HMRC loses key personal service companies case to TV presenter
Kelly worked for ITV Breakfast via her personal service company (PSC) Albatel from 2012 to 2017. HMRC challenged the relationship in 2017 under a new enforcement policy. Using the so-called IR35 intermediaries legislation introduced in 2001, HMRC contended that, if there had been a direct contract between Kelly and ITV Breakfast during her engagement, it would have been a contract of service, giving rise to a need to account for income tax and national insurance contributions (NICs) in the relevant period. They also stated that agency fees paid to Kelly’s agent by Albatel are not tax-deductible expenses, as she was effectively an employee, and thus entitled to far less latitude in writing off of expenses against tax. Accordingly, it assessed Kelly as liable for GBP1.2 million of employee income tax and NICs.
However, the First-tier Tax Tribunal disagreed. It held that ITV was not employing Kelly, but rather contracting with Albatel to purchase her services from her as a 'self-employed star theatrical artist' in their television programmes Daybreak and Lorraine (Albatel v HMRC, 2019 UKFTT 195 TC). It agreed with her that the nature and range of her work both for ITV and more broadly means that she should be treated as self-employed, and consequently the IR35 legislation cannot be invoked so as to deem there to be an employment relationship.
It was also noted that she had provided her services through the PSC since 1992, and no challenge was made by HMRC until 14 years later. Moreover, she had no obligation to provide any services to ITV, rather the case was that ITV had the right to call on her on an exclusive and first-call basis. In addition, ITV has broad powers to terminate the contract without any obligation to make a payment, for reasons outside her control.
'We are satisfied that control of Ms Kelly’s work pursuant to the hypothetical contract lay with Ms Kelly', the tribunal judgment says. 'The level of control falls far substantially below the sufficient degree required to demonstrate a contract of service and we are satisfied that the factors strongly indicate that the contract was one for services.'
This is the fourth of five IR35 tax cases that HMRC has lost since the beginning of 2018, although it won a similar case against BBC presenter Christine Ackroyd. The difference between the Kelly and Ackroyd cases, according to Lorraine Kelly's counsel, was that ITV has no right to tell her or Albatel what to do, whereas the BBC could direct Christine Ackroyd to present any programme of their choice.
A House of Commons briefing paper has been published on HMRC's proposed extension of the IR35 PSC rules to the private sector, under which private sector employers will be pressured to tax contractors working off-payroll through PSCs as employees.
- Association of Independent Professionals and the Self Employed
- STEP UK News 16 August 2018: Extension of personal service company rules to UK private sector is criticised as premature
- STEP UK News 19 February 2018: BBC presenter loses appeal against GBP420,000 IR35 tax demand
- Commons briefing paper
- Squire Patton Boggs
- Pinsent Masons
- Chartered Institute of Taxation
- Information Age
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