Since Eamonn Holmes’ IR35 case came to light in 2018, it was only a matter of time before the likes of Phillip Schofield, Holly Willoughby and Lorraine Kelly were targeted by HMRC. Holly and Phil are yet to fall foul of the taxman, but Ms Kelly has gone through an IR35 investigation and come out victorious.
The much-loved television presenter defeated HMRC at a tax tribunal, with her limited company Albatel Ltd appealing a tax bill that amounted to just shy of £1.2m for her work with ITV Breakfast. HMRC attempted to retrospectively tax her income from September 2012 to July 2017.
This marks yet another high-profile loss in the IR35 ring for HMRC.
It was a clear ruling, with Judge Jennifer Dean stating:
‘We are satisfied that control of Ms Kelly’s work pursuant to the hypothetical contract lay with Ms Kelly. In our view, the level of control falls far substantially below the sufficient degree required to demonstrate a contract for service.’
Control over one’s work is one of the most important tools in a contractor’s arsenal; the freedom to work your own hours, use your own equipment, wear your own clothes and generally oversee your own day to day work life is paramount to being determined as inside-IR35.
Evidence from this tribunal suggests that HMRC has a concerningly subjective definition of what is it to have control as a contractor, however.
Contractor Calculator writes that ‘tax barrister Keith Gordon contested that HMRC’s approach in relying on ITV’s editorial control is flawed, drawing comparisons between Kelly’s arrangement and that of an actor appearing in a 12 month run of a West End show.’
Using the same analogy, Mr. Gordon himself stated:
‘The actor is required to follow a script, wear the clothes chosen for the production and move around the stage as directed. In contrast, Ms Kelly has considerably more control over her performance.’
HMRC demonstrated a worrying lack of understanding about ITV’s responsibilities as a broadcaster, as well as Ms Kelly’s range of control over her work. This fluid application of the determination rules is becoming notorious in IR35 investigations.
Where will HMRC shine its spotlight next?
This latest defeat is part of a string of failed tribunals for HMRC, the biggest of which was the Jensal Software case as defended by our Head of Tax, Andy Vessey. But how does this sit for IR35 and HMRC’s reputation when it comes to bringing investigations to court?
Andy Vessey comments:
‘This ruling highlights that although personal service may be a requirement of the overall contract, and it invariably will be with TV celebrities, provided the other major status factor of control rests in the worker’s favour, and coupled with other tests that point towards self-employment for good measure, then IR35 can be comfortably rebuffed. A word of caution, however, to those TV presenters currently under enquiry or waiting for their appeal to be heard by Tribunal that may believe this case gives renewed hope. Lorraine Kelly was viewed by Judge Jennifer Dean very much as an entertainer and therefore much more than a presenter.
In the Tribunal’s view, ITV was not employing a ‘servant' but rather purchasing a product, namely the brand and individual personality of Lorraine Kelly. She presented herself as a brand and that is what ITV sought when engaging her. As such, she had a lot of sway and influence, and autonomy over programme content and decision making to the extent that led the Tribunal to conclude that the level of control substantially fell below the sufficient degree of control required to demonstrate a contract of employment. Contrary to being part of a jigsaw, Lorraine Kelly was the jigsaw. This was a strong indication of self-employment.
Quite correctly, the Tribunal dismissed OFCOM rules as an indicator of a right of control, pointing out that the requirements of an industry governing body is found in many professions irrespective of whether an individual is employed or self-employed & therefore this was not a matter in respect of which ITV had specific control over Lorraine Kelly.
As ITV was purchasing a product, and that she carried out a variety of other work from writing to designing and advertising a fashion line, all this pointed towards Albatel Ltd being a genuine business.
Ms Kelly had first class representation in Keith Gordon, someone whom I admire immensely within the tax profession, so she was in very safe hands indeed. HMRC, just like they did in the Jensal case in which Judge Dean also presided, appointed outside legal counsel but to no avail again!
Given that the PAYE & NIC at stake is over £1.2M don’t be surprised if HMRC appeal this decision, particularly as they have other celebrities already in their sights.’
The BBC also reported that a spokesman for HMRC said it was ‘disappointed’ with the ruling, stating that ‘[they] will carefully consider the outcome of the tribunal before deciding whether to appeal’.
You can also read more about IR35 and what you can do to minimise your investigation risk here.