Income tax – PAYE determinations – status – whether flying instructors employees or sub-contractors – the latter

National insurance – whether flying instructors employed earners – no

Another case this month on a recurring issue in tax – employed vs self employed, and unlike the Wright case, this time the taxpayer won.

HMRC had challenged whether instructors engaged by Sherburn Aero Club Limited should be treated as self employed, as Sherburn was doing. As with all such cases, the facts warranted careful examination.

Either flying instructors would apply to Sherburn to be added to a list of approved instructors, or in some cases Sherburn might approach them to see whether they would like to become an approved instructor. There was a vetting process to ensure that any instructor would meet the necessary standards.

The successful instructors could then provide instruction in airplanes owned by Sherburn. People wishing to train had to be members of Sherburn, which would charge them a fee for the composite service of the use of the aircraft and the training. Sherburn would pay the instructors on the basis of a standardised hourly rate.

It seems there was considerable flexibility in terms of which instructor actually provided the training at any time. Instructors might cancel on the basis of inappropriate weather conditions, or an insufficient number of trainees to warrant their attendance at the club. Equally Sherburn could cancel for various scheduling reasons, but if an instructor actually attended at the airfield in accordance with a booking and flying did not take place on that day, Sherburn did pay the instructor a (small) attendance allowance.

Instructors were free to work elsewhere, and generally Sherburn did not dictate the manner in which the flight instruction was to be provided. There were general rules determining when flights could and could not take place, but occasionally the instructors themselves would be the arbiters in applying these rules. Indeed, as the Special Commissioner described it, “the hallmark of the relationship was flexibility on both sides”. There was paperwork to describe the relationship between Sherburn and the instructors, supplemented by various addenda put in place after HMRC first mounted its challenge. The Special Commissioner wasn't terribly persuaded by this.

The issue of the control which Sherburn could exercise over the instructors appears central to this case. As the decision puts it, “HMRC accepted that the flight instructors were highly skilled individuals, but contended that as such “control” might be a less significant factor in determining employment status. HMRC submitted that the evidence showed that the instructors were sufficiently controlled by SAC for their relationship to be consistent with a contract of service.” HMRC also submitted that the flying instructors were not in business on their own account.

However, the Special Commissioner felt that the control test was passed by Sherburn. He also noted that the instructors had little, if anything, by way of the benefits which employees would normally receive for example sick pay. He felt that the flying instructors were in business on their own account, admittedly in a modest way.

The determination is available on-line at http://www.financeandtaxtribunals.gov.uk/judgmentfiles/j4363/TC00006.doc.