MKM COMPUTING LTD v REVENUE & CUSTOMS COMMISSIONERS (SpC653) (2007)

Sp Comm (Charles Hellier) 11/12/2007

TAX - AGENCY - EMPLOYMENT

CONTRACTS OF AGENCY : CONTRACTS OF EMPLOYMENT : EMPLOYMENT STATUS : INDEPENDENT CONTRACTORS : NATIONAL INSURANCE : PAYE : SERVICE PROVISION : DIFFERENCE BETWEEN CONTRACT FOR SERVICE AND CONTRACT OF SERVICES IN TAX CONTEXT : TAX LIABILITY : Sch.12 FINANCE ACT 2000 : Sch.10 para.1 FINANCE ACT 2000 : reg.6 SOCIAL SECURITY CONTRIBUTIONS (INTERMEDIARIES) REGULATIONS 2000

For the purposes of liability to pay National Insurance contributions and PAYE, the court considered how to determine whether a work arrangement was a contract for service or a contract of services, and established that, in the instant case, the conditions in the Finance Act 2000 Sch.12 and Sch.10 para.1 and in the Social Security Contributions (Intermediaries) Regulations 2000 reg.6 were met.

The appellant company (M) appealed against a decision and two determinations made by the respondent commissioners under the IR35 provisions introduced by the Income Tax (Earnings and Pensions) Act 2003 that it was liable to National Insurance and PAYE on money received by its sole director (E) in return for his services to another company (L) as a contract analyst programmer.

M had agreed to make E's services available to an agency, and the agency had, in turn, reached an agreement for the supply of those services to L.

L provided databases for the insurance business and managed peaks and troughs in the demand for the services of analysts and programmers by using contractors.

It had entered into a written agreement with the agency to use E's services for 26 weeks, but the agreement had been extended 13 times and had run for two-and-a-half years.

M had delivered weekly invoices to the agency.

He had worked as part of a team, attending every day at fixed times, performing tasks allocated to him by his team manager and reporting progress to the managers and the team.

The commissioners had determined M's liability on the basis that if E had contracted with L directly, he would have been found to be an employee in respect of his earnings with L.

They had found that E met the conditions in the Finance Act 2000 Sch.12 and Sch.10 para.1 and in the Social Security Contributions (Intermediaries) Regulations 2000 reg.6.



HELD: (1) On the facts, under a notional contract, E would have been an employee because he would have been allocated tasks, would have provided his own work to do those tasks, and would have been paid for a 37.5 hour week in the same way as other expert-skilled, independently-minded professionals who worked for L on fixed term contracts.

On the evidence, L regarded the arrangement with the agency as being for the supply of E's services only, and whilst they may have accepted a substitute if he had been unable to work, they did not regard themselves as being bound to do so.

The conditions in Sch.12 of the Act and in reg.6(1) of the Regulations were fulfilled.

(2) There was a potential difference between the effect of Sch.10 para.1(1)(c) of the Act and reg.6(1)(c) of the Regulations.

The latter appeared to require the notional contract between the client and the worker to be constituted by the arrangements: "had the arrangements taken the form of a contract".

There was no requirement to consider whether anything else would have been included in the notional contract.

By contrast, Sch.10 para.1(1)(c) may require a wider enquiry into what the terms of a direct contract between the client and the worker would have been if there had been such a contract; there was no limitation in the words "if the services were provided under a contract directly between the client and the worker", Usetech Ltd v Young (Inspector of Taxes) (2004) EWHC 2248 (Ch), (2004) STC 1671 and Synaptek Ltd v Young (Inspector of Taxes) (2003) EWHC 645 (Ch), (2003) STC 543 considered.

Those authorities demonstrated a difference of approach and that difference existed, at least in theory, even when it was acknowledged that the "arrangements" were not limited to the words of formal contracts, but included all relevant circumstances.

(3) A good starting point when considering whether a contract was one of employment was to consider the mutuality test, the control test and the inconsistency test, Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance (1968) 2 QB 497 applied.

The mutuality and control tests were not rigid, but depended on individual circumstances, and the court considered relevant aspects of those tests in the context of the difference between a contract for service and a contract of services, Usetech and Morren v Swinton and Pendlebury BC (1965) 1 WLR 576 considered.

Having considered whether those tests were satisfied, all the circumstances had to be considered, including whether the taxpayer was in business on his own account.

That did not involve a mechanical exercise of running through items on a checklist, but involved viewing all the details from a distance and making an informal, qualitative appreciation of the whole.

In the instant case, the court resolved the issue by considering first what the terms of the hypothetical contract between L and E would have been, and second whether, if that hypothetical contract had actually existed, E would have been L's employee.



Appeal dismissed

Counsel:
For the appellant: Non-counsel representative
For the respondents: Non-counsel representative

Solicitors:
For the appellant: Odos Consulting

LTL 18/1/2008 (Unreported elsewhere)

Judgment: Official - 25 pages

Document No. AC0116047

Source: Lawtel http://www.lawtel.co.uk , copyright acknowledged.