When off-payroll really is off-payroll
HMRC recently lost two tax tribunal appeals against rulings that individuals providing their services through limited companies should be taxed as employees under the intermediaries rules, commonly known as IR35. Both cases concern television presenters but have far wider significance.
Lorraine Kelly used a limited company for her engagements with ITV Breakfast. HMRC claimed she was working as if she were an ITV employee and so owed tax and national insurance contributions totalling over £1.2 million.
However, the tribunal ruled that control was the key factor and ITV Breakfast had not controlled Ms Kelly as if she were an employee. She had considerable freedom over her performance, presenting herself as ‘a friendly, chatty and fun personality’, rather than appearing merely as herself. She did not receive pension benefits, sick pay or holiday pay, and worked for several other media outlets.
Kaye Adams also succeeded in her appeal against an HMRC challenge over her engagement with the BBC as presenter of The Kaye Adams Programme. A crucial point in her favour was her numerous other engagements, which indicated that she was clearly in business on her own account.
Considering the broader picture
Although Ms Adams had to provide her services personally and mutuality of obligation was present, other terms of the contract were consistent with self employment. In reality Ms Adams was largely in control of her work and, looking at the overall picture, the relationship between Ms Adams and the BBC was not one of employment.
HMRC recommends that businesses use its ‘Check Employment Status for Tax’ (CEST) tool to determine whether the off-payroll working rules apply to an engagement. The Chartered Institute of Taxation (CIOT) has recently criticised the CEST tool, saying that it makes inaccurate status determinations because it fails to consider essential employment case law before arriving at a decision. HMRC insists that CEST is reliable, but its recent failures at the tax tribunal cast doubt on this claim.
While employers should still use CEST, they should also supplement the result with good professional advice.