Ansell Computer Services Limited v David Richardson (H M Inspector of Taxes), SPC 00425

National insurance - earnings of workers supplied by service companies etc. - provision of services through intermediary - worker establishing information technology company - company contracting with agency for provision of information technology services to client of agency - whether company liable for national insurance contributions on earnings of worker - whether, if arrangements had taken the form of a contract between worker and client, worker would have been regarded as gainfully employed by the client - Social Security Contributions (Intermediaries) Regulations 2000 SI 2000/727, Reg 6(1)(c) - Social Security Contributions and Benefits Act 1992, section 4A

ANSELL COMPUTER SERVICES LIMITED Appellant

- and -

DAVID RICHARDSON

(HM INSPECTOR OF TAXES) Respondent

Special Commissioner: G AARONSON QC

Sitting in London on 23 March and 16 April 2004

David Smith, Accountax Consulting Limited, on behalf of the Appellant

Kevin Gleig, HMIT, Regional Appeals Unit on behalf of the Respondents

© CROWN COPYRIGHT 2004

The nature of these appeals

1. These appeals are brought by Ansell Computer Services Limited (“ACSL”) which has its registered office in St Albans, Hertfordshire. ACSL has been in business since 1986.

2. From that time until the present Mr Michael Ansell has been a director and shareholder in ACSL and, quite clearly, is its key asset.

3. Mr Ansell is a very experienced, and very highly regarded, computer software engineer, with particular expertise in the defence sector. For several years he has been working on the software elements of weapons and other defence systems, acting as part of a large team of specialists given the overall task of designing, developing and testing the relevant electronic systems.

4. In the periods in question Mr Ansell worked at the premises of two different companies working in the defence sector. The first was Alenia Marconi Systems Limited (“Marconi”) and the second was BAe Systems Avionics Limited (“BAe”). Mr Ansell’s work for both of the companies was at the same premises (BAe had taken over some of the work previously carried out by Marconi following the acquisition in 1999 of the defence electronics business of GEC and the Marconi group by British Aerospace PLC).

5. As a matter of form ACSL’s appeal is against Decision Notices given by Mr M Justin, an officer of the Board of Inland Revenue, under section 8 Social Security Contributions (Transfer of Functions, etc.) Act 1999. The Decision Notices in question relate to the officer’s opinion as to whether ACSL is liable to pay National Insurance Contributions in respect of the payments made by Marconi and BAe for the work performed by Mr Ansell. This potential liability arises from what is commonly referred to as the “IR35” legislation - i.e. the Schedule E and NIC rules first announced in the Inland Revenue Press Release No 35 following the Spring Budget of 2000. In brief, these rules apply where a person (described as “the worker”) is made available to work for some other person (described as “the client”) by a third party (usually the worker’s own limited company and referred to as “the intermediary”). Applying those terms to the present case, Mr Ansell is “the worker”, his company ACSL is “the intermediary”, and Marconi and BAe were “the clients”.

6. I will in due course refer to the legislation, the contractual arrangements (so far as they can be ascertained or inferred), the nature of Mr Ansell’s work and the way in which he provided it. I will also summarise the guidance given in the case law.

I have used the word “summarise” advisedly, as the alternative would be to write

7. a decision of inordinate length, given the fact that the parties’ skeleton arguments together run to about 90 pages and cite well over 30 authorities. I mention this not to criticise the parties, whose arguments were very helpful and well presented. The point I am making is simply that cases of this sort have to be decided upon an overall view of the facts in the light of the guidance given by earlier cases.

8. At the heart of the dispute is the question whether Mr Ansell would have been employed under a contract of service if (contrary to the actual contractual arrangements) he worked for the clients under a direct contract. To put it another way, supposing that Mr Ansell had worked for Marconi and BAe under a direct contract between him and them, would he have been their employee?

9. Both parties agree that what might be referred to as the onus of proof (i.e. satisfying me that the supposed relationship would have been a contract for the provision of services (i.e. as an independent contractor and not as an employee)) rests upon the Appellant, ACSL.

10. For the reasons which I shall explain, I have formed the view that Mr Ansell would, on the supposed direct contractual relationship with Marconi and BAe, have worked for them in the periods in question as an independent contractor, and not as an employee.

The Decision Notices

The appeals against the Decision Notices

11. In January 2001 Mr Ansell asked the Inland Revenue for formal decisions on two periods of work which he performed. The first was from 1 July 2000 until 30 September 2000, when he worked for Marconi. The other was from 2 October 2000 to 30 March 2001, when he worked for BAe. The Inspector gave his opinion on 27 December 2002. This was disputed by the Appellant whose representatives asked for formal Decision Notices to be issued. These were made on 16 May 2003.

The relevant legislation

12. Section 75 of the Welfare Reform and Pensions Act 1999 inserted, with effect from 22 December 1999, a new section 4A into the Social Security Contributions and Benefits Act 1992.

13. That new section enabled the Treasury to make Regulations which would give effect to the IR35 proposals for NIC purposes. The key provisions of section 4A are as follows –

“(1) Regulations may make provision for securing that where –

1. an individual (“the worker”) personally performs, or is under an obligation personally to perform, services for the purposes of a business carried on by another person (“the client”),

(b) the performance of those services by the worker is (within the meaning of the regulations) referable to arrangements involving a third person (and not referable to any contract between the client and the worker), and

(c) the circumstances are such that, were the services to be performed by the worker under a contract between him and the client, he would be regarded for the purposes of the applicable provisions of this Act as employed in employed earner’s employment by the client,

relevant payments or benefits are, to the specified extent, to be treated for those purposes as earnings paid to the worker in respect of employed earner’s employment of his.

2. For the purposes of this section –

1. “the intermediary” means –

1. where the third person mentioned in subsection (1)(b) above has such a contractual or other relationship with the worker as may be specified, that third person, or

2. where that third person does not have such a relationship with the worker, any other person who has both such a relationship with the worker and such a direct or indirect contractual or other relationship with the third person as may be specified; and

2. a person may be the intermediary despite being –

1. a person with whom the worker holds any office or employment, or

2. a body corporate, unincorporated body or partnership of which the worker is a member;

and subsection (1) above applies whether or not the client is a person with whom the worker holds any office or employment.

2. Regulations under this section may in particular, make provision –

1. for the worker to be treated for the purposes of the applicable provisions of this Act, in relation to the specified amount of relevant payments or benefits (the worker’s “attributable earnings”), as employed in employed earner’s employment by the intermediary;

2. for the intermediary (whether or not he fulfils the conditions prescribed under section 1(6)(a) above for secondary contributors) to be treated for those purposes as the secondary contributor in respect of the worker’s attributable earnings.”

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