IR35 – FTT upholds Lorraine Kelly’s appeal against HMRC decision

Wed 27 Mar 2019

In the case of Albatel Limited, The First tier Tribunal (FTT) has held that a contract to provide Lorraine Kelly’s services to ITV for the ‘Daytime’ and ‘Lorraine’ programmes, was not a contract of service (subject to the IR35 intermediaries legislation), but a contract for services.

The FTT took a very robust view and the case has been widely reported.  In view of:

• the range of TV presenter cases currently being considered;
• the recent National Audit Office report in the BBC’s use of Personal Service Companies (see our article for more information); and
• the introduction of off-payroll working rules in the private sector, due in April 2020

It is instructive to look at the circumstances of the case and some of the reasons that led the FTT to its view and this is detailed below.

There is currently a consultation on implementing off-payroll rules for the private sector, and businesses should be considering how to prepare for the change in April 2020.  Our earlier blog has further details on the consultation, and there is further information on the Albatel case below.

For a further discussion of the application of the IR35 intermediaries’ legislation, the off-payroll working rules, or other employment tax matters, please get in touch with a member of the Mazars employment tax team.

Background

The contract between ITV and Ms Kelly originally covered a minimum two and a half year period, but was subsequently amended so that it ran from September 2012 to July 2017.  During the period of this contract Ms Kelly did work for other businesses.  She had a considerable amount of control over how and where she worked under the ITV contract.  Ms Kelly described herself as an entertainer.  In February 2017 HMRC issued an assessment for income tax and NIC totalling over £1.2m, apparently covering the tax years 2012/13 to 2015/16.

HMRC considered the strict interpretation of the contract was that ITV were in control of Ms Kelly’s presentation and her activities in respect of OFCOM obligations, through its decision making and control of finances.  HMRC contended that the term “entertainer” was restricted to those employed as “an actor, dancer, musician, singer or theatrical artist”, and that Ms Kelly had not demonstrated she had met any of these descriptions.

FTT’s assessment of the employment/self-employment factors

The FTT looked in particular at the following factors that go towards assessing whether someone has provided a contract of service:

• On the extent and degree of control exercised by the client over the worker.  The FTT were satisfied that control of Ms Kelly’s work pursuant to the hypothetical contract lay with Ms Kelly.
• On mutuality of obligations between the worker and the client the FTT considered that ITV was obliged to pay Ms Kelly for the services performed and there was an expectation that there would be up to 42 weeks of work per year. However, ITV was not obliged to call on Ms Kelly and the show could have been dropped.  In their view this created the “irreducible minimum” mutuality of obligation but was not determinative of the issues.
• Financial risk of the worker.  The percentage of Albatel’s income from ITV ranged from 33% to 69% and it was noted that ITV had broad powers under the contract to vary or terminate it for factors outside Ms Kelly’s control, though was still required to pay a minimum sum if it did so.    The FTT considered Ms Kelly was exposed to the type of risk which would be found in self-employment.
• Personal factors.  The FTT did not accept that Ms Kelly simply appeared as herself, but was satisfied that Ms Kelly presents a persona of herself; she presented herself as a brand, and that is the brand ITV sought when engaging her.
• The existence of employee rights.  The FTT noted Ms Kelly was not entitled to sick pay, holiday pay or other benefits to which employees generally have an entitlement. She was not provided with training nor subject to processes, such as appraisals, which ITV employees were.
• Whether the worker was part and parcel of the client’s organisation.    The FTT considered that the considerable and varied activities of Ms Kelly demonstrated she was not part and parcel of ITV, supporting the conclusion that she was in business on her own account.

Taking all the evidence together and making a qualitative assessment, the FTT considered the contract between Albatel (Ms Kelly) and ITV was a contract for services and not one of employer and employee. Additionally, the intention of both parties was clear – this was an agreement that was not one of deemed employment – it was a business to business transaction in which services were provided in exchange for payment.

How does this compare to the Christa Ackroyd case?

One case that this will (rightly) be compared to, is the previous ruling found against Christa Ackroyd.

Although on the face of it both cases are similar, the rulings are very different and this shows the importance of working practices and what is allowed as part of the contract. Control and Mutuality of Obligation are key factors in this respect. You can read more about the Christa Ackroyd case here.