FIRST WORD SOFTWARE LTD v REVENUE
& CUSTOMS COMMISSIONERS (SpC652) (2007)
Sp Comm (AN Brice (Chairman)) 2/12/2007
TAX -
EMPLOYMENT
COMPUTERS :
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 : COMPUTER CONSULTANTS : LEGACY SYSTEMS : MIGRATION
: 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 and shareholder as a computer consultant to a client through
an intermediary, was not 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 not have been a contract of employment.
The
appellant company (F) appealed against three decisions of the respondent
commissioners that it was liable to pay national insurance contributions and
income tax under PAYE by reason of the application of the "IR 35"
legislation.
F's sole
director and shareholder (N) was a computer consultant.
For some
16 months F had supplied the services of N, through an agency (P), to a client
(R).
The
agreement between F and P was for the supply of services to R to migrate its
human resources and payroll computer systems onto a single application.
F agreed
to provide the services of one or more consultants including N.
N
designed a solution for the migration project and worked at R's offices as well
as at home until the project was completed.
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 N performed his services under a contract directly between him
and R, that contract would have been one of employment, then F would be liable
for national insurance contributions and PAYE calculated broadly on the basis
that the payments it received were emoluments it paid to N.
The
commissioners took the view that the circumstances were such that, if the
services had been performed under a contract between N and R, N would have been
regarded as an employee of R, and that F was liable to pay national insurance
contributions and PAYE tax accordingly in respect of the payments made to N.
F
contended that, if the services had been performed under a contract between N
and R, N would not have been regarded as an employee of R so that the IR 35
legislation did not apply.
HELD: (1)
The question as to whether a person was employed under a contract of service,
or whether he was self-employed and engaged under a contract for services, was
a question of fact in each case to be determined having regard to all the
relevant circumstances.
Relevant
factors could be: whether the worker had to provide his own work and skill or
whether he could substitute the work and skill of another; whether the worker
was subject to a sufficient degree of control; whether there was mutuality of
obligation so that there was an obligation on the worker to work and on the
other party to pay him and to continue to make work available during the time
of the contract; whether the worker was in business on his own account; whether
the worker was paid by reference to the volume of work done; and the duration
of the particular engagements and whether the relationship was permanent and
the number of people by whom the individual was engaged, Ready Mixed Concrete
(South East) Ltd v Minister of Pensions and National Insurance (1968) 2 QB 497,
and Market Investigations Ltd v Minister of Social Security (1969) 2 QB 173
applied; Hall (Inspector of Taxes) v Lorimer
(1994) 1 WLR 209 and Cornwall CC v Prater (2006) EWCA Civ
102, (2006) 2 All ER 1013 considered.
(2)
Applying the principles established by the authorities N would not be regarded
as an employee of R.
Although
N did in fact do the work personally, the intention of the parties was that F
could assign the obligations and benefits of its agreement with P so long as
the assignee was acceptable to R.
N was
engaged for his specific expertise and only for a particular project.
The way
in which that was done was left to him.
He was
not subject to the same control as an employee and was free to work for others
at the same time as he worked for R.
The
arrangements were consistent with the conclusion that N acted as a
sub-contractor, with responsibility for part of a larger project, and not as an
employee.
As far as
mutuality of obligation was concerned, if, for any reason, N had been unable to
work on the project during the period of the agreement, then R would not have
had to find him other work to do and would not have had to pay him.
N was in
business on his own account before working for R and afterwards.
The
arrangements pointed to the conclusion that N would not be regarded as an
employee of R.
N was
paid an hourly rate and his relationship with R was not permanent.
N brought
his own expertise and intellectual property rights to the project and retained
ownership of them.
He also
retained ownership of the processes he devised for the purposes of the project.
Appeal
allowed
Counsel:
For
the appellant: Non-counsel representative
For the respondents:
Non-counsel representative
LTL 21/1/2008 (Unreported elsewhere)
Judgment:
Official - 15 pages
Document No. AC0116040
Source: Lawtel http://www.lawtel.co.uk
, copyright acknowledged.