Further defeat for HMRC in IR35 tribunal

Date: 25 March 2019

Tax Law - Folder Register Name in DirectoryBusiness groups say the latest case, involving TV presenter Lorraine Kelly, proves that HMRC's employment test tool CEST is not fit for purpose.

Last week, presenter Lorraine Kelly successfully appealed against an HMRC tax bill of £1.2 million for her work at ITV Breakfast between September 2012 and July 2017. HMRC argued that Kelly should have been taxed as an employee and not as a self-employed contractor.

This is the fourth of five IR35 tax cases that HMRC has lost since the beginning of 2018. Freelancer body IPSE has said that "HMRC does not understand its own tax legislation".

After the ruling, ContractorCalculator ran Kelly's case through the CEST tool and found that it still concluded that Kelly should have been deemed "inside IR35". However, Judge Jennifer Dean has ruled that Kelly's was "a contract for services and not that of employer and employee". She even said that "we do not consider this to be a borderline case".

Dave Chaplin, ceo and founder of ContractorCalculator, said: "Time and time again we have debunked HMRC's claim that CEST is accurate and once again we have proved this to be the case. After the verdict, we spent two hours examining the decision and put the right answers into CEST. CEST thinks that Lorraine Kelly should have been caught by IR35 which is contrary to the tribunal's decision.

"HMRC has also previously boasted that the off-payroll reforms have netted £550m, which is nearly double the amount previously forecast by the Office of Budget Responsibility. Damaging and disrupting businesses by incorrectly taxing them, and extracting money which is not due, is nothing to be proud of and certainly not a sign of compliance … CEST should now be withdrawn, and organisations that have used CEST to make judgments should prepare for potential litigation by taxpayers who have been wronged."

Andy Chamberlain, deputy director of policy at IPSE, said: "What this judgement hammers home irrefutably is that HMRC are completely in the dark about their own tax legislation. Lorraine Kelly's case is the fourth of five IR35 cases that HMRC have lost since 2018. It is now clear that they have wrongly been hounding many BBC and ITV presenters over a tax law they do not understand themselves.

"The government, however, has said that from April 2020, private businesses across the UK will have to determine the IR35 status of their contractors. This judgement should be a wake-up call to government that it cannot expect businesses to understand a tax law that it cannot even implement itself."

Written by Rachel Miller.

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