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Lorraine Kelly wins £1.2m tax case

Constantine Christofi (RPC) comments on the latest IR35 setback for HMRC.

The well-known TV presenter Lorraine Kelly, through her personal services company Albatel Ltd, has successfully appealed against a decision of HMRC that the so-called 'IR35' anti-avoidance provisions (contained in ITEPA 2003 s 49 and reg 6 of the Social Security Contributions (Intermediaries) Regulations, SI 2000/727) applied to the provision of her services to ITV. 

The effect of the legislation, where it applies, is to treat the fees paid to a service company not as company revenue upon which corporation tax is payable, but rather as deemed salary to the worker, which is subject to income tax and NIC. The legislation applies to those workers who would be treated for income tax and NIC purposes as being employed under a contract of service by the client, were it not for the involvement of the personal service company or agency.

HMRC had argued that the presenter was caught by IR35 because, had there been a direct contract between Ms Kelly and ITV during the period of engagement, it would have been a contract of service rather than a contract for her services.

In answering the question of whether the 'hypothetical contract' between Ms Kelly and ITV would have been a contract of service or a contract for services, the Tribunal held that Ms Kelly was in fact a 'self-employed star', rather than a de facto employee of ITV. HMRC was unable to establish that ITV had control of Ms Kelly as if she were an employee. There were likewise no other factors which pointed away from the conclusion that the relationship between the parties reflected a contract for services and not one of service. Accordingly, the relationship was not one of employer and employee. 

This latest decision is a setback for HMRC, who continue to challenge the employment status of a large number of high-profile taxpayers. Although HMRC secured a victory before the Tribunal in the Christa Ackroyd case in February of last year  (that decision is on appeal to the Upper Tribunal), it has since suffered a number of defeats on this issue (see MDCM Ltd v HMRC [2018] UKFTT 201 (TC) and Jensal Software Ltd v HMRC [2018] UKFTT 271 (TC)). 

This decision highlights the difficulties businesses are likely to face from April 2020 when they will be required to determine the IR35 status of contractors who use limited companies (like Ms Kelly). It would appear that HMRC itself has difficulty in determining the correct position in this complex area of the law. Penalties will of course be levied on businesses that get this wrong. 

Given the importance HMRC attaches to IR35 and the employment status of workers, HMRC is likely to continue to challenge taxpayers in this area. Although most cases will turn on their individual facts, some much needed guidance on the application of IR35 is beginning to emerge from the case law and a decision from the Upper Tribunal should provide further clarity in this area. 
 
Issue: 1437
Categories: In brief , Employment taxes
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