Tax tribunal: presenter Lorraine Kelly not 'employee' of ITV

The tribunal found (46-page / 780KB PDF) that the facts of the case indicated that Kelly was engaged under the equivalent of a 'contract for services', rather than a 'contract of services'. All three limbs of the traditional test supported Kelly's case: there was insufficient "control" of the presenter by ITV and only minimal 'mutuality of obligation'; while other provisions of the contract, such as the lack of sick pay or training requirements, "indicates that Ms Kelly was not considered to be or treated as an employee".

Separately, the tribunal found that the services Kelly provided for ITV were the equivalent of those of a 'theatrical artist', who did not "appear as herself" but rather as "a persona of herself … the act being to perform the role of a friendly, chatty and fun personality". This was relevant, as it meant that Kelly's personal service company (PSC) was entitled to treat fees paid to her agent as a tax-deductible expense.

"We are satisfied that control of Ms Kelly's work pursuant to the hypothetical contract lay with Ms Kelly," the tribunal said. "In our view the level of control falls far substantially below the sufficient degree required to demonstrate a contract of service and we are satisfied that the factors strongly indicate that the contract was one for services."

"In our view there was mutuality of obligation, but such that what there was amounted only to the 'irreducible minimum' and we did not find it determinative of the issue," the tribunal said.

"The picture that emerges from the considerable and varied activities of Ms Kelly is that she cannot be considered to be part and parcel of ITV Breakfast. In our view ITV was not employing a 'servant' but rather purchasing a product, namely the brand and individual personality of Lorraine Kelly. We concluded that all this supports the conclusion that the appellant was in business on its own account," the tribunal said.

ITV Breakfast Ltd engaged Kelly's services as a presenter on its programmes 'Daybreak' and 'Lorraine' through Albatel Ltd, a PSC operated by Kelly and her husband. In July 2016, HMRC issued tax notices against Albatel, seeking £899,912.95 in unpaid income tax and £312,615.54 in unpaid class 1 National Insurance contributions (NICs).

HMRC arrived at these figures by applying the intermediaries legislation, known as IR35. These rules require that employment taxes be paid by people who provide services through PSCs if that person would otherwise have been regarded as an employee of the engaging business. A PSC is typically a limited company through which an individual is contracted to supply services, but of which the individual is usually also the owner and sole director.

Albatel appealed HMRC's determinations to the first-tier tribunal on the grounds that Kelly was not the equivalent of an employee of ITV, but instead a "self-employed star" who could not be deemed employed. The tribunal agreed after applying the tests set out in various cases, including a recent case in which presenter Christa Ackroyd was deemed an employee of the BBC. The tribunal noted that Kelly's case could be distinguished from Ackroyd's, as ITV did not exercise the same control over the services Kelly provided as a presenter as the BBC did over Ackroyd.

The tribunal said: "We were satisfied that Ms Kelly was free to carry out other work and activities without any real restriction and that whilst the agreement purported to give ITV control the reality was that Ms Kelly was able to carry out other activities such as [an] expedition to Antarctica for four weeks which interfered with her availability to perform the duties for ITV. We found the references to OFCOM did not assist; the duty to comply with the requirements of an industry governing body is found in many professions irrespective of whether an individual is employed or self-employed and we did not accept that this was a matter in respect of which ITV had specific control of Ms Kelly".

"Ms Kelly was not entitled to sick pay, holiday pay or other benefits to which employees generally have an entitlement. She was not provided with training nor subject to processes such as appraisals which ITV employees were. We were satisfied that there was no obligation to attend other than to present the show and no obligation to provide other services to ITV unrelated or ancillary to the show. Whilst there is no requirement for a contract of employment to include such features, in our view the absence of them indicates that Ms Kelly was not considered to be or treated as an employee," the tribunal said.

From April 2020, the government intends that private sector businesses will be liable for compliance with IR35 by their contractors who work through PSCs. This would reflect the position of public sector engagers, which have been responsible for ensuring compliance since a change to the law in April 2017. The government is currently consulting on how the rules will operate once they are extended to the private sector.