In Albatel Limited v HMRC [2019] TC07045 the First Tier Tribunal allowed appeals against assessments of £1.2m on Lorraine Kelly’s personal service company; IR35 did not apply, ITV did not employ her, it was buying her brand.
The employment intermediary rules, known as IR35 impose employment taxes on a Personal service company (PSC):
- Where the arrangements between the worker and the end client are such that, if engaged directly, the worker would have been an employee.
- The PSC must treat the amounts received as employment income of the individual and operate PAYE.
The case also involved the question as to whether Agent's Fees paid were a deductible employment expense.
Between 2012 and 2014 Lorraine Kelly was contracted, via her company Albatel Limited which was set up in 1992, to present two shows for ITV Breakfast Ltd, Lorraine and Daybreak.
- Her contract was for a minimum of 2.5 years for which she was paid a fixed sum per year on a monthly basis. It allowed her ten weeks non-working time per year.
- The contract also specified her onscreen days and hours, allowed her creative input, and she was involved in every aspect of the show, including changing the script and running order.
- She decided her own hours, undertook her own research outside of contractually committed hours, worked for other broadcasters and had her own clothing line. She did not receive sick pay or a pension. She was entitled to send a substitute if she was unavailable.
She maintained that she was a self-employed entertainer and theatrical artist who was playing a part when she presented the shows in question.
HMRC issued a regulation 80 determination and notice of decision in respect of Class 1 NICs arising from the application of the IR35 rules for £1,212,528 contending:
- Had there been a direct contract between Lorraine Kelly and ITV Breakfast Ltd during the period of engagement it would have been a contract of service.
- There was mutuality of obligation with ITV.
- The agency fees she had paid to her agent were not deductible expenses.
The FTT in allowing the appeals analysed whether there was a contract of service, or for services:
- There was mutuality of obligation, but it amounted only to the “irreducible minimum” and was not determinative of the issue.
- Control of her work lay with her; the level of control by ITV fell substantially below the sufficient degree required to demonstrate a contract of service.
- Looking at the overall picture the relationship between Ms Kelly and ITV was a contract for services and not that of employer and employee. ITV was not employing a “servant” it was purchasing a product, namely the brand and individual personality of Lorraine Kelly.
On the question of a deduction for Agent's fees, the FTT said:
"We do not doubt that Ms Kelly is an entertaining lady, but the point is that for the time Ms Kelly is contracted to perform live on air she is public “Lorraine Kelly”; she may not like the guest she interviews, she may not like the food she eats, she may not like the film she viewed but that is where the performance lies, as no doubt with other entertainers such as Ant and Dec or Richard and Judy. For that reason, we have no hesitation in concluding that Ms Kelly is a “theatrical artist” and the legislation is satisfied such as to make the expenses deductible."
Comment
In contrast previous cases involving the BBC have resulted in the FTT upholding HMRC’s decision to apply IR35. It is reported that more IR35 appeal cases involving ITV presenters are likely to reach the tribunal in the near future.
Ant and Dec apparently now join the list of TV presenters who count as entertainers!
Links to our guides:
Personal Service Company (PSC) tax
Exemption for paid and reimbursed expenses
What expenses can employees claim? Agents fees
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