Were workers supplied by an agency to act as consultants in duty free shops at airports employees of the taxpayer?

Talentcore Ltd, the taxpayer, carried on the business of supplying consultants for counter and promotional work to major cosmetic companies at duty free shops in airports. These consultants were ‘supplied’ by allocating work to them however there was no framework contract between the taxpayer and the consultants - the taxpayer was not obliged to offer work and the consultants could decline or accept work when offered. There were also no written contracts between Talentcore Ltd and either the cosmetic companies, World Duty Free (who ran the shops) or the consultants. Training was however provided by Talentcore Ltd.

Contracts between Talentcore Ltd and the consultant were only entered into once a consultant accepted work in either a morning or afternoon shift. When work was accepted there was little supervision of the consultants and no control over sales technique. The cosmetics company was invoiced by the taxpayer by attaching a list of people and hours worked and the consultants were paid in accordance with timesheets. Consultants who did not accept time slots were expected to inform the taxpayer and if possible find a replacement.

The taxpayer appealed assessments to PAYE and NIC for the years 1998/99 and 2006/07 totalling in excess of £3.6million which had been issued on the basis that the consultants were employees. The issue at stake was whether section 134 Income and Corporation Taxes Act (ICTA) 1988 (applicable until 5 April 2003) or Section 44 Income Tax Earnings and Pension Act (ITEPA) 2003 (applicable from 6 April 2003 et seq) as well as the Social Security (Categorisation of Earners) Regulations 1978 dealing with Agency Workers had the effect of deeming the consultants as employees of the taxpayer.

Allowing the appeal, the First-tier Tribunal stated that because there was a full right of substitution, which meant that the person did not need to turn up, there was no contract of service but more limited rights of substitution did not prevent this.

However it could be inferred from evidence in the case that Talentcore Ltd's primary concern was to cover every shift, and not who would work the shift, though they liked to avoid too many substitutions. What really mattered to the cosmetics company was that someone suitable was there for all shifts and timesheets were completed.

The question also arose whether, where a substitute was used and the taxpayer did not have the opportunity to make a new contract, there was in effect a direct contract with the substitute. This was dismissed given the temporary and adhoc nature of the taxpayer's bookings and that the taxpayer was unaware of the substitute.

Whilst supervision, direction or control seemed minimal because the consultants were experienced, the Tribunal inferred that even so, if a manager from the cosmetics company were present, he/she would have a similar right to exercise supervision, direction and control as he would over other retail staff i.e. employees. The consultants for this purpose were therefore not distinguishable.

However the legislation was vague as to who had to (or had the right to) exercise such supervision, and as the legislation dealt with workers who were obliged to provide services to the client, it would normally be the client who needed to supervise, direct or control. In this case it did not matter who exercised control as both the cosmetic company and World Duty Free were in the position of the client (despite contractually the cosmetics company being the client). Either or both had the right even though in practice there was little or no exercise of that right.

There was no dispute about whether the workers were supplied by or through the taxpayer, or (for NIC) about the payment arrangements being satisfied. Hence the Tribunal found that, based on the evidence, there was no obligation to render or provide personal service within the legislation and therefore the consultants were not employees.

The case is available at http://www.financeandtaxtribunals.gov.uk/Aspx/view.aspx?id=4820