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

HMRC appealed the decision of the First-tier Tribunal (2010 UKFTT 148 (TC); TC 00454) that workers supplied by an agency to act as consultants were not employees of the taxpayer.

That decision, of the First-Tier Tribunal, was covered in the July 2010 issue of tax.point. The case, as brought to the Upper Tribunal, is considered here.

Background

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 First-tier Tribunal allowed the taxpayer's appeal against assessments to PAYE and NIC for the years 1998/99 and 2006/07 totalling in excess of £3.6 million which had been issued on the basis that the consultants were employees. HMRC appealed the decision of the First-tier Tribunal, primarily on the grounds of that courts interpretation of the relevant legislation, and also against the finding that in this case the consultants were not under an obligation to provide personal services within the meaning of the legislation.

Upper Tribunal Judgement

Personal Services

Considering the issue of personal services under the legislation, the court considered that the focus of the legislative definition of an “agency contract” is on the terms of the contract. The contract is entered into before the consultant starts to work the shift to which it relates, possibly days or weeks beforehand, and it is not replaced by a new and different contract once the consultant starts his/her shift. How the contract is performed does not alter its terms.

The court considered that the findings of the First-tier Tribunal were correct as “the terms of the contract did not oblige the consultant to provide the services personally. It was not an “agency contract” within section 47(1) of Income Tax Earnings and Pension Act (ITEPA) 2003. It followed that section 44 of ITEPA 2003, in particular the deeming provisions for tax purposes in section 44(2), did not apply.

Considering the corresponding provisions of the Income and Corporation Taxes Act (ICTA) 1988, which although does not contain a similar definition of “agency contract”, the court found that it could be interpreted in the same way as the parallel provisions in ITEPA 2003.

Also, the 1978 Regulations relevant to this case are not identical with that of ICTA, however, the court held that they largely reflected each other and therefore should also be interpreted in the same way.

The Upper Tribunal dismissing the appeal, upheld the decision of the First-tier Tribunal that workers supplied by an agency to act as consultants were not employees of the taxpayer.

Supervision, direction or control

Talentcore amended it's Response to the Notice of Appeal to contend that the First-tier Tribunal erred in finding that the consultants supplied by Talentcore were “subject to (or to the right of) supervision, direction or control as to the manner in which [their] services are provided”.

The court addressed this argument for completeness although it was considered unnecessary in light of the decision reached in respect of HMRC's appeal.

The court held that, insofar as consultants were supplied to work on the counter in the normal duty-free areas (as opposed to on special cosmetics promotions), there is an express finding that they would be working alongside the regular staff of World Duty Free and be subject to the same control as such staff. Clearly that included control as to the manner in which they did their work.

Insofar as consultants worked on promotions for cosmetics companies, the First-tier Tribunal was correct to find that there was little supervision in practice. However, the First-tier Tribunal found that World Duty Free would be in a position to give directions to those consultants and, although in practice the cosmetics company does not have its own staff overseeing the promotions, the First-tier Tribunal inferred that “if a manager from the cosmetics company were present he or she would have a similar right to exercise supervision, direction or control over consultants as he or she would over other retail staff who were employees.” Although by way of inference, the court held that this was nonetheless a finding of fact. There was no error of principle in the approach to this question adopted by the First-tier Tribunal, and accordingly, the challenge by Talentcore to decision of the First-tier Tribunal failed.

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