine contractor and one who belonged outside the clutches of IR35. By all accounts, the plan was to appeal HMRC’s view at a First-Tier Tax (FTT) tribunal.

Unforgivably though, and at what looks to have come at a huge cost to Lynagh, his accountants failed to file the notice of appeal with the tribunal before the deadline.

A major defensive error

This huge mistake meant that at the tribunal hearing on December 7th 2022, the judge refused Lynagh’s request to appeal, with notes stating: “There is no evidence before me as to why the accountants did not file a notice of appeal.”

The notes go on to explain that confusion may have arisen after HMRC failed to let Lynagh’s accountants know that they needed to file this notice of appeal, due to the Revenue case officer being on sick leave.

However, the tax office’s representative for this case explained that HMRC is under no obligation to tell a taxpayer that they must file such a notice, particularly one with professional representation.

Lynagh was badly let down

It’s rare that I’ll say this, but HMRC has a point here – his accountants should know this.

As things stand, this blunder from Lynagh’s accountants looks to have cost him £230,000. And while the case details are light – so it wouldn’t be right for me to comment on his chances of successfully appealing the decision – who’s to say whether the FTT would have gone his way?

The obvious takeaway for contractors, in this case, is the need for representation they can count on – a trusted expert who specialises in the IR35 legislation.

Granted, mistakes happen and there may well be more to it than explained in the tribunal notes (which doesn’t name the accountants), but whichever way you look at it, Michael Lynagh has been let down badly.

Not even a chance to challenge the taxman, who's clearly on the attack

Where this leaves him remains to be seen. I read one article which suggests Lynagh’s prospects of success at the tribunal were slim. Even so, without the chance to challenge HMRC – whose tribunal record is far from impressive, I should add – he may never know.

This worrying case also highlights that the taxman has not eased up on contractors, despite the introduction of the off-payroll working rules. Not only is HMRC aggressively pursuing cases opened prior to the roll-out of the rule changes, but the tax office also retains the right to launch IR35 investigations into contracts completed before reform was enforced – something which HMRC is doing currently.

The long and short of this is that contractors, despite not holding the IR35 liability unless they are engaged by a small private sector company, remain at risk of enquiries for projects worked on before IR35 reform was rolled out in the public and private sectors, in 2017 and 2021 respectively.