Reading Andrew Hubbard’s final article on his retirement from RSM leaves me with the distinct feeling that – to quote the American baseball player Yogi Berra – ‘It’s déjà vu all over again’. I am of course referring to the efforts of the tax authority, spanning many decades, to produce a cast-iron set of tests to separate employment and self-employment for tax purposes.
Adding to Andrew’s reminiscences, I remember one of the Inland Revenue Special Offices contending in the early 1980s that every partner in any accounting firm had to be taxed as if they were employees of their clients. In the Inland Revenue’s view, this reflected a simple and unarguable fact: accountants were required to do exactly what their clients told them and could exercise no control over their own work. Of course, those arguments failed. As I write this, auditor independence has never been more important.
Times have changed but the tax arguments just won’t go away. Recently, we saw the publication of the decision of the First-tier Tribunal in relation to television personality Lorraine Kelly and her company.
Déjà vu puts in an appearance here too: this is the fourth of five IR35 tax cases which HMRC has lost since January 2018. Its one success related to Christa Ackroyd, the BBC presenter. In a nutshell, the difference between Lorraine Kelly's situation and that of Christa Ackroyd relates to control. Whereas ITV has no right to tell Lorraine Kelly or her personal service company what to do, it seems that the BBC could direct Christa Ackroyd to present any programme of its choosing.
Once an individual has successfully demonstrated, as Lorraine Kelly has, that she is not an employee then other tax consequences follow. For example, she or her company can obtain tax relief for all the qualifying expenditure which they incur in the course of her professional activities. Agents fees are one category of qualifying expenditure.
Other cases are in the pipeline. It’s been reported that Eamonn Holmes' case has been heard by the tribunal, but no decision has yet been published. However, we can be sure that the issue of control will be an important one.
The decisions of the First-tier Tribunal do not create legally binding precedents but they may be referred to in correspondence between other taxpayers (or their advisers) and HMRC. The decision of the First-tier Tribunal may become more relevant if no appeal is made by HMRC to a higher court. As HMRC seems to be consistently losing on this question of control, it will be interesting to see whether it appeals in the Lorraine Kelly case.
We can be sure, however, that HMRC will continue to take cases against presenters. As the tribunal decisions show, presenters of factual programmes who have little control over the work they accept or the way they are required to work will be particular targets of the taxman.
This brings us to news that the BBC is preparing to help pay the tax bills of television presenters who, with the encouragement of the BBC, used personal service companies. It seems that this financial assistance will only compensate for the extra income tax which would have been paid by the presenter as an employee. It also remains to be seen whether the contribution to the tax bill will itself be treated as earnings of the individuals.
This one will run and run!