Albatel Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 16 March 2019 |
| Neutral Citation | [2019] UKFTT 195 (TC) |
| Date | 16 March 2019 |
| Court | First Tier Tribunal (Tax Chamber) |
[2019] UKFTT 195 (TC)
Judge Jennifer Dean, Mr Ian Menzies-Conacher FCA
Mr Keith Gordon, Counsel appeared for the appellant
Miss Elisabeth Roxburgh, Advocate instructed by the Office of the Advocate General, appeared for the respondents
Income tax and National insurance – Intermediaries legislation – IR35 – ITEPA 2003, s. 48–61 – Personal service company – Contract for services or contract of service – Appeal allowed.
The First-tier Tribunal (FTT) allowing appeals against assessments on Lorraine Kelly's personal service company, Albatel Ltd, held that IR35 did not apply.
Ms Kelly was contracted in July 2012, via her and her husband's company Albatel Ltd, to be the lead presenter on two television programmes for ITV Breakfast Ltd, “Daybreak” and “Lorraine”.
HMRC issued a reg. 80 determination and notice of decision in respect of Class 1 NICs arising from the application of the employment intermediary rules, commonly known as IR 35 rules, for £1,212528.
Ms Kelly maintained that she was a self-employed entertainer and theatrical artist who was playing a part when she presented her shows.
Her contract was for a minimum of two years and six months, she was paid a fixed sum per year on a monthly basis and was entitled to be absent for ten weeks per year. The contract also set out the days and times she was required to provide on-screen services, required her to provide creative input into the production of the programme, and she was involved in every aspect of running the show, including content and running order.
Ms Kelly decided her own hours, carried out her own research and prepared interviews outside the contracted hours. As she was an entertainer, she was able to promote and endorse commercial products and had launched her own clothing range. She was also able to work for other broadcasters. She did not receive sick pay or a pension and she was entitled to send a substitute if she was unavailable.
Ms Kelly gave a number of examples of turning down interviews. She also told the FTT about an expedition to Antarctica she had made which was not for ITV but for a magazine and for which she was absent from the show for four weeks in addition to the 10 weeks holiday specified in her contract. She was also not bound by ITV's Code of Conduct which was for employees.
HMRC contended that had there been a direct contract between Ms Kelly and ITV Breakfast Ltd during the period of engagement it would have been a contract of service. There was mutuality of obligation with ITV. The contract provided for services for up to 42 weeks allowing for holidays as employees would be entitled to. It was therefore not inconsistent with a contract of employment. Furthermore, Ms Kelly was obliged to perform if called on by ITV to do so and regardless of whether they did or not, they were obliged to pay the appellant.
HMRC submitted that Ms Kelly fell into the category of persons who could have both an employment and separate self-employed income. They did not question Ms Kelly's talents as a presenter but highlighted that it was perfectly feasible for a skilled person to be an employee. HMRC drew a parallel with the facts of this case and the decision in Christa Ackroyd Media Ltd [2018] TC 06334, in which the Tribunal accepted the appellant's factual case, for example, that Ms Ackroyd was expected to drive ratings, and was involved in the look, feel and approach of the programme and had a high degree of autonomy. However, the Tribunal in that case found that the BBC retained the contractual right of control consistent with employment.
With regard to agency fees Ms Kelly had paid to her agent, Roar Global, for negotiating the contract, HMRC argued these were not deductible. The correct interpretation of the legislation was that agency fees were only deductible if an employee would have been able to deduct them; the vehicle was via an employee not the company and therefore there had to be a contract between Roar Global and Ms Kelly with the obligation on Ms Kelly to pay the fees to Roar. However, the evidence was that the liability was that of Albatel, not Ms Kelly.
The FTT considered whether there was a contract of services or a contract for services and whether agency fees paid to Roar Global by the appellant were deductible expenses.
The FTT held that although there was a mutuality of obligation, it only amounted to the “irreducible minimum” and was not determinative of the issue.
The FTT were satisfied that the control of her work lay with her. The level of control by ITV fell far substantially below the sufficient degree required to demonstrate a contract of service.
Looking at the overall picture the FTT concluded that the relationship between Ms Kelly and ITV was a contract for services and not that of employer and employee. ITV was not employing a “servant” but rather purchasing a product, namely the brand and individual personality of Lorraine Kelly.
The appeal was allowed.
The ancillary issue of the deduction for agent's fees had no bearing on the appeal but the parties requested the FTT address the issue. The FTT said that it had no hesitation in concluding Ms Kelly was a “theatrical artist” and the legislation was satisfied that the expenses were deductible.
The result in this decision was in contrast to the recent Christa Ackroyd Ltd case involving the BBC which resulted in the FTT upholding HMRC's decision to apply IR35. In this case, the FTT held that ITV did not employ Ms Kelly but was buying her brand.
[1] By Notice of Appeal dated 17 February 2017 the Appellant appealed against a regulation 80 determination assessed in the sum of £899,912.95 and notice of decision in respect of Class 1 NICs assessed in the sum of £312,615.54 arising from the application of the intermediaries legislation (commonly referred to as “the IR35 legislation”).
[2] The purpose of the IR35 legislation was set out by Robert Walker LJ as he then was in R (on the application of Professional Contractors' Group Ltd) v IR Commrs [2002] BTC 17 at [51]:
… the aim of both the tax and the NIC provisions (an aim which they may be expected to achieve) is to ensure that individuals who ought to pay tax and NIC as employees cannot, by the assumption of a corporate structure, reduce and defer the liabilities imposed on employees by the United Kingdom's system of personal taxation.
[3] 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 NIC and income tax 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.
[4] In this case HMRC concluded that had there been a direct contract between Lorraine Kelly and ITV Breakfast Ltd during the period of engagement it would have been a contract of service, giving rise to a need to account for income tax and NICs in the relevant period. HMRC also contend that agency fees paid to Lorraine Kelly's agent Roar Global Ltd and paid by the Appellant are not deductible expenses.
[5] The Appellant was incorporated on 4 September 1992. The directors and shareholders are Mr Stephen Smith and Mrs Lorraine Smith (professionally known as Lorraine Kelly). The Appellant is the personal service company of both Mr and Mrs Smith, however this appeal is only concerned with Mrs Smith. In this Decision we will refer to Mrs Smith as Ms Kelly as that is name used on the contractual documentation and by the witnesses. During the tax years 2012/13 to 2015/16 inclusive, the Appellant contracted to provide Ms Kelly's services as a presenter.
[6] By a contract dated 9 July 2012 the Appellant contracted to provide the services of Ms Kelly to ITV Breakfast Ltd in connection with the television programmes “Daybreak” and “Lorraine”. The services were to be provided from 3 September 2012 for a minimum of 2 years and six months (“the Agreement”).
[7] By an amendment agreement dated 17 February 2014 (“the Amended Agreement”) the Appellant contracted to amend the Agreement so that it was contracted to provide Ms Kelly's services to ITV Breakfast Ltd:
- as a lead presenter on television programmes Daybreak and Lorraine for the period from 3 September 2012 to 10 April 2014 and;
- as a lead presenter on television programme Lorraine for the period from 11 April 2014 to 15 July 2017.
[8] A meeting took place at ITV Studios, London on 9 July 2015 between employees of HMRC and representatives from ITV. Following that meeting, by letter dated 28 September 2015, Mr Derek Richards, described as the Group Tax Compliance Manager at ITV, returned signed notes of the interview together with additional information, more about which we will say in due course.
[9] By letter dated 22 July 2016 HMRC issued to the Appellant:
- Notices of Tax in respect of income tax deductible via PAYE (the Determinations); and
- A Notice of Decisions in respect of Class 1 NICs (the Notice).
[10] By letter dated 23 January 2017 the Determinations and Notice were varied. The determinations and notice of decisions were made on the basis that the IR35 legislation applies to the arrangements entered into between Albatel and ITV for the provision of the services of Ms Kelly.
[11] The Grounds of Appeal relied upon by the Appellant can be summarised as follows: the nature and range of Ms Kelly's work mean that she should be treated as a self-employed star. Consequently, the IR35 legislation cannot be invoked so as to deem there to be any employment relationship. Furthermore, the Tribunal is invited to find that a deduction would have been permissible for agent's fees paid if the IR35 legislation is deemed to apply to the facts of this case.
[12] The parties have agreed a net...
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