A special commissioner decided that, on the facts, an individual contractor who provided his services through an intermediary company to a third party client would not have been regarded as an employee if he had been engaged directly by the client. Accordingly, the intermediary was not liable to pay National Insurance contributions (NICs) and income tax under PAYE in respect of the payments made to the individual.

Facts

A computer consultant (N) set up the taxpayer company as an intermediary through which to provide his services to clients. He was the sole director and shareholder in the taxpayer. From 4 September 2000 to 31 January 2002, he supplied services to the taxpayer which supplied them to an organisation called Plexus which supplied them to Reuters. The taxpayer company appealed against three decisions of the Revenue that it was liable to pay NICs and income tax under PAYE in respect of payments made to N for his services. The disputed decisions were made because the Revenue took the view that, if the services had been performed under a contract between N and Reuters, N would be regarded as employed by, and as an employee of, Reuters. From that it followed that the taxpayer, as an intermediary, was liable to pay NICs and income tax under PAYE in respect of the payments made to N. The taxpayer appealed.

It was agreed that N personally performed services for Reuters within the meaning of s. 4A(1) of the Social Security Contributions and Benefits Act 1992, reg. 6(1)(a) of the Social Security Contributions (Intermediaries) Regulations 2000 and para. 1(1)(a) of Sch. 12 to the Finance Act 2000.

Issue

Whether, had the arrangements taken the form of a contract between N and Reuters, N would be regarded as employed by, or as an employee of, that company.

Decision

The special commissioner (Dr Nuala Brice) (allowing the appeal) said that the question whether a person was employed under a contract of service, or whether he was self-employed and provided services under a contract for services, was a question of fact in each case to be determined having regard to all the relevant circumstances.

Relevant factors could be: (1) whether the worker had to provide his own work and skill or whether he might substitute the work and skill of another; (2) whether the worker was subject to ‘a sufficient degree’ of control; (3) whether there was mutuality of obligation so that there was an obligation on the worker to work and an obligation on the other party to pay him and to continue to make work available during the time of the contract; (4) whether the worker was in business on his own account; relevant factors on that issue being: whether the worker had to provide at his own expense the necessary plant and material, hire his own employees and provide and maintain his own tools and equipment; whether the worker had invested in the enterprise and bore the financial risk; whether the worker had the opportunity of profit or the risk of loss; and whether the worker engaged himself to perform services in the course of an already established business of his own; (5) whether the worker was paid by reference to the volume of work done; and (6) the duration of the particular engagements and whether the relationship was permanent and the number of people by whom the individual was engaged (Ready Mixed Concrete (South East) Ltd v Minister for Pensions and National Insurance [1968] 2 QB 497; Hall (HMIT) v Lorimer [1993] BTC 473; Market Investigations Ltd v Minister of Social Security [1969] 2 QB 173; and Cornwall County Council v Prater [2006] EWCA Civ 102 considered).

On the evidence it was clear that the intention of the parties was that N was not obliged to perform the services personally and had a right to make a substitution if necessary. N was engaged for his specific expertise and only for a particular project. He also decided on the means to be employed in doing it and the time when it was to be done so long as it met the overall requirements of the main project.

Moreover, N was free to work for others at the same time as he worked for Reuters and the arrangements were consistent with the conclusion that N acted as a subcontractor, with responsibility for part only of a larger project, and not as an employee.

As far as mutuality of obligation was concerned, the evidence was that if, for any reason, N had been unable to work on the project during the period of the agreement, Reuters were under no obligation to continue to make work available for the duration of the agreement. N provided his own computer for work on the train or at home although the main work was done in London with Reuters’ computer. He had also invested in his own enterprise by establishing the taxpayer and after his work for Reuters ceased, N continued in business on his own account. During his time with Reuters N had some financial risk of unpaid invoices and bad debts because Plexus became insolvent. Also, although he was given work throughout the agreement with Reuters, he might not have been.

N was paid by reference to the volume of work done inasmuch as he was paid an hourly rate which meant that some weeks he was paid less and some weeks more. N's relationship with Reuters was not permanent; it was temporary only and was always to terminate when the project was completed. Other relevant factors were that N did not receive holiday pay, sick pay, or pension benefit. He did not get a weekly wage or an annual salary. All those factors pointed to the view that N should not be regarded as an employee of Reuters.

(2007) Sp C 652.
Decision released 11 December 2007