F S Consulting Ltd v Patrick McCaul (HMIT) 2002

ANONYMISED DECISION

The appeal

1. F.S. Consulting Limited (the Appellant) appeals against four decisions made on 21 June 2001 relating to national insurance contributions. The first decision was in the following terms:

"That the circumstances of the arrangements between Frank Simpson and Better Investments Plc for the performance of services from 6 April 2000 to 30 June 2000 are such that, had they taken the form of a contract between Frank Simpson and Better Investments Plc, Frank Simpson would be regarded for the purposes of Parts I to V of the Social Security (Contributions and Benefits) Act 1992 as employed in employed earner's employment by Better Investments Plc. That F.S. Consulting Limited is treated as liable to pay primary and secondary Class I contributions in respect of the worker's attributable earnings from that engagement."

2. The other three decisions were in the same terms save that the dates mentioned were:

In the second decision - 3 July 2000 to 1 September 2000

In the third decision - 4 September 2000 to 30 November 2000

In the fourth decision - 1 December 2000 to 29 June 2001

The legislation

3. The legislation about the payment of national insurance contributions is contained in The Social Security Contributions and Benefits Act 1992 (the 1992 Act) which contains separate provisions applicable to employed earners on the one hand and self-employed earners on the other. Section 75 of the Welfare Reform and Pensions Act 1999 inserted a new section 4A into the 1992 Act to take effect from 22 December 1999. The relevant parts of section 4A provide:

" 4A(1) Regulations may make provision for securing that where-

(a) an individual ("the worker"} personally performs, or is under an obligation personally to perform, services for the purposes of a business carried on by another

person (the client),

(b ) the performance of those services by the worker is (within the meaning of the regulations) referable to arrangements involving a third person (and not referable to any contract between the client and the worker), and

(c) the circumstances are such that, were the services to be performed by the worker under a contract between him and the client, he wou1d be regarded for the purposes of the applicable provision of the Act as employed in employed earner's employment by the client,

relevant payments or benefits are, to the specified extent, to be treated for those purposes as earnings paid to the worker in respect of an employed earner's employment of his. "

4. The Regulations made under the provisions of new section 4A are the Social Security Contributions (Intermediaries) Regulations 2000 SI 2000 No.727 (the 2000 Regulations) which came into force on 6 April 2000. The relevant parts of Regulation 6 provide:

"6(1) These Regulations apply where-

(a) an individual ("the worker”) personally performs, or is under an obligation personally to perform, services for the purposes of a business carried on by another person ("the client"),

(b) the performance of those services by the worker is carried out, not under a contract directly between the client and the worker, but under arrangements involving

an intermediary, and

(c) the circumstances are such that, had the arrangements taken the form of a contract between the worker and the client, the worker would be regarded for the

purposes of Parts I to V of the Contributions and Benefits Act as employed in employed earner's employment by the client. "

The issues

5. Mr Frank Simpson (Mr Simpson) is a computer consultant and the sole director and shareholder of the Appellant. During the relevant time Mr Simpson supplied his services to the Appellant who supplied them to an agency called Topper Recruitment Limited (Topper) who supplied them to Better Investments Plc (Better). It was not disputed that Mr Simpson personally performed services for the purposes of a business carried on by Better within the meaning of section 4A(1 )(a) and Regulation 6(1 )(a).

6. The Inland Revenue argued that Regulation 6(1)(c) applied. The Appellant argued: first, that "the arrangements" mentioned in Regulation 6(1)(c), and the arrangements mentioned in Regulation 6(1)(b), were those involving the intermediary (the Appellant) but not the arrangements involving Topper who was not an intermediary as defined; secondly that had those arrangements taken the form of a contract between Mr Simpson and Better, Mr Simpson would not be regarded as employed by Better, in particular because under those arrangements Better did not pay remuneration to Mr Simpson but to Topper; and, thirdly, that the arrangements involving Topper were governed by the Social Security (Categorisation of Earners) Regulations 1978 SI 1978 No.1689 (the 1978 Regulations) but that under those Regulations Mr Simpson was not treated as falling within the category of an employed earner because Mr Simpson was not subject to supervision, direction or control as to the manner of the rendering of his services.

7. It seems to me it would not be proper for me to detem1ine this appeal on the basis of the Appellant's third argument. The decision under appeal is not based on the 1978 Regulations but, more importantly, the third argument does not concern the Appellant in this appeal (F. S. Consulting Limited) but does concern Topper and Mr Simpson, neither of whom are parties to this appeal. I have therefore identified the first two of the Appellants arguments as being the issues in the appeal. However, as I heard arguments from the Appellant about the 1978 Regulations I will very briefly express my views.

8. Thus the issues for determination in the appeal are:

(1) whether "the arrangements" mentioned in Regulation 6(1)(c), and the arrangements mentioned in Regulation 6(1)(b) are those involving the intermediary (the Appellant) but not the arrangements involving Topper who was not an intermediary as defined; and

(2) whether, had the arrangements taken the form of a contract between Mr Simpson and Better, Mr Simpson would be regarded as employed in employed earner's employment by Better.

The evidence

9. Oral evidence was given by Mr Simpson on behalf of the Appellant. On 19 November 2001 Mr Simpson signed a Written statement of his evidence. An agreed bundle of documents, which contained a copy of Mr Simpson's statement, was produced.

The facts

10. From the evidence before me I find the following facts.

11. The Appellant was incorporated on 21 July 1997 and commenced to trade on 31 August 1997. Its sole director and shareholder is Mr Simpson who is a computer consultant conversion specialist. Mr Simpson's skills are comparatively rare; in evidence which I accept Mr Simpson said that he knew of no more than forty other :consultants with his expertise in conversion work.

12. Mr Simpson started working with a major bank in 1987 and trained as a computer programmer. He then became a senior programmer and later was promoted to team leader. In 1997 Mr Simpson left the bank. He personally sent his curriculum vitae to various companies seeking the position of analyst/programmer. Later in 1997 the Appellant was incorporated.

13. The Appellant then arranged through an agency for Mr Simpson to provide services to a building society for three months and then to an insurance company for six months. (Agencies make no initial charge for matching workers to clients but make a profit by entering into contracts with both the worker and the client under which the client pays an hourly rate to the agency and the agency pays a lower hourly rate to the worker). Mr Simpson continued to write personally to other companies seeking positions with them. He wrote from his home address giving the telephone numbers both of his home and of his current place of work

14. After the initial six months the contract with the insurance company was extended but shortly thereafter the insurance company sold its business. Mr Simpson was given the four weeks' notice provided for by his contract with the agency and, as a result of the recommendation of some colleagues with whom he had worked at the insurance company, was offered a contract with Better which commenced in December 1998. When that contract was complete Mr Simpson was offered another contract with Better. He continued to provide services to Better until and during the period the subject of the decisions under appeal.

15. The decisions under appeal relate to the period from 6 Apri12000 to 29 June 2001. Throughout that time Mr Simpson provided his services to the Appellant, who in turn provided them to the agency Topper, who in turn provided them to Better. Better paid Topper; Topper paid a lesser sum to the Appellant; and the Appellant in turn paid Mr Simpson.

16. A contract was entered into between Topper and the Appellant in April 2000. The contract provided that, for the period mentioned in the schedule> the 4ppellant would provide an individual to perform consultancy services for a client of Topper; the services were to be performed by the individual named in the schedule but the Appellant might propose a replacement which had to be approved by the client. The services were to be performed at the location specified. The individual had to take all necessary instructions from the client and comply with all the client's rules, regulations and procedures. Travelling time and expenses were the responsibility of the Appellant The individual had to record the hours worked on a Topper time sheet on a weekly basis and send it to Topper. The contract could be terminated immediately if the client terminated its agreement with Topper because of incompetence, unsuitability or unprofessional conduct by the individual. Otherwise the contract could be terminated by Topper with four weeks' notice. Clause 7 of the contract read:

"7. It is clearly understood that in no circumstances can this contract be interpreted as a contract of employment and that it is a contract for the supply of services only, however no warranty is given or implied that the assignee is consider by Topper Recruitment to be se1f-employed."

17. The schedule to the contract of April 2000 was for the thirteen week period from 3 April 2000 to 30 June 2000. It provided that the specified consultant was Mr Simpson; that the client was Better; that the fee rate was £1,839 per week; that the hourly rate was £49.04 per hour (both exclusive of value added tax); that overtime rates were pro rata; and that the standard working week was 37.5 hours. The schedule was extended three times. The first extension was in June 2000 and ran for nine weeks from 3 July to 1 September 2000. The second extension was in September 2000 and ran for thirteen weeks from 4 September 2000 to 30 November 2000. And the third extension was in November 2000 and ran from I December 2000 to 29 June 2001. These are the periods in the decisions under appeal.

18. During the period under appeal Mr Simpson was working to a design co-written by himself and other consultants during a previous contract with Better. Mr Norman Brown, an employee of Better was the project manager and the task was to develop systems to convert one information technology system to another. There were seven members in the team, of which five were employees of Better and two (including Mr Simpson) were consultants. Better identified its business requirements and the front end analysis work was done by the employees of Better. This analysis identified the code required and Mr Brown decided when it was required. Mr Simpson and the other consultant designed the code and were free to design it as they thought fit. The work done by Mr Simpson and the other consultant included: breaking down the work into programs and sub-programs; providing design specifications; coding the programs and sub-programs; unit testing each program and sub-program; testing sections of the suite of programs and sub-programs if thought appropria1e; testing the whole suite of programs and sub programs; providing operating instructions to Better on how to run each program and sub-program; and finally handing the suite of programs to Better with the operating instructions. The testing of the code was carried out by the employees of Better. Mr Simpson gave advice on all matters of coding and designing.

19. While working at Better Mr Simpson never acted as team leader and had no job title. He could not decide which employees of Better worked in the team and he could not '"hire or fire" them; he could advise the employees but could not instruct them what to do. As project manager Mr Brown controlled what was to be done and when it was to be done but left it to Mr Simpson and the other consultant to determine how it was done. There was very little direction or control by Better over how Mr Simpson did his work. Although normally some quality control checks would be carried out by someone else within a team, I accept the evidence of Mr Simpson that, in practice, there were no quality control checks of his work at Better.

20. The equipment for the work was provided by Better at their site and involved access to a mainframe computer. Better also provided for Mr Simpson at their premises a desk in an open plan office, a telephone, a desk top personal computer and anything else that he needed for his work. Initially Mr Simpson worked at Better's premises, with occasional work at the premises of the Appellant. Later he worked at another of Better's sites as well. Ultimately the first site was closed down and all the work was done at the second site.

21. The actual hours worked by Mr Simpson were flexible. Mr Simpson recorded his time on a time sheet and billed Topper for the time he worked. The time sheet had to be signed by a representative of Better to verify the time worked. All Mr Simpson' s work was paid for and none of his invoices remained unpaid. Prior notice of non-attendance was required and permission was also required before leave could be taken. When Mr Simpson wanted to take time off for holidays he told Better in advance and there were no difficulties.

22. The contract between the Appellant and Topper gave the Appellant the right to substitute Mr Simpson with another consultant who had previously provided consultancy of a high standard to Better. In fact, however, the right to substitute another consultant was never used. In evidence which I accept Mr Simpson said that he would only seek to substitute another consultant in certain circumstances, such as at the end of a contract if he had found something better and wanted to give notice or if he were ill for any length of time.

23. Mr Simpson left Better in June 2001 and now works for a building society. Although at the relevant time Mr Simpson was free, as a matter of contract, to undertake work for as many clients as he wished, in practice he only ever worked for one client at a time. The nature of the services he provided attracted large companies with mainframe computers and contracts of three months and over were normal for these clients.

The arguments for the Appellant

24. For the Appellant Mr Antell first argued that the effect of section 2(1)(a) with section 2(2 )(b) of the 1992 Act was that it was necessary to find either a contract of service or a regulation which deemed Mr Simpson to be an employed earner. Mr Simpson had no contract of service with Better because: there had been a succession of contracts and there was no foregone conclusion that a contract would be renewed; Mr Simpson decided his own hours and took holidays when he wanted to; Mr Simpson took the risks of invoicing and of having late payments and debts; Mr Simpson received no holiday or sick pay; there was no obligation on Mr Simpson to provide his own personal services; he was not integrated into the team and was not part and parcel of the organisation of Better; and he had no control over the employees of Better. Mr Antell relied upon R (on the application of Professional Contractors Group Ltd and others) v Inland Revenue Commissioners [2001] STC 631 at [48 (iv)] as authority for the view that it was necessary to consider the actual relationship and decide whether any obligation was owed by the client to the service provider. Also, Mr Simpson was not obliged to provide the work personally but could arrange for a substitute.

25. Mr Antell next argued that; in applying the 2000 Regulations, Topper had to be ignored because paragraph 5 provided that where an intermediary was a company the worker had to have a material interest in it; here Mr Simpson did not have a material interest in Topper. He then argued that in this appeal there was no obligation on Better to pay Mr Simpson. Better paid Topper who paid a reduced sum to Mr Simpson. He also relied upon Montgomery v Johnson Underwood Ltd [2001] EWCA Civ 318 where the Court of Appeal had applied the dicta of McKenna I in Ready Mixed Concrete (South East) Limited v Minister of Pensions and National Insurance [1968] 2 QB 497 at 5151 which dicta identified the need for both the payment of a wage and the provision of work. Here the wage was not paid to Mr Simpson (but to Topper) and Topper had to be ignored.

26. Mr Antell's third argument was that the 1978 Regulations applied to Topper. He argued that the 1978 Regulations could not be ignored as they had been saved by regulation 12 of the 2000 Regulations. He went on to argue that Mr Simpson did not come within the 1978 Regulations. He referred to item 2 in column (A) of Part I of Schedule I to the 1978 Regulations for the test of supervision and control and argued that, although Better had some control over what Mr Simpson did and when, it had no control over the manner of the rendering of his services. He cited Staples v The Secretary of State for Social Services (CO/1073/84 15 March 1985 Unreported) as authority for the view that the test of supervision and control in the 1978 Regulations was whether an employee could be told how to do a job and not merely what job to do and that a person with considerable skill was not subject to direction as to how he should do his job.

27. Finally Mr Antell cited Pepper v Hart 65 TC 421 and relied upon Inland Revenue Leaflet IR 56 "Employed or Self-employed"; Inland Revenue Press Release PR162/99 "Personal Services Provided through Intermediaries- Preventing Avoidance: Preserving Flexibility" which, he argued, was referred to in Parliament; and Hansard Debates 3 May 2000 Col. 214.

The arguments for the Respondent

28. For the Respondent Mr Mitchell argued that Pepper v Hart could only be relied upon if the legislation was ambiguous, obscure or absurd and Regulation 6(1)(c) was quite clear. Within the meaning of that regulation the worker was Mr Simpson and the client was Better. Further, even if Pepper v Hart did apply it only permitted reference to Parliamentary material and not to Inland Revenue leaflets or press releases. He cited McManus v Griffiths [1997] STC 1089 as authority for the view that it was necessary to concentrate on substance and not form. He distinguished Professional Contractors Group on the ground that it concerned European Law and he argued that the evidence supported the view that Better had the complete right of control over the work of Mr Simpson, although the right may not have been exercised in practice. He compared the work done by Mr Simpson With that of a surgeon in the National Health Service, or an electrician, or a pharmacist, or a chemist. Such professional persons were not supervised but were still employees. Further, although there right have been a right of substitution there was in fact no substitution; as the expertise of Mr Simpson was rare it might not be possible to find a suitable substitute. He argued that the 2000 Regulations were silent on the subject of agency workers and that it was necessary to apply the wording of Regulation 6(1)(c).

Reasons for decision

29. In considering the arguments of the parties I have found it convenient first to summarise the legislation and the 2000 Regulations; then to consider each of the issues in the appeal, and finally to look briefly at the 1978 Regulations.

A summary of the legislation

30. The relevant definitions are contained in section 2 of the 1992 Act of which the relevant parts provide:

"2(1) In this Part of this Act and Parts ii to v below-

"employed earner" means a person who is gainfully employed ...either under a contract of service, or in an office ...with emoluments chargeable to income tax under Schedule E; and

"self-employed earner" means a person who is gainfully employed ...otherwise than in an employed earner's employment…

(2) Regulations may provide:

(a) for employment of any prescribed description to be disregarded in relation to liability for contributions otherwise arising from employment of that description;

(b) for a person in employment of any prescribed description to be treated, for the purposes of this Act, as falling within one or other of the categories of earner defined in subsection (1) above, notwithstanding that he would not fall within that category apart from the regulations."

31. The 1978 Regulations were made under the provisions of section 2(2) and, so far as relevant in this appeal, provide for some earners to fall within the category of employed ~ earner notwithstanding that the employment is not under a contract of service. The relevance of the 1978 Regulations is that background to this issue is that Mr Antell, for the Appellant, argued that the 2000 Regulations applied where there was a service company (an Intermediary) and that the 1978 Regulations applied where there was an agency. In this appeal there was both a service company and an agency and so the 2000 Regulations applied only to the arrangements with the service company and the 1978 Regulations applied to the arrangements with the agency.

32. In 1999 section 75 of the Welfare Reform and Pensions Act inserted a new section 4A into the 1992 Act to take effect from 22 December 1999. Section 4A is relevant to this appeal and the relevant parts are set out in paragraph 3 of this Decision. The Regulations made under the provisions of new section 4A are the 2000 Regulations which came into force on 6 April 2000. Regulation 6 is relevant in this appeal and the relevant parts of Regulation 6 are set out in paragraph 4 of this Decision. The decision under appeal refers to the provisions of Regulation 6(1)(c) of the 2000 Regulations which defines the issues in this appeal.

Issue (1) -Do "the arrangements" include those with Topper?

33. The first issue is whether "the arrangements" mentioned in Regulation 6(1)(c), and the arrangements mentioned in Regulation 6(1 )(b ), are those involving an intermediary (the Appellant) but not the arrangements involving Topper who was not an intermediary as defined.

34. Regulation 6(1)(c) refers to "the arrangements" and "the arrangements" are mentioned in Regulation 6(1)(b) as "arrangements involving an intermediary". The meaning of intermediary is set out in Regulation 5 of the 2000 Regulations which provides :

"5(1) In these Regulations "intermediary" means any person. ..-

(a) whose relationship with the worker in any tax year satisfies the conditions specified in paragraph (2), (6), (7) or (8), and

(b) from whom the worker .,..

(i) receives, directly or indirectly in that year a payment or benefit that is not chargeable to tax under Schedule E, or

(ii) is entitled to receive ...directly or indirectly, in that year any such payment or benefit.

(2) Where the intermediary is a company the conditions are that:

(a) the intermediary is not an associated company of the client ...; and

(b) either-

(i) the worker has a material interest in the intermediary, or

(ii) the payment or benefit is received or receivable by the worker directly from the intermediary and can reasonably be taken to represent remuneration for services provided by the worker to the client. "

35. Topper is a company but it is not an associated company of Better; Mr Simpson has no material interest in Topper; and the payments were not received by Mr Simpson directly from Topper, although they were so received indirectly through the Appellant. For this reason I conclude that Topper is not an intermediary as defined by Regulation 5. The Appellant did not dispute that it was an intermediary as defined in Regulation 5.

36. The question, therefore, is whether "the arrangements" mentioned in Regulation 6(1)(c), and the arrangements mentioned in Regulation 6(1)(b), are those involving the worker (Mr Simpson), the client (Better) and the intermediary (the Appellant) on1y and not the arrangements involving the non-intermediary (Topper).

37. To answer that question I look again at the wording of Regulation 6(1)(b). Applying 5 Regulation 6(1)(b) to the facts of the present appeal the performance of the services by the worker (Mr Simpson) was carried out, not under a contract directly between the client (Better) and the worker (Mr Simpson) but under arrangements which involved an intermediary (the Appellant). The arrangements also involved a non-intermediary (Topper) but it seems to me that that fact does not prevent Regulation 6(1)(b) from applying in this appeal. It seems to me that the phrase "arrangements involving an intermediary" is wide enough to include arrangements involving both an intermediary and a non-intermediary; the phrase is not "arrangements with an intermediary" which would exclude arrangements with a non-intermediary.

38. As I do not find this interpretation of Regulation 6(1)(b) to be free from ambiguity I have consulted the non-statutory material referred to by Mr Antell. Neither the leaflet or the press release is Parliamentary material and so they do not come within the rule in Pepper v Hart. The press release says that the purpose of the Regulations is to remove opportunities for the avoidance of Class 1 contributions by the use of intermediaries such as service companies in circumstances where an individual worker would otherwise be an employee of the client. The rules would apply in the same way as they apply to individuals who operate without intermediaries. The leaflet describes the rules applicable to employment and self-employment and summarises certain special rules including work arranged through an agency. There is, however, nothing in either which states that the arrangements in Regulation 6(1)(b) do not include arrangements with a non-intermediary if there is an intermediary.

39. The Hansard Debates for 3 May 2000 are Parliamentary material. In the passage at Col 214, relied upon by Mr Antell, Dawn Primarolo said:

"We are not talking about all service companies or IT contractors. The new rules will apply to people in service companies who would be employees of their clients if the service company did not exist. The usual case law tests will be used to determine whether someone would be an employee."

40. I do not read that passage as a clear and unequivocal statement that the arrangements in Regulation 6(1)(b) do not include arrangements with a non-intermediary if there is an intermediary .

41. I do not find this particular point to be entirely clear. However, it seems to me that the primary purpose of the 2000 Regulations is to consider the contract between the individual and the client in cases where there is a service company (an intermediary). There is no indication in the Regulations that that primary purpose does not apply in cases where, as well as there being an intermediary, there is also a non-intermediary .Accordingly, I conclude that when applying Regulation 6(1)(c) I have to decide whether the circumstances were such that, had the arrangements (involving the intermediary (the Appellant) but also involving a non-intermediary (Topper) taken the form of a contract between the worker (Mr Simpson) and the client (Better) the worker (Mr Simpson) would be regarded as employed in employed earner's employment by the client (Better). This means that although Better paid Topper , and not the Appellant or Mr Simpson, the payment of the remuneration is still part of the arrangements which require to be considered.

42. I have reached this view on the wording of Regulation 6 of the 2000 Regulations but the view is confirmed by a reference to the provisions of section 4A (the enabling section under which the 2000 Regulations are made). Section 4A(1)(b) provides for the performance of the services by the worker to be referable to arrangements involving a third person and not referable to a contract between the client and the worker.

43. My conclusion on the first issue is that "the arrangements" mentioned in Regulation 6(1)(c), and the arrangements mentioned in Regulation 6(1)(b), are those involving both the intermediary (the Appellant) and the arrangements involving Topper who was not an intermediary as defined.

Issue (2) –Would Mr Simpson be regarded as employed by Better?

44. The second issue is whether, had the arrangements taken the form of a contract between Mr Simpson and Better, Mr Simpson would be regarded as employed in employed earner's employment by Better.

45. The authorities establish the principle that the question as to whether a person is employed under a contract of service, or whether he is se1f-employed and provides a contract for services, is a question of fact in each case to be determined having regard to all the relevant circumstances.

46. In Ready Mixed Concrete (South East), Ltd v Minister of Pensions and National Insurance [1968} 2 QB 497 the issue was whether a worker was within the class of employed persons under the National Insurance Act 1965 as being an employed person under a contract of service. At page 515C MacKenna J said:

"A contract of service exists if these three conditions are fulfilled. (i) The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master. (ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other's control in a sufficient degree to make that other master. (iii) The other provisions of the contract are consistent with its being a contract of service."

47. At page 515F MacKenna J added:

"Control includes the power of deciding the thing to be done, the way in which it shall be done, the means to be employed in doing it, the time when and the place where it shall be done."

48. MacKenna J then went on to identify a number of factors to be taken into account in deciding whether a contract was a contract of service. These included: whether the contractor hired his own employees; whether the contractor provided and maintained his own tools or equipment; whether the contractor was paid by reference to the volume of work done; whether the contractor had invested in the enterprise and bore the financial risk; whether the contractor had the opportunities of profit or the risk of loss; and whether the relationship was permanent.

49. In Market Investigations Ltd v Minister of Social Security [ 1968] 2 All E.R 732 5 Cooke J said that the fundamental test was whether a person performed services as a person in business on his own account. Although control was relevant it was not the sole determining factor; when one was dealing with a professional man, or a man of some particular skill and experience, there could be no question of the employer telling him how to do the work.

50. In Hall v Lorimer [1994] STC 23 the taxpayer was a vision mixer who undertook work for a number of different television production companies and whose engagements consisted of short term contracts lasting one to two days. In four years he worked on over 800 days. The Court of Appeal held that there was no single path to a correct decision. The question whether an individual was in business on his own account might be helpful but might be of little assistance in the case of one carrying on a profession or vocation. Factors which were critical in that appeal were the duration of the particular engagements and the number of people by whom the individual was engaged.

51 McManus v Griffiths (1997) 70 TC 218 established the principle that, in deciding whether a person was employed or self-employed, the task was to try to make legal sense of the arrangements made. Especially where the documents had not been drafted professionally, it was necessary to concentrate on the substance of the contractual arrangements rather then their form or the parties' labels.

52. Applying those principles to the facts of the present appeal I find that a number of factors point to the conclusion that, if Mr Simpson had been employed under a contract with Better, he would be regarded as gainfully employed under a contact of service. Such factors are:

- Mr Simpson did agree, in consideration of remuneration, to provide his own work and skill to Better and it was also part of the arrangements that the standard working week was 37.5 hours. Any absence of Mr Simpson had to be agreed and approved in advance by Better (although in fact there were no difficulties).

- Mr Simpson was a man of skill and experience and so it would not be expected that Better would tell him how to do his work; however, Mr Simpson was part of a team made up mainly of employees of Better and of which the project manager was an employee of Better. The project manager controlled what was to be done and when it was to be done although he left it to Mr Simpson to decide how it should be done. Also, the contract between the Appellant and Topper provided that Mr Simpson had to take all necessary instructions from Better and comply with Better's rules, regulations and procedures.

- In the performance of his work Mr Simpson was also subject to Better's control to the extent that the contract between the Appellant and Topper provided that it could be tern1inated immediately if Better terminated its agreement with Topper because of the incompetence, unsuitability or unprofessional conduct of Mr Simpson.

- Mr Simpson did not hire his own employees; the members of his team were mainly permanent employees of Better and one other consultant who had entered into his own contract with Better.

- Mr Simpson did not provide and maintain his own tools and equipment; he used the mainframe computer and other equipment provided by Better.

- Mr Simpson was not paid by reference to the volume of work done but by reference to the number of hours he worked.

- Mr Simpson did not invest in any enterprise and he did not bear any financial risk; he had no opportunity of profit and no risk of loss. All his invoices were paid.

- The relationship between Mr Simpson and Better had some element of permanency as it lasted for two and a half years from December 1998 to June 2001.

- While working for Better Mr Simpson only provided work for Better and for no other client. Before working for Better he worked for two other clients and since leaving Better he has worked for one other client but has never worked for more than one client at a time.

- Mr Simpson was integrated into the structure of Better to the extent that he worked closely with its employees; also the project manager was an employee.

53. On the other hand, some other factors point to the conclusion that, if Mr Simpson had been employed under a contract with Better he would not be regarded as being gainfully employed under a contact of service but rather as providing services under a contract for services. Such factors are:

- The agreement between the Appellant and Topper provided specifically that it was not a contract of employment and was a contract for the supply of services only. However) such label given by the parties cannot be conclusive. Also it is significant that that contract was between the Appellant and Topper whereas regulation 6(1)(c) of the 2000 Regulations provides that it is the notional contract between Mr Simpson (the worker) and Better (the client) which is relevant.

- Better was not obliged to pay Mr Simpson while he was sick or on holiday;

- In theory Mr Simpson did not enjoy job security as the Appellant's contract with Topper could be terminated on four weeks' notice. However, in practice Mr Simpson worked for Better continuously for two and a half years.

- Mr Simpson was not part of the management at Better and did not manage permanent employees of Better.

- The Appellant had the right to propose a replacement to substitute for Mr Simpson which replacement had to be another consultant who had previously supplied consultancy services to Better and had to be approved by Better. However, the right of substitution was never used.

- There was very little direction or control by Better over how Mr Simpson did his work and there were no quality control checks. On the other hand Mr Simpson was a man of skill and experience and it would not be expected that Better would tell rum how to do his work.

54. Having considered all the relevant factors I conclude that those which point towards there being a contract of service outweigh the factors which point towards there being a contract for services. Concentrating on the substance of the contractual arrangements rather than their form, I therefore conclude that, if Mr Simpson had been employed under a contract with Better he would be regarded as being employed in employed earner's employment by Better.

The 1978 Regulations

55. I finally express very brief views about the arguments put forward by the Appellant about the 1978 Regulations. The 1992 Act was a Consolidating Act and its predecessor was the Social Security Act 1975 (the 1975 Act). Under the provisions of the 1975 Act, which corresponded to section 2 of the 1992 Act, the 1978 Regulations were made. Regulation 2 provided for the treatment of earners in one category as falling within another category and for the disregard of certain employments. Regulation 2(2) was relied upon by the Appellant and the relevant part provides:

"(2) ...every earner shall, in respect of any employment described in any paragraph in column (A) of Part I of Schedule I to these regulations, be treated as falling within the category of an employed earner in so far as he is gainfully employed in such employment and is not a person specified in the corresponding paragraph in column (B) of that Part, notwithstanding that the employment is not under a contract of service, or in an office (including elective office) with emoluments chargeable to income tax under Schedule E."

56. Thus the effect of regulation 2(2) is that every earner described in column (A) of Part I of Schedule I is treated as an employed earner notwithstanding that the employment is not under a contract of service.

57. Column (A) of Schedule 1 of the 1978 Regulations lists employments in respect of which earners are to be treated as falling within the category of employed earner. Item 2 of Column (A) reads:

"2. Employment. ..in which the person employed renders, or is under obligation to render, personal service and is subject to supervision, direction or control, or to the right of supervision, direction or control, as to the manner of the rendering of such service and where the person employed is supplied by or through some third person. ..and-

(a) where earnings for such service are paid by or through, or on the basis of accounts submitted by, that third person or in accordance, with arrangements made with that third person. .-."

58. The effect of paragraph 2 of Column (A) is that workers supplied through a third person, (normally agency workers) are treated as employed earners if they render personal services and are subject to supervision direction or control, or to the right of supervision, direction and control as to the manner of rendering the service.

59. If I had to express a view on whether Mr Simpson came within the terms of the 1978 Regulations I would be bound by the decision in Staples. That case concerned a head chef and Glidewell J held that he was not subject to supervision, direction or control as to the manner of rendering his services within the meaning of the 1978 Regulations as he was not a person who was subject to direction by management as to how he should do his job. In this appeal Better could specify to :Mr Simpson what had to be done and the time in which it had to be done but could not specify how it was to be done. On the other hand Mr Simpson was part of a project team of which the leader was employed by Better. I would not find this matter to be without difficulty but on balance would conclude that Mr Simpson was not subject to supervision, direction or control as to the manner of rendering his services.

60. I agree with Mr Antell that the 1978 Regulations remain in existence as Regulation 12 of the 2000 Regulations provides that nothing in the 2000 Regulations affects the operation of regulation 2 of the 1978 Regulations as that regulation applies to employment listed in paragraph .2 in column (A) of Part I of Schedule I. However, in my view, as the 2000 Regulations save the 1978 Regulations, both Regulations are effective and a decision can be reached on either or both Regulations. The decision in issue in this appeal was reached under Regulation 6(1)(c) of the 2000 Regulations.

Decision

61. My decisions on the issues for determination in the appeal are:

(1) that "the arrangements" mentioned in Regulation 6(1)(c) and the arrangements mentioned in Regulation 6(1)(b) are those involving both the intermediary (the Appellant) and the non-intermediary (Topper); and

(2) that, had the arrangements taken the form of a contract between Mr Simpson and Better, Mr Simpson would be regarded as employed in employed earner's employment by Better.

62. The appeal is, therefore, dismissed.

DR NUALA BRICE

SPECIAL COMMISSIONER

22 JAN 2002