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Markel Tax

25 Apr 2019

IR35 in the spotlight again

Mollie Bloor of Markel Tax provides an insight into the unusual decision and examines why the Tribunal came to their decision and how useful it is to future IR35 challenges.

Another television star has faced the brunt of HMRC’s wrath but in a somewhat surprising judgement the Tribunal found in favour of taxpayer. The ITV presenter Lorraine Kelly, most known for her work on the famous breakfast show, was found to be outside of IR35 and has successfully appealed against a tax and national insurance bill of £1.2m.
 
Control
In the Tribunal’s decision the key determining factor was Ms Kelly’s right of control, but this was not interpreted as one may expect.  The traditional focus on the “how” element of control took a back-seat instead focus was given to other factors of control such as the “what” and “where”.
Emphasis was given to the facts Ms Kelly chose “what” guests were interviewed, “what” clothes she wore and “what” hours she chose to work (i.e. early mornings and even a pre-recorded Friday show so that she was able to spend more time with her family).  The judge decided that “it was …demonstrated Ms Kelly (was) being engaged to use her skills as she saw fit and with a free rein”.
Ms Kelly also had control on “where” the Services were performed. When offered a change of studio location she vetoed the option. ITV even offered a location in Scotland, where Ms Kelly lives and again, she still refused.
Unlike the case of Christa Ackroyd Media Ltd vs HMRC [TC/2016/04992] which, understandably, was referenced a lot in this case, Ms Kelly did her own research and didn’t follow a script.  It was her specific skill set that was key here (rather than just reading lines on air).
 
While there were “industry requirements” that Ms Kelly had to comply with, this didn’t affect her right of control as this was applicable anyone regardless of employment/self-employment and non-compliance with OFCOM could have had a detrimental impact on her career.
The Judge eventually decided that the level of control Ms Kelly was subject to “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.”
It is clear that control was the main element that successfully defended Ms Kelly’s case as it was determined that Ms Kelly had ultimate control over the services provided. The judge determined that we accepted Ms Kelly’s evidence that she decided on the running order of the programme, the items to feature and the angle to take in interviews. In looking at the overall picture we were wholly satisfied from the evidence that contrary to being part of a jigsaw, Ms Kelly was the jigsaw.” 
 
Unlike Christa Ackroyd, who had the BBC exercise ultimate control over what services were to be provided, including restrictions regarding if she wished to provide services elsewhere.
 
While this is a positive result, it is perhaps a little hard to reconcile the commentary on control in line with established case law precedent, or that “specific skills” of Ms Kelly were unique (especially, considering that when Ms Kelly was unavailable to do the show, any replacement could have followed suit).
 
Personal Service/Substitution
Personal service is one of the key tests when determining IR35 status, in most cases focus is placed on the right for an individual to send a substitute in his place (being strong evidence of a lack of personal service).  In this case, however, it wasn’t simply a matter of sending a replacement; the tribunal was more interested in Ms Kelly as the “brand” Lorraine.
There wasn’t a “a genuine right of substitution” in this case, in a traditional sense (even though Ms Kelly was said to be in charge of who stepped in as a replacement).  In the event Ms Kelly was unable to perform the services ITV paid that person directly.  This wouldn’t, in our opinion, hold weight in most cases as a true right of substitution if the client were to pay the replacement, rather than limited company contractor.
In considering personal service the judge stated:  
“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.”
 
Again, for many it may be hard to reconcile this with established case law.  The concept of a “brand” is nothing new however it is perhaps a little difficult for most people to differentiate Ms Kelly as a “person” from Lorraine Kelly the “brand” when clearly the “product” and the “person” are so inextricably linked..
 
Mutuality of Obligation
Ms Kelly did not only present the “Lorraine” show, she is involved with other projects such as acting as a brand ambassador for Avon and, JD Williams. She went on an expedition to Antarctica unrelated to ITV, meaning she was absent from the show for 4 weeks which was not taken as part of her “holiday” entitlement. These factors clearly outlined that Ms Kelly was not required to exclusively provide services to ITV. However, the likelihood of termination is highly unlikely as without Ms Kelly, the Lorraine show’s “brand” would struggle to continue.
It is interesting to note that Ms Kelly is required to give 6 months’ notice.  In our view this is another factor that, traditionally, would not support the taxpayer in other IR35 cases.

Business Factors
Other factors further supported Ms Kelly’s case such as a lack of entitlement to holiday pay, sick pay, pension or any other employee benefits which are available to ITV’s own staff. Ms Kelly was also not subject to appraisal processes and training which are akin to employment.

Final Points
Judge Jennifer Dean’s final ruling was that “looking at the overall picture and making a considered and qualitative assessment of the evidence as a whole we have reached the view that the relationship between Ms Kelly and ITV was a contract for services and not that of employer and employee.”
 
The decision is surprising given that when you break down each of the fundamentals of IR35 it is not clear cut on any of the fundamentals (and certainly not in comparison to previous IR35 and Status decisions).  One may even suggest that even when standing back and looking at the picture as a whole it is does not present a clear picture either, however the Judge in case felt otherwise and was swayed by the branding and independence of Ms Kelly.
 
In our opinion the decision is of limited use for taxpayers and representatives defending against an IR35 challenge and is clearly a unique decision resting largely on its facts (although we can see scope for future arguments in respect of “brand”), and we wait eagerly to see if HMRC appeal this decision.
 
For further information and help with IR35 please contact Markel Tax on 03450 660035.
 
Tagged Sheffield IR35
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