Lorraine Kelly - To be employed or self-employed?

Overview

• Lorraine Kelly (LK) was engaged by ITV via her Personal Service Company (Albatel Limited)
• HMRC had issued a regulation 80 determination on her for income tax of ￡899,912.95 and Class 1 NICs of ￡312,615.54 under the “IR35” legislation. 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.
• As the condition of “personal service” was satisfied, the key consideration was whether the notional contract between Ms Kelly and ITV would have been a contract of service or a contract for services.
• LK also contended that any liability should be calculated following the deduction of agency fees.

An overview of the contractual terms

• An agreement was entered into on 9 July 2012 and subsequently amended on 14 February 2014. Subject to due performance of LK, ITV guaranteed the engagement of LK for a minimum period of 2 years and 6 months.
• Albatel Limited was to receive ITV’s invoices for the fees rather than producing its own.
• Either party was entitled to terminate the engagement at any time after 2 September 2014 on six months’ written notice. Additionally, ITV could termination LK’s engagement with immediate effect in certain circumstances
• The Agreement provided that the services would be provided to ITV by LK on “an exclusive and first call basis” for at least forty two weeks;
• The agreement specified that LK would provide her services between 7.00am and 9.30am and that ITV had an unlimited right to edit LK’s work
• In addition, LK could not provide her services to another broadcaster without ITV’s prior approval.

LK’s view of her arrangement

• LK argued that she has control over how she provides her services to ITV. She contended that she can choose the running order for the show e.g. allowing certain segments to overrun.
• There have been instances where she provided her services to other broadcasters (e.g. a penguin documentary on Channel 5). ITV are under no obligation to pay Ms Kelly if she is unable to present the show. It was estimated between 33% and 69% of LK’s income came from ITV.
• She is able to choose her own hours of work. Whilst she could leave once her show has been aired, often she will stay and attend team meetings. LK argued that when a contract expired there was no guarantee that it would be renewed.
• There were instances where she turned down opportunities such as interviewing Elton John, due to prior commitments. There were also instances where she was absent from the show for more than the allocated 10 weeks per her contract.
• LK confirmed that she did not receive the perks of an employee at ITV such as a pension nor do the obligations on ITV employees apply to her.
• LK is not provided with office space and carries out her preparation at home.

HMRC’s contentions

• LK was contractually obliged to provide her services to ITV and ITV was obliged to pay her for them. This would involve presenting the minimum number of agreed shows as well as carrying out the ancillary work required by ITV (for instance programme promotion and preparation);
• ITV would not be obliged to provide LK with work. However whether or not work was provided, ITV would still require to make payment to LK;
• LK would have no contractual right to provide a substitute to perform her duties. The obligation was to make available the services of a particular person and its obligation would not have been satisfied by making available the services of another individual. The final choice for a substitute was that of ITV;
• ITV would have to pay LK the agreed monthly fee specified in the contract subject only to LK failing to perform the work required;
• ITV could require LK to attend at production meetings, interviews, press launches, public relations and other events. LK would have no contractual right to any greater remuneration if she carried out the ancillary services contemplated in the contract. There may have been an element of give and take in the relationship but the right remained with ITV;
• ITV would have guaranteed the engagement of LK for a minimum of 2 years and 6 months. It could terminate the contract in giving 6 months’ written notice. However, if this occurred prior to the expiry of 2 years and 6 months, ITV would still require to pay LK for that minimum period; and
• ITV would have overall control of where, when, what and how the work was done.

The tribunal’s view

• Given ITV was obliged to pay LK for the services performed and there was an expectation that there would be up to 42 weeks of work per year, HMRC’s view was that mutuality of obligation was present.
• Given LK determined the programmes running order, attended interviews personally, lead her team and free to carry out other work and activities without any real restriction, the tribunal contended that ITV did not control LK’s work;
• As LK was not entitled to sick pay, holiday pay or other benefit this was a helpful indicator of self-employment.
• Whilst there was no scope for LK to increase profits, she was exposed to the type of risk which would be found in self-employment, such as the programme being dropped or long-term sickness rendering her unable to provide her services.
• Tribunal considered that ITV was not employing a “servant” but rather purchasing a product, namely the brand and individual personality of Lorraine Kelly.

Based on the above, the Tribunal considered the engagement not to fall within the scope of the IR35 rules.