Contract lawyer (UK) Roger Sinclair Egos Ltd

Personal factors - In deciding a person's employment status it may sometimes be necessary to take into account factors which are personal to the worker and which have little to do with the terms of the particular engagement being considered. For example, if a skilled worker works for a number of clients throughout the year and has a business-like approach to obtaining his engagements (perhaps involving expenditure on office accommodation, office equipment, etc) this will point towards self-employment (Hall v Lorimer 66TC349). Personal factors will usually carry less weight in the case of an unskilled worker, where other factors such as the high level of control exercised by the contractor are likely to be conclusive of employment.[1]

The following paragraphs are extracted from the Employment Status Manual, section ESM1071: [2]

Some of the factors that it may be appropriate to consider are - in a sense - personal to the worker in that they are outside the terms of the direct contractual relationship the worker has with the engager for the specific engagement being considered. Such factors still need to be considered in the context of the case as a whole and the weight to be attached to them will vary from case to case.

The case of Hall v Lorimer (66TC349) illustrates the sort of factors that would be personal to the worker. Mr Lorimer worked as a vision mixer and the judgement of the Court of Appeal made it clear that an outstanding feature in that particular case was that 'Mr Lorimer customarily worked for 20 or more production companies and that the vast majority of his assignments ....... lasted only for a single day'.

A review of decisions made in the case of actors / entertainers also provides a useful insight into this area.

In an early status case - Davies v Braithwaite (18TC1 98) - Miss Braithwaite was an actress who performed in stage plays, in films and on the radio. Rowlatt J concluded she was chargeable under Schedule D of Income Tax and said

'...Where one finds a method of earning a livelihood which does not consist of the obtaining of a post and staying in it, but consists of a series of engagements and moving from one to the other - and in the case of an actor's or actress's life it certainly involves going from one to the other and not going on playing one part for the rest of his or her life, but in obtaining one engagement, then another, and a whole series of them - then each of those engagements cannot be considered employment, but is a mere engagement in the course of exercising a profession...' (Page 204).

But that is not to say that everyone who has a pattern of work which involves a series of contracts will inevitably be self-employed. In Hall v Lorimer (66TC349) the Court of Appeal made it clear that an employment properly so called is not the less an employment because it is casual rather than regular.

In Fall v Hitchen (49TC433) a ballet dancer's contract with Sadlers Wells was held to be a contract of employment. Pennycuicks judgement in that case makes it clear that an individual who is in business or carries on a profession the income of which is chargeable under Schedule D can also have an employment the income from which is chargeable under Schedule E. This view was endorsed in the Court of Appeal in Hall v Lorimer (66TC349) .

It is clear from the decision in Hall v Lorimer that, in reaching a balanced judgement on status, it is not appropriate to look solely at the terms and conditions of the individual engagement. The decision may be affected by the way in which the worker generally carries on his occupation. In particular

· engagements may need to be looked at in the context of the worker's business activities as a whole including matters such as the worker's exposure to bad debts and the amount spent on organising, obtaining, or carrying out the work

· it may be appropriate to take into account the length of the particular engagement and the number of other persons for whom similar work is performed.

However, this is subject to an important qualification. The intention of the engager and worker can be of fundamental importance in some instances. Where an engager wishes to take on an employee he has that right and if a contract, freely signed by both parties, whose terms and conditions are consistent with employment specifically states that the engagement amounts to a contract of service (employment) then that will conclude the matter.

We believe the Lorimer decision will have particular relevance to engagements where:

· the worker has a business-like approach to obtaining and organising his/her engagements and incurs expenditure in this area of a type not normally associated with employment (for example provision of office accommodation, office equipment, etc.).

In addition some of the following pointers may be present although their absence would not inevitably mean employment:

· the worker has many short-term engagements perhaps lasting a matter of days rather than weeks

· the worker is providing professional services or services requiring the exercise of rare skill and judgement

· the worker is engaged for a specific task rather than being at the general disposal of the engager

· as a result of the number of different engagers the worker incurs expenditure travelling to various workplaces - similar in nature to 'home to work travel but considerable in amount when compared to the level of expenditure that is likely to be incurred by an employee who resides close to his/her work place.

· the worker bears a greater financial risk than an employee because payment is made after the payer has been invoiced, exposing the worker to the risk of delayed payment and bad debt

· the extent to which the worker is able to influence the rate of pay is greater than is normally the case in employment situations, for example evidence of tendering.

In Davies v Braithwaite [3]:

"When a person occupies a post resting on a contract, and if then that is employment as opposed to a mere engagement in the course of carrying on a profession, I do not think that is a very difficult term of distinction, though perhaps a little difficult to apply to all cases. But I would go further than that and say that it seems to me that where one finds a method of earning a livelihood which does not consist of the obtaining of a post and staying in it, but consists of a series of engagements and moving from one to the other ‑ and in the case of an actor's or actress's life it certainly involves going from one to the other and not going on playing one part for the rest of his or her life, but in obtaining one engagement, then another, and a whole series of them ‑ then each of those engagements cannot be considered employment, but is a mere engagement in the course of exercising a profession, and every profession and every trade does involve the making of successive engagements and successive contracts and, in one sense of the word, employments.

In this case I think it is quite clear that the respondent must be assessed to income tax under Sch. D, because here she does not make a contract with a producer for a post. She makes a contract with a producer for the next thing that she is going to do, and then another producer, and then a third producer, and at any time she may make a record for a gramophone company or act for a film. I think that whatever she does and whatever contracts she makes are nothing but incidents in the conduct of her professional career."

In Fall v Hitchen [4]: Referring to the above from Davies v Braithwaite, the judge said:

"In that judgment, Rowlatt J. holds that the word "employment" means a post, and distinguishes it from a succession of engagements made in the course of carrying on a profession. He then goes on to hold that, on the particular facts of that case, Miss Braithwaite did not hold any post and that none of her particular engagements could be treated as (a) post, but that on the contrary all her successive engagements must be treated as incidents in the conduct of her profession. Rowlatt J. nowhere says that if an actor enters into a contract in such terms as to amount to what he calls a post, then that actor is not chargeable under Schedule E but under Schedule D. On the contrary, it is implicit in the whole of his judgment, it seems to me, that if a professional person, whether an actor or anybody else, enters into a contract involving what Rowlatt J. calls a post, then that person will be chargeable in respect of the income arising from the post under Schedule E notwithstanding that he is at the same time carrying on his profession, the income of which will be chargeable under Schedule D. The instance of a musician puts that point very neatly.

I do not think that most people today would use the word "post," which does not seem very apt to cover the countless instances of employment in the sense of a contract of service; but every word of that judgment is applicable as between the carrying on of a profession and an engagement in the course of carrying on that profession, on the one hand, and a contract of employment, on the other hand."

The above comments from Fall v Hitchen were approved in Hall v Lorimer, where the judge said:

'With those words of Pennycuick V.‑C. I would respectfully agree as another helpful statement carrying general weight in the consideration of problems of this kind.'

The Revenue have more recently qualified their view of Fall v Hitchen, and now say that they will regard the relationship as employment (ESM4121) [5]:

'where a performer / artist is engaged for a regular salary to perform in a series of productions over a period of time, in such roles as may be from time to time stipulated by the engager, with a minimum period of notice before termination of the contract, as was Mr Hitchen in Fall v Hitchen. This would apply for example to permanent members of some orchestras and permanent members of an opera, ballet or theatre company.'

The distinction between the two cases is of some importance to contractors.

· In Davies v Braithwaite there was a succession of separate engagements, which amounted to the 'incidents in the course of a professional career'.

· In Fall v Hitchen, the performer (Wayne Sleep, under his real name, as I recall) held a 'post' and thus was subject to control over what he did, within the overall scope of that post. from time to time.

· The cases also make clear that just because some engagements may be engagements does not necessarily mean they all are; each must be considered separately, and if one or more is treated as a 'post' then that (other considerations being equal) will nevertheless be treated as employment.

· The substantial difference was that in Davies it was an engagement, and accepted as non-employment. In Hitchen, it was a post, and thus employment. A succession of engagements which are not posts are quite capable of each falling outside IR35. But any of them which are posts may well fall within.

Case law suggests that

· where there are many short term engagements and the worker is a skilled professional, then the relationship is likely to be self-employment.

· the existence of a business structure is a pointer towards self-employment

· the lack of a business structure is not necessarily a pointer towards employment

· in any event, business structure may be no more than simple goodwill [6]

Conclusion

what would the position be likely to be in relation to this factor for a hypothetical employee? Logic and experience suggests that a hypothetical employee would probably

· be engaged in a post

· not have and maintain his / her own separate business organisation

· not expect to negotiate rates or terms of engagement to any significant extent

· not maintain his / her own office

· not incur significant unreimbursed expense

· not maintain separate accounts, beyond such records as may be necessary for self-assessment

what would the position be likely to be in relation to this factor for a hypothetical obviously self-employed person or consultancy (eg Andersens, or by PWC, or EDI?). Logic and experience suggests that a hypothetical obviously self-employed person or consultancy would probably

· be engaged for a series of specific service requirements (be they successive or contemporaneous), by a variety of engagers

· expect to negotiate the rates and terms of each engagement (including negotiating IR35-friendly terms - such a principle may be supported by Hall v Lorimer, where the incurring of expenses which would be tax-deductible by the self-employed was held to be itself a pointer towards employment)

· maintain the structure of an independent business, have separate business stationery, and prepare and file proper business accounts

· maintain such independent office facilities as were necessary

· incur expenses and overheads related to the business, which (s)he would not expect to be reimbursed

· expect to negotiate terms and rates for individual engagements

do the facts here actually provide a helpful pointer towards either view?

If you're another lawyer or an accountant reading these pages, I'd be happy to discuss any points arising with you - particularly if you'd like to debate any points where you disagree with my views - mail me!

No liability is accepted for any inaccuracy in the information in these pages - see full disclaimer

Disclaimer of liability:

The information on these pages is provided free and for information only, and is provided 'as is'. Whilst believed to be correct, it is in no way comprehensive. It is provided for your interest only and is not intended to be relied on as formal legal advice. The posting of information on these pages is not intended to create a lawyer-client relationship, and you should not act or rely on this information without seeking professional advice. No liability is accepted therefore for any errors, or for any losses that may be incurred if it is relied on.

You may read these pages on-line, and download them to read later, for your own personal use.
This copyright notice must appear on every page that you print from here.
You must not redistribute these pages or any part of them in any form or medium without first obtaining my consent.
You are welcome to set up links to this website from others.

[1] http://www.inlandrevenue.gov.uk/ir35/guidance.htm

[2] http://www.inlandrevenue.gov.uk/manuals/esmmanual/part1000/esm11071.htm

[3] Davies v Braithwaite 1931 2KB 628

[4] Fall v Hitchen 1973 1 WLR 286

[5] http://www.inlandrevenue.gov.uk/manuals/esmmanual/part4000/esm4121.htm

[6] RTZ Oil and Gas Ltd v Ellis 1987 61 TC 132

Personal factors

The issue

The issue here would appear to be to consider matters outside the contract itself, and within the control of the Individual, which either support

· an overall picture of an individual carrying on business on his own account, or

· a picture of an individual who is working as an employee in someone else's business - in effect, a disguised employee.

Legal issues, and the Revenue Guidelines

Guidelines