Plenty of us feel as though we have to put on a persona at work. But how many would be bold enough to try to claim tax relief on it? Daytime television presenter Lorraine Kelly has won a £1.2m tax battle with HMRC after a judge ruled that her bubbly public personality was in fact a performance.
The former star of ITV’s Daybreak was defending her right to claim her agent’s fees as tax deductible.
This relief is available only for “theatrical performers”, usually classed as actors, singers, musicians, dancers or theatrical artists. In court Ms Kelly argued that she was an “entertainer” in her work on ITV, citing comedy sketches with Aled Jones and appearances in a bikini as evidence that she was playing “a version” of herself.
Ms Kelly also explained that she was not, as HMRC claimed, an ITV employee but a freelancer as she did not receive a pension, sick pay or other benefits. Judge Jennifer Dean ruled in favour of Ms Kelly, saving her from a £900,000 tax bill and £300,000 of National Insurance payments.
Ms Kelly isn’t the only celebrity to have been challenged on business expenses in recent years. In 2008 Oscar-winning actor Nicolas Cage was forced to pay back $650,000 (£495,000) to the Internal Revenue Service, the American government's tax agency, after it was revealed he had unlawfully deducted millions of dollars from his professional income as personal expenses.
Among the “necessities” listed by Cage as business expenses were limousine rides, the maintenance of a private jet, and staff at his properties around the world, including Los Angeles, the Bahamas, and a castle near Bath.
HMRC brought the charges against Ms Kelly under IR35 legislation, which aims to crack down on “disguised employees”: those dodging tax by supplying services to clients via an intermediary, a limited company for example, to avoid being classified as an employee.
James Hender, a partner at accountancy firm Saffery Champness, explained that Ms Kelly’s fight with HMRC over IR35 was “yet more evidence of just how complex the tax law in this area is”.
“The changing world of work, not least including the so-called gig economy, means that the tax man is trying to play catch up with market innovation – which will always have set backs and teething problems,” he said. With IR35 for the private sector due to take effect from April 2020, he predicted more cases of this kind over the next few years.
Dawn Register, of tax firm BDO, warned that it's not just TV presenters who are being affected.
“The rules on what you're allowed to claim back for are much more generous if you're self-employed than if you're an employee,” she said.
“The distinction can be quite subjective and HMRC may take a different view. Plumbers, IT consultants and many other professions are finding themselves caught out by changes to the rules.”
She recommended anyone uncertain about their status check on the HMRC website before filing claims.
So if private jets are out, what can you legitimately claim if you’re self-employed?
Zena Hanks, also a partner at Saffery Champness, said that the self-employed can claim back on items or expenses that were purchased wholly and exclusively for the purpose of their business. These could include equipment such as stationary, technological devices used only for business purposes and rent or bills for an office.
She added that the nature of the business in question is crucial in deciding the matter.
“Take Elton John or David Bowie, for instance, their outlandish stage costumes are part of their identity as entertainers so would very likely be considered tax deductible,” she said.
But, she warned, what the taxman really wants to see is that the expense is helping the business to turn a profit.
“You could argue that having to pay for a bodyguard comes with the job of being in the public spotlight – but is it really helping the business? Some might argue that it helps to encourage a celebrity's exclusive image, but it would be a tough case to make,” she said.
If you do find yourself in trouble with the taxman, don’t expect to be able to rely on bad advice as your defence – as singer Rihanna discovered a few years ago.
When the singer was hit by penalties for late payment of taxes she decided to sue her former accountants for not submitting the forms on time as well as mishandling her foreign and domestic taxes.
Rihanna accepted an out of court settlement of $10m from the accountancy firm, though only after months of expensive litigation. The Barbadian pop star may have also inflicted her own, rather unique form of revenge.
In 2015 she released a song entitled ‘B**** Better Have My Money’ – the accompanying video features a blood-spattered Rihanna torturing a tied-up accountant and his wife.
But for those of us without a million-dollar legal team and the ability to terrify our former accounts with gory music videos, protecting yourself against poor financial advice is crucial.
“Having the wool pulled over your eyes is no excuse,” Ms Hanks said.
“You need to be clear on whether you're employed or self-employed and operate following the rules, no matter how complicated they might be.” She recommended finding a good accountant familiar with IR35 legislation.
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