I have been following with interest the recent case of Lorraine Kelly and how she successfully argued that she was not an employee of ITV but a self-employed business person. Can you explain the key facts in this case and what self-employed contractors can take from it?
The employment intermediary rules, known as IR35, impose employment taxes on a Personal Service Company (PSC) where the arrangements between the worker and the end client are such that, if engaged directly, the worker would have been an employee. In this case the PSC must treat the amounts received as employment income of the individual and operate PAYE and NIC.
The recent case of television presenter, Lorraine Kelly, who successfully defeated HMRC at a tax tribunal for her work with ITV Breakfast. The case also involved the question as to whether agent fees were a deductible employment expense.
Between 2012 and 2014 Lorraine Kelly was contracted, via her own company which was set up in 1992, to present two shows for ITV Breakfast Ltd, Lorraine and Daybreak.
• Her contract was for a minimum of 2.5 years for which she was paid a fixed sum per year on a monthly basis. It allowed her ten weeks non-working time per year.
• The contract also specified her onscreen days and hours, allowed her creative input, and she was involved in every aspect of the show, including changing the script and running order.
• She decided her own hours, undertook her own research outside of contractually committed hours, worked for other broadcasters and had her own clothing line. She did not receive sick pay or a pension. She was entitled to send a substitute if she was unavailable.
She maintained that she was a self-employed entertainer and theatrical artist who was playing a part when she presented the shows in question.
HMRC issued a tax determination notice in respect of Class 1 NICs arising from the application of the IR35 rules for £1,212,528 contending:
• Had there been a direct contract between Lorraine Kelly and ITV Breakfast Ltd during the period of engagement it would have been a contract of service.
• There was mutuality of obligation with ITV.
• The agency fees she had paid to her agent were not deductible expenses.
The tribunal in allowing the appeals analysed whether there was a contract of service, or for services:
• There was mutuality of obligation, but it amounted only to the “irreducible minimum” and was not determinative of the issue.
• Control of her work lay with her; the level of control by ITV fell substantially below the sufficient degree required to demonstrate a contract of service.
• Looking at the overall picture the relationship between Ms Kelly and ITV was a contract for services and not that of employer and employee. ITV was not employing a “servant” it was purchasing a product, namely the brand and individual personality of Lorraine Kelly.
In contrast previous cases involving the BBC have resulted in the tribunal upholding HMRC’s decision to apply IR35. It is reported that more IR35 appeal cases involving ITV presenters are likely to reach the tribunal in the near future. Watch this space!
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