I can see clearly now Lorraine has won: Forsters' Tax team comments on Lorraine Kelly's victory in her £1.2m tax fight with HMRC

HMRC have aggressively pursued individuals who they believe are avoiding income tax and national insurance by undertaking work via their personal service company (PSC) rather than a contract of employment.

When an employee is employed by a company, that company has to deduct income tax and employer's and employee's national insurance contributions from the employee's pay.

However, when a company contracts with a PSC they pay the PSC the full amount, and that PSC can pay the underlying individual in a more tax efficient structure.

Whilst this can be done for perfectly legitimate reasons – a company bringing in consultants would pay the consultant's company for example, HMRC's IR35 rules are designed to "look through" such arrangements when they are merely designed to avoid tax, and the individual is really an employee of the engaging company.

HMRC therefore attempted to bill Ms Kelly for £1.2m in income tax and national insurance payments, arguing that her set up was a scheme and in reality she was in reality employed by ITV, not by her PSC.

Ms Kelly successfully defended herself by demonstrating that she worked for a large variety of different media providers, as well as providing other services to different companies. She had a large amount of control over the work she undertook for ITV, being able to reject working at certain times and also did not receive standard perks of an employee such as sick pay or pension contributions.

This is yet another case where HMRC's IR35 rules have found to not be applicable, demonstrating that they may not be the ultimate weapon that HMRC thought it had. It is clear that if individuals operate with large amounts of autonomy from the engaging company and keep strong records showing that it really is their PSC who employs them, then HMRC's assertions to the contrary can be rebuffed.

Oliver is an associate our Tax team.