TV presenter Lorraine Kelly has won an appeal at a First Tier Tribunal (FTT) over a £1.2m demand for unpaid income tax and National Insurance contributions (NICs) arising from a challenge to her employment status under IR35
Albatel Ltd, the personal service company (PSC) of Mr Stephen Smith and Mrs Lorraine Smith (professionally known as Lorraine Kelly) appealed against an HMRC determination for £899,912 in income tax and £312,615 in NICs. [Albatel Ltd and the Commissioners for Her Majesty’s Revenue and Customs,  UKFTT 195, TC07045].
HMRC argued that if there had been a direct contract between Lorraine Kelly and ITV Breakfast Ltd during the relevant period in connection with her work for the programmes 'Daybreak' and 'Lorraine', it would have been a contract of service, meaning the company would need to account for income tax and NICs as she was effectively an employee of ITV.
This was a similar argument to the case last year against BBC presenter Christa Ackroyd, who was employed through a PSC to present the broadcaster’s Look North programme.
Albatel appealed HMRC's decision on the basis that the nature and range of Kelly's work meant that she should be treated as a self-employed star. Kelly argued that she was a freelancer, saying that she decides her own hours, what items should be included in the show and when she works. She does not receive sick pay or a pension, and there is no guarantee that her contracts would be renewed.
In evidence about her ‘Lorraine’ breakfast TV show, Kelly gave a number of examples of turning down an interview, for instance with Sir Elton John which required a live link from Australia at 4am. As she was filming for the BBC later in the day she chose not to do the interview for her convenience.
Kelly also told the FTT about an expedition to Antarctica she had made in February 2017 which was not for ITV but for a magazine and newspaper article and for which she was absent from the show for four weeks, in addition to the 10 weeks holiday specified in the contract.
Kelly explained that there is give and take in her relationship with ITV and she had told them that she intended to take part in the expedition.
Kelly explained that she can work for any other broadcaster and recently filmed a documentary on penguins in South Africa for Channel 5.
ITV is under no obligation to pay Kelly if she is unable to present the show. Kelly is not provided with office space and explained that she carries out her preparation at home. In the hour that Ms Kelly is contracted to work she stated she had total control; any additional work related to the show is her choice.
Any requests to appear as a guest on another ITV show would go via Kelly’s agent and be subject to separately negotiated contracts. Kelly highlighted that she is taken off air when a new story breaks, such as the terror attacks in London and the Grenfell Fire.
A second element contested at the FTT was whether or not Kelly was a ‘theatrical artist’ and was therefore able to offset her agent’s fees against tax. HMRC had not accepted this description of her role, claiming she was a current affairs journalist, which Kelly told the tribunal left her ‘baffled’.
The tribunal judge stated: ‘We were provided with numerous clips of Ms Kelly’s work which showed her dressing up for comedy sketches and features of shows such as the “bikini promise” with Ms Kelly drawing the distinction between her role in this type of programme and that of Jeremy Paxman in Newsnight.
‘Ms Kelly agreed that “Daybreak” was not classified as entertainment but stated that her role on the show was that of an entertainer with features of dressing up and doing sketches with Aled Jones. Ms Kelly stated that she viewed the term “theatrical artist” widely and that she acted everyday as a version of herself.
‘Ms Kelly stated that she was not reliant on ITV for her work; she is in the public eye for more than the ITV programmes she has presented.’
The judge concluded: ‘We did not accept that Ms Kelly simply appeared as herself; we were satisfied that Ms Kelly presents a persona of herself; she presents herself as a brand, and that is the brand ITV sought when engaging her.’
The tribunal had to decide whether the contract was a contract of services or a contract for services, considering issues such as mutuality of obligation and control. In looking at the overall picture, the tribunal reached the view that the relationship between Kelly and ITV was a contract for services and not that of employer and employee, and so found in her favour.
David Williams-Richardson, a tax partner at RSM said: 'With one year to go before the IR35 rules are extended to the private sector, this case highlights the difficulties in making status determinations. This will be a particular challenge for those companies engaging workers through PSCs.
'This also emphasises the need for the government to clarify its intentions and time frames for legislating to improve the clarity of the employment status tests as mentioned in the Good Work Plan issued in December 2018.'
Andy Chamberlain, deputy director of policy at the freelancer body IPSE, said: ‘What this judgement hammers home irrefutably is that HMRC are completely in the dark about their own tax legislation.
‘Lorraine Kelly’s case is the fourth of five IR35 cases that HMRC have lost since 2018. It is now clear that they have wrongly been hounding many BBC and ITV presenters over a tax law they do not understand themselves.
‘The government, however, has said that from April 2020, private businesses across the UK will have to determine the IR35 status of their contractors.
‘This judgement should be a wake-up call to government that it cannot expect businesses to understand a tax law that it cannot even implement itself.’
A spokesperson for HMRC said: ‘We are disappointed that the FTT has decided that the intermediary rules (also known as IR35) did not apply in this case. We will carefully consider the outcome of the tribunal before deciding whether to appeal.’
Report by Pat Sweet