Recently, Lorraine Kelly won a £1.2m court case against HMRC…
HMRC claimed that she was an employee of ITV and demanded payment for unpaid income tax of nearly £900,000 and national insurance of more than £300,000. Lorraine Kelly claimed that she was self employed and did not owe HMRC: https://www.bbc.co.uk/news/entertainment-arts-47648053?fbclid=IwAR2K4J3Ob0cHZrTqYjfLTotOjm6gjgfgeEupRP3_gga14xpMZNdOGigbxWc
Implications for the AAT Level 4 Personal Tax exam:
Whether someone is employed or self employed is an important distinction and could be tested in the AAT Level 4 Personal Tax exam. Employees have national insurance contributions and income tax deducted from their pay and employers pay national insurance also. Self employed people also pay tax but on their profits rather than on their income and are subject to different rates of national insurance.
An employee would have a contract of service but a self-employed person would have a contract for services. This terminology is similar and therefore not very helpful for distinguishing the two.
- Employment is suggested if you need to do the work yourself and you cannot use a substitute. For Lorraine Kelly, it would be difficult for her not to do the work herself. In her case, her face and personality is the service provided.
- Employment is also suggested if someone is told how, where and when to work. On the basis that Lorraine Kelly presented television programmes, it is likely that her relationship with ITV was like this. Some radio presenters present their show from home but that would be difficult for television.
- Employment is further suggested if work hours are set and the person is paid a regular wage with sick pay and holidays. Presenting live television would force ITV to set working hours. The judge in Lorraine Kelly’s case highlighted that she received no holiday pay.
- Another indicator of employment would be that the person does not risk their own capital or does not risk making losses. For Lorraine Kelly this is difficult to assess. Her “asset” is herself and she doesn’t necessarily invest any capital into her business. When she first entered the industry she may have invested in going to drama school but that would likely be before she established herself as self employed.
- Employment would also be suggested if the employer provides equipment. That would be the case with Lorraine Kelly who would use the ITV studios for her work although she would probably provide her own clothes.
- Finally, employment would be suggested if the person worked for just one employer, although sometimes an employee might work for more than one business. ITV allowed Lorraine Kelly to carry on other work.
So overall, several indicators would suggest that Lorraine Kelly is an employee of ITV but the judge decided that she is self employed.
If something similar were to appear in your AAT exam how should you approach it?
Weaker candidates in the exam jump to a conclusion with little analysis and therefore score badly. You should follow the same approach that we have used above. Describe the six factors which would earn you six marks. Then apply each factor to the scenario provided earning six more marks. Then conclude earning more marks. The conclusion may be difficult because some of the factors would suggest employment and some would suggest self-employed as it is here with Lorraine Kelly, but you will still pass the question if you are methodical and consider all of the factors and apply them to the scenario.