TV presenter Lorraine Kelly has recently won her case against HMRC regarding the taxation of her personal service company (PSC). Kelly provided her services to ITV through her company Albatel rather than contracting with them personally. HMRC argued that Kelly was effectively an employee of ITV and that as a result additional income tax and national insurance of £1.2 million was payable.
Kelly had provided her services through a PSC since 1992 without any challenge from HMRC for many years. HMRC subsequently used the intermediaries legislation, the so called IR35 rules, to challenge the working arrangements. This legislation is designed to prevent the avoidance of tax and national insurance by a worker operating through an intermediary such as a PSC rather than being employed directly.
However the tax tribunal ruled that ITV was not employing Kelly but rather contracting with her company to purchase her services as a ‘self-employed star theatrical artist’ in their programmes Daybreak and Lorraine. The tribunal agreed with Kelly that the range of her work means that she should be treated as self-employed and therefore the IR35 rules cannot apply. She was under no obligation to provide services to ITV and they had broad powers to terminate the contract. Kelly rather than ITV had control over her work.
The IR35 legislation has been a long running battle ground for taxpayers and HMRC ever since it was first introduced in 2000. As demonstrated by this case, determining whether a contract falls within or outside the rules is not a straightforward process. In another recent IR35 tribunal case BBC presenter Christa Ackroyd was unsuccessful reportedly resulting in a £420,000 tax bill for her company. The difference between the two cases appears to be that the BBC could direct Ackroyd to present any programmes of their choice whereas ITV were unable to exercise that level of control over Kelly.
It is not just TV presenters who have to grapple with these issues. There are many people in our area who operate their businesses through similar structures. A HMRC challenge several years down the line can be an expensive business. One thing is certain the IR35 rules are not going away anytime soon and we can expect to see further challenges from HMRC.