We heard today that a national favourite, Lorraine Kelly, succeeded against HMRC's claim that her engagement on the 'Lorraine' show through her PSC, 'Albatel Ltd.' was not caught by the controversial IR35 legislation (Chapter 8, Part 2, ITEPA 2033).
There'll be plenty of commentary on this case; here are my thoughts.
1. No new principles were established here. That is not much of a surprise, this being a hearing of the First-Tier Tribunal (and not binding on any other tribunal or court).
2. Lorraine Kelly's case appeared to have real merit and yet HMRC pursued it doggedly through ADR and on to appeal, losing solidly on all material points.
3. Inevitably, comparisons will be made with the Christa Ackroyd case (a rare win for HMRC on IR35 in recent times). Like Lorraine Kelly, Christa Ackroyd was a big name, in front of camera 'talent'. I don't watch much TV myself (Netflix, when I do...) but I understand that Lorraine Kelly has more of a national presence and brand. Nevertheless, both put forward similar points; they were brands in their own right, they were in business on their own account, they were subject to only limited control (and much of that in order to comply with overarching broadcasting regulations), both provided their own resources and both did their own preparatory work.
On my reading, the differences between Lorraine Kelly’s and Christa Ackroyd’s cases were ones of degree rather than nature. The former was a bigger name, had more external business, was subject to less control and did more preparatory work on her own account and so on.
Where does that leave individuals, public bodies and (in the future) private engagers? It does little to help define the boundaries of IR35 and emphasises the 'you'll recognise it when you see it' approach. Unfortunately, unless we get a comprehensive ruling from at least the Court of Appeal which provides a clearer approach (or new legislation), nothing will change on this front.
4. Judge Jennifer Dean, in her judgment, drew guidance from Henderson J's formulation of the approach to take when it comes to the intentions of the parties, which is a fair approach as it is perhaps the most senior judicial guidance on the point (being a decision of the High Court). Dragonfly Consultancy Limited v HMRC [2008] EWHC 2113 (Ch).
Yet, as I discussed in Taxation magazine (Issue 4676, 11 Dec. 2018), the authorities on the importance of the intentions of the parties are far from being in agreement. I argued that the intentions of the parties should in fact be very important (rather than marginal) because, as a matter of fundamental law of contract, a contract can only exist where the parties agree and only exists to the extent that they agree. As Lord Clarke put it in the Supreme Court judgment in RTS Flexible Systems Limited v Molkerei Alois Müller GmbH & Company KG (UK Production) [2010] UKSC 14, at paragraph 45, ‘Whether there is a binding contract between the parties, and if so upon what terms, depends upon what they have agreed.’
In Pimlico Plumbers Ltd and another v Smith [2018] UKSC 29, an employment case, it was significant that the parties embraced the individual's self-employed status. That case involved a direct, rather than a notional contract, of course.
In my article, I said this: 'IR35 applies if the ‘worker’ would have been ‘…regarded for income tax purposes as an employee…’ By virtue of ITEPA, s 4(1), this means ‘…employment under a contract of service [or apprenticeship or service of the Crown]’. Hypothetical it may be, but the relationship is contractual in nature.’
How can the intentions of the parties be anything less than a significant and material element in determining what the notional contract would have been?
It is a shame to say it but IR35 remains a difficult and woolly area and yet, for all of that, still very technical indeed. As we move toward the roll-out of IR35 reforms to the public sector, everyone involved needs to think hard about the advice they should seek to protect themselves from enquiry.
There'll be plenty of commentary on this case; here are my thoughts.
1. No new principles were established here. That is not much of a surprise, this being a hearing of the First-Tier Tribunal (and not binding on any other tribunal or court).
2. Lorraine Kelly's case appeared to have real merit and yet HMRC pursued it doggedly through ADR and on to appeal, losing solidly on all material points.
3. Inevitably, comparisons will be made with the Christa Ackroyd case (a rare win for HMRC on IR35 in recent times). Like Lorraine Kelly, Christa Ackroyd was a big name, in front of camera 'talent'. I don't watch much TV myself (Netflix, when I do...) but I understand that Lorraine Kelly has more of a national presence and brand. Nevertheless, both put forward similar points; they were brands in their own right, they were in business on their own account, they were subject to only limited control (and much of that in order to comply with overarching broadcasting regulations), both provided their own resources and both did their own preparatory work.
On my reading, the differences between Lorraine Kelly’s and Christa Ackroyd’s cases were ones of degree rather than nature. The former was a bigger name, had more external business, was subject to less control and did more preparatory work on her own account and so on.
Where does that leave individuals, public bodies and (in the future) private engagers? It does little to help define the boundaries of IR35 and emphasises the 'you'll recognise it when you see it' approach. Unfortunately, unless we get a comprehensive ruling from at least the Court of Appeal which provides a clearer approach (or new legislation), nothing will change on this front.
4. Judge Jennifer Dean, in her judgment, drew guidance from Henderson J's formulation of the approach to take when it comes to the intentions of the parties, which is a fair approach as it is perhaps the most senior judicial guidance on the point (being a decision of the High Court). Dragonfly Consultancy Limited v HMRC [2008] EWHC 2113 (Ch).
Yet, as I discussed in Taxation magazine (Issue 4676, 11 Dec. 2018), the authorities on the importance of the intentions of the parties are far from being in agreement. I argued that the intentions of the parties should in fact be very important (rather than marginal) because, as a matter of fundamental law of contract, a contract can only exist where the parties agree and only exists to the extent that they agree. As Lord Clarke put it in the Supreme Court judgment in RTS Flexible Systems Limited v Molkerei Alois Müller GmbH & Company KG (UK Production) [2010] UKSC 14, at paragraph 45, ‘Whether there is a binding contract between the parties, and if so upon what terms, depends upon what they have agreed.’
In Pimlico Plumbers Ltd and another v Smith [2018] UKSC 29, an employment case, it was significant that the parties embraced the individual's self-employed status. That case involved a direct, rather than a notional contract, of course.
In my article, I said this: 'IR35 applies if the ‘worker’ would have been ‘…regarded for income tax purposes as an employee…’ By virtue of ITEPA, s 4(1), this means ‘…employment under a contract of service [or apprenticeship or service of the Crown]’. Hypothetical it may be, but the relationship is contractual in nature.’
How can the intentions of the parties be anything less than a significant and material element in determining what the notional contract would have been?
It is a shame to say it but IR35 remains a difficult and woolly area and yet, for all of that, still very technical indeed. As we move toward the roll-out of IR35 reforms to the public sector, everyone involved needs to think hard about the advice they should seek to protect themselves from enquiry.
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