Cover story: the Lorraine Kelly ruling
Andy Vessey analyses the recent Lorraine Kelly decision and its implications for IR35
After their success in the Christa Ackroyd Media Ltd case last year, no doubt HMRC believed they were on to another winner in deciding to defend Albatel Ltd (Lorraine Kelly’s PSC) appeal at the First-tier Tax Tribunal.
For the past few years HMRC have been pursuing TV and radio presenters from a starting position that they are all caught by IR35, twisting the facts to match that predetermination. This appeal highlighted that partisan attitude, with HMRC relying on the contractual terms because the facts didn’t aid their cause.
Albatel Ltd was formed in September 1992 by Stephen and Mrs Lorraine Smith (professionally known as Lorraine Kelly). No previous IR35 challenge had been made by HMRC despite an enquiry into the company’s 2009 return which was eventually closed with no amendments.
HMRC were interested in two contracts. The first ran from September 2012 for two-and-a-half years under which Ms Kelly provided her services, via Albatel, to ITV Breakfast Ltd on the television programmes ‘Daybreak’ and ‘Lorraine’.
In February 2014, the agreement was amended so that Kelly was to personally provide her services as a lead presenter on both programmes up to 10 April 2014. From 11 April 2014 – 15 July 2017 this activity was confined to the ‘Lorraine’ programme.
With the contracts generating annual fees of in excess of £1m, there is little wonder that HMRC selected Kelly for enquiry. In return for such handsome reward, Kelly was to provide her services for 42 weeks each year, excluding bank holidays.
During the course of the enquiry a meeting took place at ITV studios in July 2015 between HMRC officials and ITV representatives to discuss aspects of Kelly’s working arrangements.
In January 2017, tax and NIC assessments were finally varied to give a combined liability in excess of £1.2m.
Having reached an impasse with HMRC it appears Kelly sought to resolve the issue by Alternative Dispute Resolution (ADR), but to no avail. She was then left with no option but to take her appeal to the tax tribunal.
At the tribunal hearing HMRC did not rely on any witnesses, preferring instead to base their arguments on the contractual arrangements, which the department believed reflected the true contract between the parties.
Mutuality of obligation (MOO): As the contract provided for services for up to 42 weeks, allowing for holidays in the same manner that employees would be entitled, it was consistent with a contract of employment. Furthermore, Kelly was obliged to perform if called on to do so by ITV and regardless of whether they did so or not, ITV were obligated to pay Albatel.
Right of control: When it came to this status test HMRC were always going to draw parallels with the Decision in Christa Ackroyd, where the Tribunal found that the BBC retained the contractual right of control over the presenter.
The Revenue accepted that Kelly used her own judgement during the presenting of programmes. However, during live broadcasts there was no way ITV could determine what Kelly would say before she spoke. Such a practical inability to control the decisions at the moment of delivery of skilled work, such as a surgeon or footballer for example, was not inconsistent with employment.
Editorial control was given over to ITV by the terms of the contract which also required Kelly to co-operate with instructions from ITV, which included matters ancillary to the shows.
While ITV might listen to Kelly’s suggestions, it is the editor who has overall authority for putting the ‘Lorraine’ programme together.
ITV is ultimately responsible for the output and has the right to reject both guests and editorial suggestions made by Kelly.
The television programme guidelines laid down by OFCOM were another example of control.
It was accepted by Kelly that ITV controlled the timings. The contract also contained rights and restrictions on Kelly which was relevant to the ‘what’ element of control.
The ‘how’ aspect was fulfilled by ITV’s contractual right to edit the programme and for the producer to make reasonable requests of Kelly.
Integration: Kelly had worked for ITV for over 30 years and was part and parcel of the “ITV family”. Viewed in its entirety, HMRC considered Kelly’s situation to be one of substantial part-time employment.
Counter arguments and decision
The eminent Keith Gordon, representing Lorraine Kelly, conceded personal service was a feature of the contract as Kelly could not send a substitute. He did not, however, yield on the MOO test, although the Tribunal found it existed but only in as much to establish the existence of a contract and no more.
The main focus of Kelly’s case was the ‘what’ element of control, and if it could be proved that there was a lack of sufficient control that would be fatal to the existence of an employment relationship. Unlike the Christa Ackroyd case, where the BBC could direct Ms Ackroyd to present any programme of their choice, ITV had no right to tell Kelly what to do.
The role of OFCOM as a regulator was irrelevant to the control test as it applied as a professional body to everyone in the industry. HMRC have been defeated on the point of industry standards on many an occasion but they still don’t listen!
Kelly was given a free rein and controlled the format of the programme and therefore there was insufficient control to point towards an employment contract.
ITV was not employing a “servant” but rather purchasing a product; namely, the brand and personality of Lorraine Kelly. This distinguished her from that of just a presenter. While there were other factors considered, this was enough to see off IR35.
With the amount of tax and NIC at stake and the importance of this case to similar enquiries HMRC are currently running, it will be interesting to see if the department appeal this decision. If the Eamonn Holmes decision goes against them too, HMRC will truly have their nose bloodied.
• Andy Vessey is Head of tax at Larsen Howie