The HMRC has been a source of press attention after a recent ruling found that Lorraine Kelly was not required to pay our a £1.2m tax bill due to her employment status as a freelancer for ITV under contracts for service.
This does not come as a surprise for many practitioners of contract law, as media companies predominantly operate under short-term ‘rolling’ contracts. Major broadcasters such as the BBC deploy six contract brackets, the majority of which enjoy full staffs benefits. This stands at odds with deals like Ant and Dec’s ‘Golden Handcuffs’ deal used to hold key stars to their network. In Kelly’s case, the contract she signed with ITV was negotiated by her husband’s company Albatel, a personal service company which – in HMRC’s eyes – made her liable to pay income tax and national insurance contributions of £899,912.95 and £312,615.54 for the period in question.
The ruling has been particularly interesting as Kelly’s employment status was deemed to be that of a “theatrical artist” by the presiding Judge. Kelly claimed to have been booked under a freelance contract, stating that it “was a contract for services and not that of employer and employee” (read more), meaning that Kelly did not avail of services such as time off for maternity leave, or sick and holiday pay. This led the Judge to classify Kelly as an entertainer, as “[she] 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.”
The principle argument of the case revolved around the concept of ‘control’. Kelly was able to secure her ruling as she had full autonomy over how her show was presented, with Joe Tully of Brookson Legal stating that “The question of control is key to determining if a person is employed or self-employed and clearly HMRC has struggled with interpreting this […] this further underlines the need for businesses to take action now to prepare for the challenge these changes will present”.
However, this is not the first-time media companies have had to resolve issues around employment taxation. Last year saw the BBC’s freelancer tax cause a range of problems for presenters, aides and freelancers who were forced to repay tax bills. This led the director general to make a public statement apologising for the issue – with HMRC identifying 800 individuals that were affected and starting by opening investigations into 100 of those employees. And with changes coming in affecting IR35 in April of next year, the government is still going through the consultation process which asks for views and information on several subjects, including the scope and usage of personal service companies.
Overall, the response to the ruling shows an appetite and awareness of media and freelance contract law when it comes into conflict with established IR35 tax laws, all of which may continue to cause serious damage and worry for many companies as the year continues.
When it comes to engaging new consultants or renegotiating professional service contracts with existing consultants, we can advise on the most effective strategy for your business.
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