Albatel Limited, the personal service company of Stephen Smith and Lorraine Smith (professionally known as Lorraine Kelly), appealed against an HMRC determination for £899,912.95 in income tax and £312,615.54 in NICs arising from the application of the intermediaries legislation known as IR35.

The IR35 legislation is designed to ensure that individuals who ought to pay tax and NIC as employees cannot use a corporate structure to reduce their liabilities.

HMRC argued that if there had been a direct contract between Lorraine Kelly and ITV Breakfast Ltd during the relevant period in connection with her work for the programmes ‘Daybreak’ and ‘Lorraine’, it would have been a contract of service, meaning the company would need to account for income tax and NICs.

Albatel appealed HMRC’s decision on the basis that the nature and range of Ms Kelly’s work meant that she should be treated as a self-employed star. Giving evidence to the tribunal Ms Kelly explained that she was baffled by HMRC’s reluctance to accept that she was an “entertainer” and sought to draw attention to the distinction between her work and that of Jeremy Paxman in Newsnight.

To support her case, the tribunal was provided with clips of Ms Kelly’s work which showed her dressing up for comedy sketches and features of shows such as the ‘bikini promise’ on Lorraine.

Ms Kelly went on to explain that she did not receive the perks of an ITV employee such as a pension, sick pay or other benefits.

The tribunal had to decide whether the contract was a contract of services or a contract for services, considering issues such as mutuality of obligation and control. In looking at the overall picture, the tribunal reached the view that the relationship between Ms Kelly and ITV was a contract for services and not that of employer and employee.

Judge Jennifer Dean said: “We did not accept that Ms Kelly simply appeared as herself - we were satisfied that Ms Kelly presents a persona of herself, she presents herself as a brand and that is the brand ITV sought when engaging her.

“All parts of the show are a performance, the act being to perform the role of a friendly, chatty and fun personality.

“Quite simply put, the programmes are entertaining, Ms Kelly is entertaining and the ‘DNA’ referred to is the personality, performance, the ‘Lorraine Kelly’ brand that is brought to the programmes.”

She added: “We should make clear we do not doubt that Ms Kelly is an entertaining lady but the point is that for the time Ms Kelly is contracted to perform live on air she is public ‘Lorraine Kelly’.

“She may not like the guest she interviews, she may not like the food she eats, she may not like the film she viewed but that is where the performance lies.”

Commenting on the case, David Williams-Richardson, a tax partner at RSM, said: “This is one of a number of cases involving television personalities who are disputing HMRC’s determinations in relation to the application of the IR35 rules.

“Despite a parallel between some of the facts in this case and the recent case involving BBC presenter Christa Ackroyd, the tribunal in this case found in favour of the taxpayer.

“With one year to go before the IR35 rules are extended to the private sector, this case highlights the difficulties in making status determinations. This will be a particular challenge for those companies engaging workers through personal service companies.

“This also emphasises the need for the government to clarify its intentions and time frames for legislating to improve the clarity of the employment status tests as mentioned in the Good Work Plan issued in December 2018.”