SYNAPTEK LTD V GRAEME YOUNG (HMIT) (2003)

[2003] EWHC 645 (Ch)

Ch D (Hart J) 28/3/2003

TAX - COMMERCIAL LAW - EMPLOYMENT

NATIONAL INSURANCE CONTRIBUTIONS : EMPLOYED EARNER'S EMPLOYMENT : CLASS I : WORKER'S ATTRIBUTABLE EARNINGS : SERVICE COMPANIES : HYPOTHETICAL CONTRACTS : INDIRECT CONTRACTS : DURATION : INTERMEDIARY : IR35 LEGISLATION : PERSONAL SERVICE COMPANIES : BUSINESS ON OWN ACCOUNT : CONTROL OF WORKERS : RIGHT OF SUBSTITUTION : INTELLECTUAL PROPERTY RIGHTS : PROFESSIONAL INDEMNITY INSURANCE : FLEXIBILITY OF HOURS : MUTUALITY OF OBLIGATIONS : QUESTIONS OF FACT : QUESTIONS OF LAW : MIXED FACT AND LAW : FINANCE ACT 2000 : REG.6(1) SOCIAL SECURITY CONTRIBUTIONS (INTERMEDIARIES) REGULATIONS 2000 : PARTS I-V SOCIAL SECURITY CONTRIBUTIONS AND BENEFITS ACT 1992

The General Commissioners were entitled to find, as a question of mixed fact and law and applying reg.6(1) Social Security Contributions (Intermediaries) Regulations 2000 SI 2000/727, that arrangements between a software engineer and his client for the performance of services were such that, had they taken the form of a contract between the engineer and client, it would have been a contract of service with the engineer as employee. The engineer's service company was therefore treated as liable to pay primary and secondary Class I contributions in respect of his attributable earnings from that engagement.

Appeal by way of case stated from the decision of the General Commissioners dismissing an appeal by a service company ('Synaptek') from a decision of the Inland Revenue that Synaptek was liable to pay primary and secondary Class I contributions in respect of the attributable earnings of a software engineer ('GS').

Synaptek had entered into an agreement with a company ('EDS') for the performance of services by GS.

The Inland Revenue concluded under reg.6(1) Social Security Contributions (Intermediaries) Regulations 2000 SI 2000/727 that the circumstances of the arrangements were such that, had they taken the form of a contract between GS and EDS, GS would be regarded for the purposes of Parts I-V Social Security Contributions and Benefit Act 1992 as employed in employed earner's employment by EDS.

On appeal Synaptek contended that the contract was one for services and relied on the following aspects: (i) it was in business on its own account (as was GS, notionally); (ii) the limited control by EDS of GS' performance of the services; (iii) the right to substitute alternative personnel; (iv) the fact that Synaptek was responsible for GS's training and the provision of computer facilities at its own premises; (v) the express provisions in relation to intellectual property rights; (vi) the requirement for professional indemnity insurance; (vii) the flexibility of the hours worked by GS; and (viii) the use by him of his own reference books.

Synaptek also contended that the question under reg.6(1) of the Regulations was a question of law so that the Court of Appeal was free to substitute its own opinion.

In support of the contention that the contract was one of service, the Revenue relied on the following facts: (a) the minimum hours to be worked were broadly equivalent to a normal working week; (b) the only risk borne by GS was the insolvency of EDS; (c) the duration of the contract was for a fixed period rather than in relation to the completion of a particular project; (d) GS worked alongside EDS employees and was sufficiently integrated with its workforce to have a line manager; and (e) the requirement that GS complied with all EDS instructions.



HELD: (1) The fact that the tribunal was asked by reg.6(1) of the Regulations to hypothesise a contract comprising the arrangements directly between the worker and the client did not by itself convert the question of what those arrangements were from being a question of mixed fact and law into a pure question of law.

(2) For the purposes of reg.6(1) of the Regulations, the respective obligations of GS and EDS had to be identified and, on the hypothesis that there was a contract between them, a conclusion formed as to whether that contract was a contract of service or a contract for services.

The authorities showed that there was no one test that was conclusive for determining into which category a particular contract fell.

(3) The fact that Synaptek was in business on its own account was no doubt an important contextual circumstance to be taken into account in determining whether the particular notional contract under which GS was engaged by the client was one for services or of service, but it was no more than that, and the weight to be given to it was a matter for the commissioners.

(4) The commissioners were right to conclude that there was mutuality of obligation between EDS and Synaptek in the hypothetical contract.

(5) The commissioners were entitled to regard the substitution clause in the contract as one fact among others, and, in assessing the weight to be given to it, to take into account the extent to which the provision was utilised in practice.

(6) The commissioners' reference to the principles set out in FS Consulting Ltd v Patrick McCaul (HMIT) (2002) LTL 18/2/2002 was no more than an efficient and economical way of encapsulating the relevant principles and one that was justified by the close contextual similarity of the facts in that case to the present one.

It did not demonstrate that they misdirected themselves.

(7) The commissioners had not misdirected themselves in law and there was evidence before them that made the conclusion that they reached a possible one.

The relative weight to be given to the various factors was a matter for the commissioners and it was not possible to say that they were wrong in law in their conclusion.

Appeal dismissed.

Conrad McDonnell instructed by Bond Pearce for the claimant. Clive Sheldon instructed by Solicitor of Inland Revenue for the defendant.

LTL 25/4/2003 : (2003) STC 543 : (2003) ICR 1149 : Times, April 7, 2003

Document No. AC0104811

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