TV presenter, Lorraine Kelly has won an appeal against HM Revenue and Customs (HMRC) at a First Tier Tribunal (FTT) over a £1.2 million demand for unpaid income tax (£899,912) and National Insurance Contributions (NICs) (£312,615).

The appeal arose from a challenge to her employment status under IR35.  HMRC were claiming that Lorraine Kelly should have been working inside IR35 at ITV Breakfast Ltd during the relevant period. This would have meant she was effectively an employee of ITV and income tax and NICs would have to be accounted for.

HMRC accepted that Kelly’s other assignments charged through her limited company were outside of IR35.

The claim, however, was appealed, on the basis that the nature and range of Kelly’s work meant all of her assignments should be treated as outside of IR35.

Within the case, Kelly argued that she did not receive sick pay or a pension, she chose her own hours and ultimately there was no guarantee her contracts would be renewed.

Additionally, although the ITV programmes were aired throughout the year, Kelly was only required to provide her services for 42 weeks per year and she was instrumental in helping find substitute presenters for the time she was absent.  ITV could however determine whether or not to accept the substitute.

Furthermore, ITV was under no obligation to pay Kelly if she was unable to present the show and any additional appearances on ITV would have separately negotiated contracts.

HMRC argued that ITV retained control over Kelly with regard to OFCOM obligations and that it was the editor of the programmes who exercised that control. However, the tribunal found that OFCOMs role as regulator was irrelevant and there was minimal control or supervision of Kelly by the editors.

After examining all of the evidence, the tribunal decided that the relationship between Kelly and ITV was a contract for services and not that of employer and employee, as such the case was found in her favour.

The second element contested at the FTT was whether or not Kelly was a ‘theatrical artist’; as if she were treated as an entertainer her limited company would be able to deduct her agent’s fees from it’s income.

HMRC disputed this description of her role, claiming she was a current affairs journalist.

Ms Kelly stated that she viewed the term “theatrical artist” widely and that she acted every day as a version of herself and was not reliant on ITV for her work.

However, as the judge found Kelly’s ITV contract was outside of IR35, the deduction of agent’s fees didn’t have to be resolved.

It is important to note that Lorraine Kelly’s case is the fourth of five IR35 cases to be lost by HMRC since 2018.

A spokesperson for HMRC said: “We are disappointed that the FTT has decided that the intermediary rules (also known as IR35) did not apply in this case. Moving forward, we will carefully consider the outcome of the tribunal before deciding whether to appeal.”

Despite fears of swingeing changes to taxation for independent contractors, in particular, further changes to the IR35 rules, the Chancellor delivered a Spring Statement that offered only minor amendments.

The lack of change will be welcomed by some seeking greater certainty in uncertain times, but many contractors will be disappointed that Philip Hammond didn’t act to slow down or reverse the damage done by the upcoming off-payroll rules or concerns about loan charges.

A number of documents and consultations published post-Statement on the Treasury website confirmed that IR35 would go ahead, but also introduced new proposals that could have a wider impact on contractors, in particular where HMRC suspects ‘disguised remuneration’.

“As announced in December 2010, the government will introduce legislation to target arrangements intended to disguise remuneration”, HM Treasury said.

“This includes legislation to ensure income tax applies to…. third-party arrangements and a new charge on disguised remuneration loan balances outstanding at 5 April 2019.”

Separate documents also confirmed that Making Tax Digital would go ahead as planned on 1 April 2019.

Spring Statement documents state: “Mandatory digital record keeping for VAT for businesses over the VAT threshold (with turnover over £85,000) comes into force from 1 April.

“This is an important first step in this modernisation of the tax system to which the government remains committed.”

However, it wasn’t all talk of tax raids on contractors in the Spring Statement as the Chancellor also announced that the Government would do more to tackle “the scourge of late payments”.

According to new consultation papers, the Government will introduce new rules that will require larger businesses to log payment performance in their annual accounts.

This has been introduced following calls from the Federation of Small Businesses (FSB) to tackle the issue. Celebrating their success, the FSB said: “Poor payment practices by big businesses towards their smaller suppliers are rife and pernicious, leading to the closure of 50,000 small firms a year,” the FSB said.

“The end of late payments could finally be in sight. It can’t come soon enough, to bolster small businesses at a time when they are in great need of support and a lift in confidence.”

For many years, various “loan schemes” have been marketed to contractors. With a loan scheme, a very small salary is paid to the contractor and the rest of the money earned by the contractor is loaned. The taxes paid are very low, the fees to the loan scheme promotor substantial. It is now clear that HMRC will chase the tax liability forever. This is a horror story with contractors entering into schemes which are well marketed as tax approved schemes but in reality, has resulted in contractors being chased by HMRC for massive amounts of tax liability.

These schemes are a tax bomb waiting to go off in future years and some contractors have lost their homes raising the funds to clear their tax liability. Many more contractors went into such schemes after the off-payroll public sector rules came in April 2017. They look like employment schemes so fooled the public sector organisation.

Cogent does not deal with the settlement with HMRC as this is a highly specialised area, however, we are happy to speak to you and explain the dangers of using such schemes in the future.

THE LOAN CHARGE

HMRC now have a new “Disguised remuneration loan scheme” legislation to use.

The Loan charge will apply to all outstanding disguised remuneration, self-employed and contractor loans were taken out since 1999, unless loans are repaid or a settlement is in progress with HMRC before 5 April 2019 and completed by 31 August 2019.

In the documents, HMRC reveal that more than 20 individuals have been convicted for offences relating to the promotion and marketing of tax avoidance schemes since 2016, who have together received over 100 years of custodial sentences.

HMRC have published several spotlights about disguised remuneration schemes in recent years with this latest document advising that arrangements currently being marketed that claim to avoid the loan charge do not, in HMRC’s strong view, work.

HMRC are warning taxpayers to beware of arrangements or schemes which claim to avoid the loan charge legislation and involve one or more of the following features:

• They are marketed from an offshore location such as Cyprus, Malta or Isle of Man
• They claim that:
  • by entering the scheme, your disguised remuneration loans are paid off
  • the scheme is not disclosable under DOTAS (Disclosure of tax avoidance schemes), and benefit from a QC’s opinion
• They have professional marketing material, including a website
• They suggest that disguised remuneration loans can be ‘paid off’ or ‘repaid’ without any real economic consequence, meaning that the scheme user will not suffer any material financial cost

HMRC say “if it looks too good to be true, it usually is” and those who sign up to such schemes are likely to:

• Pay administration and promoters’ fees that cannot be recovered
• Remain liable for the loan charge

HMRC strongly advises anyone using one of these schemes to withdraw from it and settle their tax affairs.

Here is a case study provided by HMRC:

Gurpreet: 54-year-old IT Consultant from Bristol

• Gurpreet entered into an employment income tax avoidance scheme which he used in 2009-10 and 2010-11. The scheme was disclosed by the promoter under DOTAS.
• As part of the scheme, Gurpreet became an employee of a partnership resident in the Isle of Man. The scheme advertised that users could take home 90% of their pay.
• Gurpreet signed a loan agreement when he entered into the scheme. This meant that he received a monthly payslip showing a lower amount of employment income subject to tax and NICs as well as a loan amount from which no tax or duties were deducted.
• HMRC received Gurpreet’s 2009-10 tax returns on 28/09/2010. Gurpreet declared £14,200 employment income which was the salary received. He did not declare the additional loan payments which totalled £154,000 for 2009-10.
• We received Gurpreet’s 2010-11 return on 28/01/2012. Declared employment income for this year was £11,500 which was the salary received. Gurpreet did not declare additional loan payments totalling £191,900 for 2010-11.
• For both years, Gurpreet did disclose the DOTAS reference number for the scheme on his return.
• We opened an enquiry into the 2010-11 return on 05/12/2012. We did not open an enquiry for 2009-10 and instead issued a discovery assessment due to the inaccuracy in Gurpreet’s return as a result of careless behaviour.

Settlement

• On 13/04/2015, HMRC wrote to Gurpreet to invite him to settle in respect of this scheme as part of the Contractor Loan Settlement Opportunity. Gurpreet did not settle his tax liabilities at this time.
• Gurpreet expressed an interest in the settlement in January 2018. Calculations were issued on 25/01/2018.
• The settlement was reached by way of contract settlement on 26/03/2018 for a total £154,000, which included £17,500 interest.
• Gurpreet had already paid Accelerated Payment Notices in 2015 so the remaining amount to pay was £78,000. This amount was paid in full in April 2018.
• Instalment arrangements were not put in place and no penalties were charged.

Victor Korman FCA

On Tuesday 5th March, the Government launched a consultation into how the off-payroll working rules should be implemented within the private sector from April 2020.

In particular, one of the big problems with the IR35 changes in the public sector was that contractors didn’t have any forum with which to challenge status decisions.

A key concern in the past has been that organisations may make ‘blanket’ determinations of the employment status of off-payroll workers and not understand the nuances of particular roles and relationships.

As a result, in the consultation, the Government is indicating that they will require end-hirers to provide specific reasons for each status determination and, if necessary, introduce a hirer-led status challenge process. Through this, a contractor would be able to put forward evidence to appeal a decision.

This is good news. Not only does it give contractors a route to challenge decisions, but it should also ensure that hirers take their responsibilities seriously and therefore exercise ‘reasonable care’ in their status decisions.

They will have to have good reasons for each outcome and contractors now have some comfort that, if a decision seems unfair, there is a ‘right to reply’ and a process to review evidence.

A Tinder-inspired app is helping farmers match up potential partners for their cattle. Called “Tudder” – a mix of dating app Tinder and udder – it lets farmers swipe right on cattle they like the look of.

They are then directed to a page on the SellMyLivestock website, where they can browse more pictures and data about the animals before deciding whether to buy.

Valuable information is available on matters like milk yield and protein content, or calving potential, explained Doug Bairner, CEO of Hectare Agritech which runs SellMyLivestock (SML) and Graindex, a UK-based online agritech trading platform.

“Matching livestock online is even easier than it is to match humans because there’s a huge amount of data that sits behind these wonderful animals that predicts what their offspring will be,” he said.

Launched just in time for Valentine’s Day, the makers believer Tudder is the first ever matchmaking app for livestock.