IR35 status: when is an employee really a “self employed star”?

Businesses are likely to face difficulties determining the IR35 status of contractors who use limited companies when new regulations are in force from April 2020. As this recent case shows, even HMRC has had difficulty determining the correct position in this complex area of the law and penalties will be levied on businesses that get this wrong.

In this most recent case, Lorraine Kelly, the television presenter, has successfully won her appeal against HMRC, arguing through her company Albatel that she is not employed by ITV but rather by appearing as “Lorraine Kelly” - her chatty TV persona - she is in fact self employed star.

HMRC attempted to argue that the 'IR35' anti-avoidance provisions (contained in ITEPA 2003 s 49 and reg 6 of the Social Security Contributions (Intermediaries) Regulations, SI 2000/727) applied to the provision of Kelly’s services to ITV, pursuing her for a £1.2 million tax bill. HMRC tried to suggest that there was ‘contract of service’ not a ‘contract for services’.

The effect of the legislation, where it applies, is to treat the fees paid to a service company not as company revenue upon which corporation tax is payable, but rather as deemed salary to the worker, which is subject to income tax and NIC. The legislation applies to those workers who would be treated for income tax and NIC purposes as being employed under a contract of service by the client, were it not for the involvement of the personal service company or agency.

Amongst other factors, HMRC was unable to establish that ITV had control of Ms Kelly as if she were an employee - accordingly, there was no finding of an employee/employer relationship.

HMRC is likely to continue to challenge taxpayers in this area, given the importance of the employment status of workers. Much needed guidance on the application of IR35 is beginning to emerge and businesses should continue to take note as further clarity emerges.

Posted on 28 March, 2019 by Ortolan

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