The High Court remitted a case to the general commissioners to consider whether the taxpayer had sufficient day-to-day control over the workers he supplied to contractors for them to be treated as employed for tax purposes.

Facts

The taxpayer carried on the business of supplying workers to main contractors. He appealed to the general commissioners against determinations made pursuant to reg. 49 of the Income Tax (Employments) Regulations 1993 and decisions made pursuant to s. 8 of the Social Security Contributions (Transfer of Functions, etc.) Act 1999 for the tax years 1999–2000 to 2003–04.

The issue before the commissioners was whether the workers engaged by the taxpayer between 6 April 1999 and 5 April 2004 were engaged under contracts of service or under contracts for services. The commissioners held that the workers were engaged under contracts for services and were not therefore employees.

The commissioners found as facts that the workers never tendered or otherwise negotiated a price for work or a job. Payment was made to the workers at an hourly/daily rate and the workers did not invoice the taxpayer for work done. Even when the taxpayer made a loss on a contract the workers were paid for the hours performed. None of the workers had their own public liability insurance. The taxpayer would usually give initial instruction to the worker himself. The taxpayer obtained all the work with the main contractors himself and decided which worker was selected for which job/contracts. He could also move workers from one job to another and arranged (either by taking the workers by van himself or from pre-arranged pick-up points or by supplying a van for that purpose) for the appearance of workers on the site. Whilst the workers supplied their own hand tools, all materials and heavier plant/equipment were supplied by the taxpayer or main contractor or by arrangement with the taxpayer. Permission was sought from the taxpayer before taking leave or sick leave. The commissioners concluded that the workers were self-employed on the grounds that: (1) the terms of engagement were oral; (2) there was no formal contract to protect the workers; and (3) there was no minimum requirement to pay the worker irrespective of demand.

The Revenue appealed to the High Court by way of case stated, contending that, in so far as the commissioners focused on the issue of mutuality of obligation and the informal ‘oral’ nature of the engagements they misdirected themselves in law and took into account irrelevant considerations in reaching their conclusion. Had they applied the correct legal test the only permissible conclusion on the facts and relevant evidence before them was that the workers were engaged under contracts of service.

Issue

Whether the taxpayer had exercised sufficient control to give rise to a conclusion that the contractual relationship (which it was agreed did exist) was one of a contract of service.

Decision

Lewison J (allowing the appeal) said that the reasons given by the commissioners for their decision were wholly inadequate and did not bear upon the question whether the workers were employed by the taxpayer. Mutuality of obligation determined whether a contract existed at all. Control determined whether, if there was a contract in place, it could properly be classified as a contract of service. Control included the power to decide what was to be done, the way in which it should be done, the means to be employed, the time and the place where it should be done.

The fact that control on site was delegated to or exercised by a third party or customer of the engager was not necessarily indicative of a contract for services. The key question was who ‘in reality’ had the power to control what the worker did and how he did it. If the power of control lay with the taxpayer rather than the worker then that was more likely to be consistent with the existence of a contract of service. The absence of a ‘formal’ contract did not preclude the existence of a contract of employment which could be either written or verbal and express or implied Dacas v Brook Street Bureau [2004] IRLR 358, Bunce v Postworth Ltd [2005] IRLR 557 and James v Greenwich LBC [2006] UKEAT 2112 considered).

In all the circumstances, the matter would be remitted back to the general commissioners to consider whether the taxpayer had sufficient day-to-day control over the workers.

Chancery Division.
Judgment delivered 6 February 2007.