Whether a worker was deemed to be an employee or self-employed

The matter brought before the First-tier Tribunal concerned whether the individual was an employee of the taxpayer (Anthenaeum Club) or self-employed for UK income tax purposes.

The individual Mr Becaglia (“Mr B”) was engaged by the taxpayer by way of an agreement between the taxpayer and Mr B's company “P3/Propaganda” (“P3”), an unincorporated business in respect of which Mr B was the owner and sole employee. It was agreed that P3 would invoice the taxpayer each month for services provided by Mr B as assistant manager.

Mr B brought proceedings for unfair dismissal which were settled on terms of a document which stated that Mr B was an employee of the taxpayer from 7 July 2003 and the taxpayer undertook to pay income tax and national insurance contributions as required.

HMRC issued determinations under reg. 80 of the Income tax (Pay as You Earn) Regulations 2003 (SI 2003/2682) for the years 2003/04 and 2004/05 and a notice stating that Class 1 contributions for the period 6 April 2003 to 5 April 2005 were payable by the taxpayer.

The taxpayer appealed and contended that Mr B was a self-employed consultant. The support for the taxpayer's argument was that: Mr B advertised his role within the taxpayers company as a consultant, he invoiced the company each month and such invoices included a charge to VAT.

HMRC submitted that the settlement document was a legal agreement, which in the absence of any evidence, determined Mr B's employment status. HMRC further claimed that that invoices issued were not determinative of the issue as to his status. HMRC also pointed out that there was no potential risk of loss to Mr B in providing services as he was reimbursed for any expenditure made on behalf of the company. Mr B's other interests of a self-employed nature did not prohibit him being an employee of the taxpayer.

In reaching a decision, the Tribunal considered the arguments put forward and the documents and case law contained therein. The Tribunal took the view that the settlement document made it clear that Mr B was an employee. Considering all other factors such as Mr B's role within the company and the level of control retained by the taxpayer in directing Mr B's work, the Tribunal found that Mr B carried out the role of an employee. The fact that Mr B invoiced the company each month and charged VAT was not sufficient in itself to indicate self-employment. Further, as Mr B was paid a specific amount of £25,000 in twelve monthly payments, this established the relationship of employee/employer as there was no potential risk of financial loss to Mr B personally.

The appeal was dismissed.

The full text of the case is available from http://www.financeandtaxtribunals.gov.uk/Aspx/view.aspx?id=4705