DRAGONFLY CONSULTING LTD v REVENUE
& CUSTOMS COMMISSIONERS (SpC00655) (2007)
Sp Comm (Charles Hellier) 11/12/2007
TAX -
EMPLOYMENT
CONTROL :
EMPLOYMENT STATUS : INFORMATION TECHNOLOGY : INTERMEDIARIES : MUTUALITY OF
OBLIGATION : NATIONAL INSURANCE CONTRIBUTIONS : PAYE : PROVISION OF SERVICES
THROUGH INTERMEDIARY : WORKER REGARDED AS EMPLOYEE IF SERVICES PROVIDED
DIRECTLY TO CLIENT : IR 35 : Sch.12 FINANCE ACT 2000 : reg.6 SOCIAL SECURITY
CONTRIBUTIONS (INTERMEDIARIES) REGULATIONS 2000
The taxpayer company, which supplied the services of
its sole director as an IT system tester to a client through an intermediary,
was liable to account for income tax under the Finance Act 2000 Sch.12 and
national insurance contributions under the Social Security Contributions
(Intermediaries) Regulations 2000 reg.6, where a contract directly between the
director and the client would have been a contract of employment.
The
appellant company (D) appealed against a decision and determinations made by
the respondent commissioners that it was liable in respect of national
insurance contributions and PAYE tax under the "IR 35" provisions.
D had
supplied the services of its sole director (B), who also owned 50 per cent of
the shares in D, to a client (C) via an agency.
B was an
IT system tester.
His services
were supplied to C to work on the testing of IT projects being undertaken by C.
The
services were supplied for a period of nearly three years.
During
that period B worked almost exclusively for C.
The
effect of the IR 35 legislation, contained in the Finance Act 2000 Sch.12 for direct tax and the Social Security Contributions
(Intermediaries) Regulations 2000 reg.6 for national insurance, was in outline that if the
circumstances were such that, had B performed his services under a contract
directly between him and C, that contract would have been one of employment,
then D would be liable for national insurance contributions and PAYE calculated
broadly on the basis that the payments it received were emoluments it paid to
B.
D
contended that under such a contract B would not have been an employee.
HELD: (1)
The notional contracts between B and C would have been for the personal service
of B in return for remuneration, with a limited possibility of B sending a
substitute in his place.
The
notional contract would contain provisions requiring B to be subject to the
guidance of his team and team manager.
The right
of C to direct B through the operation of the team and the guidance of the team
manager was enough, in the case of a skilled professional man, to be able to
say that there was sufficient control.
Therefore
the first two preconditions for a contract of employment in Ready Mixed
Concrete (South East) Ltd v Minister of Pensions and National Insurance (1968)
2 QB 497 were satisfied, Ready Mixed Concrete applied.
The
requirement for mutuality was satisfied by an obligation to work in return for
an obligation to remunerate and that requirement was satisfied by the notional
contracts.
An
obligation on the employer to provide work, or in the absence of available work
to pay, was not a precondition for the contract being one of employment, but
only an indicator Usetech Ltd v Young (Inspector of
Taxes) (2004) EWHC 2248 (Ch), (2004) STC 1671 and Cornwall CC v Prater (2006) EWCA Civ
102, (2006) 2 All ER 1013 considered; Propertycare Ltd v Gower not followed.
(2)
Considering the other factors which might indicate employment or consistency or
otherwise with employment, there was nothing which pointed strongly to the
conclusion that B would have been in business on his own account, Ready Mixed
Concrete and Market Investigations Ltd v Minister of Social Security (1969) 2
QB 173 applied.
By
contrast, standing back and looking at the overall picture, it appeared that B
was someone who worked fairly regular hours during each engagement, who worked
on parts of a project which were allocated to him as part of C's teams, who was
integrated into C's business, and who had a role similar to that of a
professional employee.
B did not
get paid for, or go to work to provide, a specific product; instead he provided
his services to C to be used by them in testing the parts of a project which
from time to time were allocated to him.
He was
engaged in relation to the work to be done on a specific project but not to
deliver anything other than his services in providing testing in relation to
that project.
He would
have been an employee had he been directly engaged by C.
Appeal
dismissed
Counsel:
For
the appellant: Non-counsel representative
Solicitors:
For
the respondents: Revenue and Customs
LTL 21/1/2008 (Unreported elsewhere)
Judgment:
Official - 27 pages
Document No. AC0116046
Source: Lawtel http://www.lawtel.co.uk
, copyright acknowledged.