Lorraine Kelly had more than mere luck on her side to beat IR35
If you’ve read the latest contractor news, or even picked up a national newspaper in the last week or so, you’ll have seen that the well-known TV host Lorraine Kelly inflicted yet another defeat on HMRC, in an IR35 tax tribunal that carried an enormous £1.2m in liability, writes Seb Maley, chief executive of Qdos Contractor.
As readers of more than just the nationals will know, this isn’t the first IR35 case involving a high-profile media personality. Nor is it likely to be the last. Right now, Eamonn Holmes finds himself embroiled in an IR35 case that carries a reported £2m in tax, while last year, the BBC presenter Christa Ackroyd was forced to pay more than £400,000 to HMRC after it was decided her working relationship with the broadcaster belonged inside IR35. She is appealing.
Kelly Vs Ackroyd
Aside from the fact Ms Ackroyd and Ms Kelly are both TV presenters, I’ve read one quite extensive argument that states that good fortune was perhaps all that separated these two cases. In other words, one individual was lucky and one, quite frankly, wasn’t.
There were, of course, clear similarities between the two presenters’ working arrangements due to the very nature of the role they perform. But that isn’t to say that, in my view, Ms Kelly was lucky and Ms Ackroyd wasn’t.
It is our view that the BBC presenter’s engagement had clear pointers towards being ‘inside IR35’, while it has since become apparent that it was company policy for presenters to work through personal service companies irrespective of their working arrangement. The engagement Ms Kelly’s company had with ITV Breakfast, on the other hand, was more reflective of a contract for services, and one that rightly belonged outside the scope of IR35.
Control was king for both queens of the screen
Court notes from both cases tell us the outcomes both hinged on the element of ‘Control’. Ms Ackroyd worked directly under the control of the BBC, while Ms Kelly, it seems, had much more of a say about how she provided her services.
We’re told Ms Kelly, for example, could -- to a certain extent -- come and go as she pleased, turn down work (including a 4am interview over the phone with Elton John because it was “inconvenient”) and take on projects with other clients. At the time of her ITV contract, Ms Kelly was writing for other media outlets, designing and advertising a fashion label. She was not part and parcel of ITV Breakfast Ltd -- not by a long shot. Autonomy was clearly on her side.
Unsurprisingly, this led the judges in the case to explain that her contract “falls far substantially below the sufficient degree required to demonstrate a contract of service.” By all accounts, this seemed like a clear-cut IR35 case. The judges themselves confirmed this, explaining that they didn’t consider it “borderline.”
Do you need permission to engage another outfit?
Ms Ackroyd’s however, was a different story. Given the BBC’s editorial responsibility, she had little choice but to work under the control of the broadcaster. In addition, her contract didn’t allow her to work with other companies without permission from her client, indicating that the BBC was ultimately the arbiter. Contrast that to Ms Kelly’s case, in which she said that she “did not need to obtain ITV’s consent” to undertake work for other radio and TV outlets, rather she would just “tell” ITV “out of courtesy.”
On a slightly different note, and one not altogether related to IR35, I did read another account (this time in the mainstream media, as opposed to the tax industry press) about Ms Kelly’s case, which posed the question of whether we, as viewers, could ever trust her again, given that she claimed in court to have been ‘playing a version of herself.’ In my opinion, this criticism is a little harsh. You’d imagine that most TV personalities are, in effect, playing a version of themselves. Certainly, we all act somewhat differently in the workplace than we do outside of it -- perhaps even more so when you happen to be a business owner.
HMRC, the wounded animal wanting a big kill in front of the tribe
Ominously for contractors more generally, Ms Kelly’s case is reflective to us of HMRC’s short-sighted and very damaging strategy. It feels like the taxman is hoping to scare genuine freelancers and contractors by trying to catch out particularly high-profile individuals whose tax liability runs into the millions. In that event, the story is certain to hit national newspapers. That’s why this IR35 case, more than Ackroyd arguably, but similar to Holmes, has even made it into the consciousness of tabloid and broadsheet readers across the country. It would have been a major PR victory for the Revenue if it had beaten Kelly -- rather than get thrashed as it did.
Instead, we’d liken HMRC’s behaviour to that of a wounded animal. In its desire for the ‘big kill’ that the tribe will notice, it has no hesitation in lashing out and unfairly savaging its prey -- contractors who, on closer inspection, are clearly operating compliantly.
Bearing in mind that Lorraine Kelly is the latest person in a number of well-known individuals being taken on by the taxman, you are left to wonder just how random HMRC’s selection process is. It’s clear that the taxman is desperate to make a statement by winning a high-profile case. That it keeps losing simply reinforces the theory that HMRC cannot understand the very legislation it created, enforces and insists on reforming.
Stay on high alert until next April (but don’t put stock in luck)
For contractors operating outside IR35, all of this will, of course, come as a concern -- albeit not much of a surprise. HMRC is unpredictable, aggressive and quite prepared to place unnecessary emotional and financial pressure on genuinely self-employed contractors who are operating within the law. Therefore, contractors would be wise to be on high alert and confident in their IR35 status, irrespective of the fact that from next April they won’t be setting it themselves in the private or public sectors.
In conclusion, and when asking ourselves whether Ms Kelly was fortunate or not, in my opinion, she was simply unlucky to be investigated by HMRC and luck itself did not play its part in her successful appeal.
While Ms Kelly’s actual working arrangement played a more important role in the verdict than the contract she initially signed, an IR35-compliant contract is an important tool in making sure an individual is working compliantly from the very beginning.
IR35: a fact-based world
Should HMRC open an enquiry regardless of this, irrefutable proof in the cold-hard fact-based world of IR35 matters. There is no room for luck, superstition or good fortune. From obtaining a Confirmation of Arrangements document to arming yourself with evidence that demonstrates the engagement belongs outside the scope of IR35, contractors can challenge HMRC or even convince a risk-averse client that they belong outside the rules. For the latter convincing process, a little bit of luck is arguably more likely to be in play -- but it’s a mere modicum we’re talking about, so don’t rely on it.