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

Facts

The sole director and shareholder of the taxpayer company, B, was a software developer. The taxpayer entered into a contract with a project services company, TPS, to supply professional consultancy services to an end user, MBDA.

The taxpayer appealed against determinations and a decision that it was liable to pay PAYE and NICs in respect of the provision of B's services to MBDA. The parties agreed that if the IR35 provisions applied, the amount shown in the determinations and decision was correct.

The taxpayer submitted that B was not an employee, but a self-employed consultant. There was nothing in the documentation to show he was employed as an employee. The fee was fixed with the agency by the taxpayer.

The Revenue submitted that B was effectively an employee since the client had a right of control. B's obligations were those of an employee. The purchase orders were the contract. The documents showed that was the equivalent of a contract of employment. The evidence showed that B was treated in the same way as an employee. He worked in the same way. The pay rates were employee pay rates. There was a disciplinary procedure. B was integrated into MBDA's business as part of a team producing an integrated product. Accordingly, the appeal should be dismissed.

Issue

Whether, had the arrangements taken the form of a contract between B and MBDA, B would have been regarded as an employee of MBDA.

Decision

The special commissioner (Adrian Shipwright) (allowing the appeal) said that, on the facts when looked at as a whole, B was a professional consultant providing independent services.

From the decision in Ansell Computer Services Ltd v Richardson (HMIT) (2004) Sp C 425, it was clear that the question to be decided was whether, looking at the picture as a whole, B was in business on his own account and was not a person working as an employee in someone else's business in all the circumstances of the case. The onus of proof was on the taxpayer.

The Revenue Manual set out a list of relevant factors which were of use. Those factors included: (a) whether there was an ultimate right of control on the part of the engager over what tasks had to be done, where the services had to be performed, when they had to be performed and how they had to be performed; (b) whether personal services were required; (c) whether the worker had the right to provide a substitute or engage helpers; (d) who had to provide the equipment and/or materials; (e) whether the worker had a real risk of financial loss; (f) whether the worker had the opportunity to profit from management, for example by reducing overheads and organising work effectively; (g) the basis of payments; (h) whether there were ‘employee type’ benefits, e.g. sick pay, pensions, holiday pay, etc.; (i) whether the worker worked exclusively for the engager; (j) whether the worker was part and parcel of the engager's business or organisation; (k) whether there was a right to terminate the engagement by giving notice of a specific length; (l) factors personal to the worker, e.g. number of engagements in business organisation; and (m) the intention of the engager and worker as regards employment status.

There was not an ultimate right of control on the part of the MBDA of the type the manual implied. The engager could have continued with the engagement had it chosen to, or chosen not to renew the engagement. The position was not one of an ultimate right of control as would be the case of an employee.

Even if there were, in the particular circumstances, that would not be of the same nature as for an employee. If there was an ultimate right of control that was for security reasons and not anything akin to that under employment law.

There was nothing in the documents requiring personal service. The documentation allowed for a substitute to be provided. The equipment and materials were provided by MBDA but given the security context, it would have been surprising had it been otherwise. The requirement that the worker had a real risk of financial loss was somewhat circular. If the worker was in business on his own account there must be a risk of financial loss. Here, he risked not being continued to be engaged. B was able to profit from sound management by organising his work effectively so as to save himself time and give himself more free time which was part of the reason that he organised his work in the way that he did.

The payment was on a fee basis which was entirely consistent with self-employment. On the evidence, there was no employee-type benefit such as sick pay or pensions provisions. There was no requirement that B work exclusively for MBDA. Whilst B was engaged in assisting MBDA's business, he was not ‘integrated’ as an employee. The engagement could be terminated but that was not equivalent to being able to give notice under a contract of employment. The number of contracts or continuation of employment did not give rise to employment status. The parties did not intend B to have employment status.

Standing back and looking at the picture as a whole, B was in business on his own account and was not a person working as an employee in someone else's business on the hypothetical requirements provided for by the legislation.

(2007) Sp C 656.

Decision released 20 December 2007.