Not a week seems to go by without HMRC receiving another dent in its already fragile armour. This time, the taxman suffered its latest IR35 loss at the hands of TV presenter, Lorraine Kelly, who last week successfully defeated the taxman in an IR35 tax tribunal that would have cost her an eye-watering £1.2m in liabilities should she have lost.
The case, which focused on the contract between Ms Kelly’s company, Albatel Ltd, and ITV Breakfast Ltd, examined the working arrangement that took place between September 2012 and July 2017.
HMRC was of the opinion that Ms Kelly’s working relationship with ITV reflected one of employment not self-employment, despite the fact that in reality, the presenter’s engagement had many makings of a genuinely freelance arrangement.
After the case escalated to a First Tier Tribunal, HMRC was duly shot down. In the case notes, the judges humiliated the taxman by concluding they “do not consider this to be a borderline case”, which was largely due to the clear absence of control in the engagement.
A thorough examination of Ms Kelly’s working practices led the judges to explain they were “satisfied that the factors strongly indicate that the contract was one for services.” They emphasised this by going onto state that “contrary to being part of a jigsaw, Ms Kelly was the jigsaw.”
With the absence of control, Ms Kelly was not deemed to be ‘part and parcel’ of ITV Breakfast Ltd. The presenter’s variety of other work carried out at the same time as her contract with the broadcaster, which included writing, designing and advertising, strengthened Ms Kelly’s case for belonging outside IR35 and being in business on her own account. For example, the presenter went on an expedition to Antarctica for four weeks, which interfered with her availability to perform her duties on ITV Breakfast.
The fact that Ms Kelly could also decide her own hours to a certain degree and had the freedom to work as and when she wanted also reinforced the view that the presenter was in control of the services she provided.
Financial risk was also taken into consideration, with the judges concluding that Ms Kelly was exposed to the same level of risk to that of anyone running their own business. In addition, she didn’t receive any employment benefits or privileges, and ultimately would not have been paid if she was unable to work.
And barring being handed an earpiece and clothes when presenting, Ms Kelly wasn’t provided with any equipment that an employee, for example, would have been given as part of a contract for employment.
Using a client’s equipment can, in some cases, contribute towards an inside IR35 status, which is why contractors operating outside the legislation are advised to invest in their own equipment. However in this case, and perhaps in light of the role, the view was taken that the provision of such equipment “did not point towards or away from a contract of service.”
Despite being found outside IR35, the judges did accept that Ms Kelly was personally obliged to carry out the work, while her contract didn’t include the right of substitution either.
Many contractors will know that Mutuality of Obligation and Substitution are two factors that can be pivotal in IR35 decisions, but the nature of the contract and role was taken into consideration, which meant that neither decided the case.
The substantial sum money involved in this IR35 case led Ms Kelly to explain that “the whole process has been extremely stressful.” She also said the “grossly inaccurate” tax determinations had caused her significant anxiety, which was also brought on by the taxman’s delays.
To give you an idea of just how long Ms Kelly was forced to contend with a potential £1.2m tax bill, the presenter first appealed the ruling on 17th February 2017 – over two years ago.
Unfortunately, it has become common practice for HMRC to open IR35 enquiries into contractors who are paying the correct amount of tax. After a run of just one outright IR35 case win in ten attempts, the taxman has been criticised for its lack of accountability, not to mention its inability to recognise reasonable prospects of success.
The case involving Ms Kelly will no doubt be viewed by contractors as another situation in which HMRC has tried and failed to make a public example of a genuinely self-employed individual. The question ‘who next?’ certainly springs to mind.
It’s not just contractors and sector experts who have voiced their concerns about HMRC’s behaviour either. A House of Lords report released at the end of 2018, for example, described the taxman as ‘aggressive’ amongst other things. Given HMRC has had three IR35 enquiries shut down by Qdos already this year, Ms Kelly’s case will no doubt add more fuel to this fire.
As contractors and private sector businesses ready themselves for further IR35 changes next April, it’s a concerning state of affairs when HMRC cannot see for itself whether a contractor belongs inside or outside the scope of the legislation.