HMRC lose yet another IR35 case – if they don’t understand IR35, how on earth do they expect businesses to?

HMRC thought Lorraine Kelly, yes – the Lorraine Kelly – was operating inside IR35. They were wrong. It’s the highest profile IR35 case there has ever been, and they were asking for the biggest amount of money ever in an IR35 case (£1.2m) and they have lost – emphatically.

The case in a nutshell

This case came down to control – who controls the work that Kelly does? Is it ITV or Kelly herself? The tribunal was clear – it’s Kelly. They described Kelly as a ‘brand’, an entertainer who puts on a performance:

“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.”

Ultimately the tribunal found that not only did IR35 not apply, but that it clearly didn’t apply:

“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.”

Court defeat raises more questions for government

This is the fourth case that HMRC has lost out of the five that have come to light in the last year. This appalling track record raises some obvious questions:

1. How can the government realistically expect UK businesses to operate these rules when it’s clear its own tax department doesn’t understand when it applies and when it doesn’t?
2. Is the government right when it says there is ‘widespread non-compliance’ with IR35 in the private sector? HMRC might believe there is non-compliance, but it seems quite likely that HMRC simply don’t understand the case law.
3. Did HMRC put Kelly’s engagement through their own CEST tool? Presumably they did, and presumably it came out with an ‘inside IR35’ determination – which was wrong. Are HMRC now going to realise the tool’s not fit for purpose.

IPSE will use it’s position on the IR35 Forum to put these questions directly to HMRC.