NETHERLANE LTD v SIMON YORK (SpC457) (2005)

Sp Comm (Dr John F Avery Jones) 17/1/2005

TAX - EMPLOYMENT

CONTRACT OF EMPLOYMENT : EMPLOYEES : EMPLOYMENT STATUS : INTERMEDIARIES : NATIONAL INSURANCE CONTRIBUTIONS : SOCIAL SECURITY : IT CONSULTANT PROVIDING SERVICES THROUGH INTERMEDIARY COMPANY : IR35 TAX AVOIDANCE PROVISIONS : IR35 : FREELANCE : COMPUTERS : SOCIAL SECURITY CONTRIBUTIONS (INTERMEDIARIES) REGULATIONS 2000 : reg.3 SOCIAL SECURITY CONTRIBUTIONS (DECISIONS AND APPEALS) REGULATIONS 1999 : reg.6 SOCIAL SECURITY CONTRIBUTIONS (DECISIONS AND APPEALS) REGULATIONS 1999

A hypothetical contract under which a freelance IT consultant supported and maintained a company's computer system amounted to an employment contract for the purposes of assessing National Insurance Contributions under the Social Security Contributions (Intermediaries) Regulations 2000.

The appellant company (N) appealed against a decision that arrangements between an individual (R) and a company (P) for the performance of services were such that the Social Security Contributions (Intermediaries) Regulations 2000 applied to R's National Insurance contributions.

R was a freelance IT consultant who had set up N as a vehicle for finding work through a recruitment agency (M).

R had been offered a series of 26 week contracts by M which required N to provide IT services at the premises of its client, P.

Contracts had been exchanged between N and M, and between M and P.

The Revenue had sent N and R notice that the Regulations applied and that R was to be regarded for the purposes of his and N's National Insurance contributions as an employee of P.

N argued that (1) the notice was invalid as it had not been sent to P; (2) that the notice was invalid in that it named P as the client rather than M, which had acted as principal; (3) it was the Inland Revenue's duty under the Inland Revenue Manual to obtain all the evidence before making a decision on status; (4) the Regulations did not apply as any hypothetical contract between R and P did not involve any of the usual features of contracts with employees.  

HELD: (1) The decision was made in respect of N and R because it affected their national insurance contributions.

Although P was named so as to make clear to what relationship the notice applied, the decision had not been made in respect of P and so there was no purpose in requiring it to be given notice.

The reference in the Social Security Contributions (Decisions and Appeals) Regulations 1999 reg.3 to persons named had to be construed as meaning persons affected by the notice who were named in it.

(2) The contracts named P as the client.

R was working at P's premises managing a team working on P's computers.

His services were performed, in the words of reg.6, for the purposes of P's business.

It was therefore unarguable that the client was anyone other than P.

(3) If a taxpayer wanted an opinion it was up to the taxpayer to provide all the information so that the Inland Revenue could form an opinion, R v Board of Inland Revenue & anor, ex parte MFK Underwriting Agencies Ltd & ors (1989) BTC 561 applied.

The manual envisaged that the Inland Revenue would help by interviewing people, but that was where the taxpayer requested the interviews.

It was not for the Inland Revenue to go looking for facts that were within the taxpayer's knowledge.

(4) Various factors pointed to the conclusion that R was a notional employee of P for the purposes of the Regulations: R had management responsibility for a team of workers; he regularly reported to a manager; he carried out continuous support and maintenance work rather than a specific assignment; he was paid a daily rate and could not earn more by working longer hours; he did not work for any other clients; and the arrangement was terminable on four weeks' notice.

(5) The court had found itself extremely short of real evidence, particularly about the circumstances in which R had performed his services, and had been hampered by a lack of evidence from P.

That seemed to be a recurring problem in IR35 cases, where in examining the terms of a hypothetical contract it was necessary to have oral evidence from both parties to such a contract in order to obtain a clear picture.  Appeal dismissed.

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

LTL 15/7/2005 : (2005) STC (SCD) 305

Document No. AC0107778

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