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There is so much confusion and so many contradictory decisions surrounding the issue of whether someone who supplies their services through a personal service company (“PSC”) should be treated for tax purposes under IR35 as if they are an employee or self-employed.
Lorraine Kelly won her tax appeal against HMRC trying to class her as an employee for income tax and NIC purposes and charge her £1.2m because she persuaded the tax tribunal that she is really an entertainer and has a high degree of control over her show and what other entertainment activities she decides to get involved with just like for instance, Ant and Dec or Oprah.
Any actor, entertainer or professional person who is in day to day control of what they do is likely to benefit from the same favourable self-employed tax treatment. It’s not tax avoidance as such but simply the correct application of the tax rules. Lorraine was in a different position to the BBC Look North news presenter Christa Ackroyd who was recently held by the tax tribunal to be an employee for tax because the BBC could direct her to present any programme of their choice.
It is quite possible following the Lorraine Kelly ruling there may well be some re-negotiation of stars’ contracts to make them work more like Ms Kelly and with less employer control. Other professionals too will wish to ensure that they are treated as self-employed when working through their PSC.
It is helpful to emphasise some of the differences between the roles of Lorraine Kelly and Christa Ackroyd that influenced the two tax tribunals. Ms Kelly was found to have control over the content of her programmes even to the extent of deciding on the running order. Ms Ackroyd on the other hand was subject to the BBC’s editorial guidelines and did not control the content or the running order of the programmes in which she appeared.
The length of the contracts was also significant in that Ms Ackroyd’s was seven years long while Ms Kelly’s was only two and a half years with the longer a contract term the more likely it is to be treated as an employment.
Despite these differences there was one significant similarity between the two cases and that was that in each presenter’s case there was no practical likelihood that someone else could be substituted by the PSC to supply the presenting services to ITV or the BBC.
The ability to substitute the actual person who carries out the work that the PSC has been contracted to do is normally a crucial indicator of self-employment and here the personality-based nature of each role meant that this would never happen. On this basis Christa Ackroyd might consider herself to have been rather unlucky not to have been treated for tax in the same way as Lorraine Kelly.
You can start by using HMRC’s help tool. However this may not give you the certainty that you would like about whether you can claim to be self-employed. If you are in this position then you should take professional advice in order to give you the best chance of being correctly classified as self-employed for IR35 purposes.
If you would like advice on your PSC and how your services are offered out to employers please contact Patrick Cannon here for an initial discussion about the options open to you.