Barnett v Brabyn (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 22 May 1996 |
| Date | 22 May 1996 |
| Court | Chancery Division |
Chancery Division.
Lightman J.
Patrick Way (instructed by Keith Flower & Co) for the taxpayer.
Timothy Brennan (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
Caffoor (Trustees of Abdul Gaffoor Trust) v Income Tax Commr (Colombo) ELR[1961] AC 584
Edwards (HMIT) v Bairstow ELR[1956] AC 14
Fall (HMIT) v Hitchen WLR[1973] 1 WLR 286
Hall (HMIT) v Lorimer TAXTAXTAX(1993) 66 TC 349; [1992] BTC 424; [1993] BTC 473 (CA)
IR Commrs v Sneath ELR[1932] 2 KB 362
Lee Ting Sang v Chung Chi-Keung ELR[1990] 2 AC 374
Market Investigations Ltd v Minister of Social Security ELR[1969] 2 QB 173
Massey v Crown Life Insurance Co WLR[1978] 1 WLR 676
Narich Pty v Commr of Pay-Roll Tax ICR[1984] ICR 286
O'Kelly v Trusthouse Forte plc ELR[1984] QB 90
Income tax - Income and Corporation Taxes Act 1988Sch. D, Case I assessments agreed with inspector - Further Income and Corporation Taxes Act 1988Sch. D, Case I assessments made on income from the same source for the same years - Whether taxpayer could appeal against the basis of the further assessments or whether res judicata - Taxes Management Act 1970 section 54 subsec-or-para (1) Taxes Management Act 1970, s. 54(1). Assessment underIncome and Corporation Taxes Act 1988Sch. D, Case I - Taxpayer worked for family firm on informal basis but claimed he was employed and firm should have deducted PAYE - Whether contract for services or contract of employment.
This was an appeal by a taxpayer against the determination of the general commissioners for Flitt, Bedfordshire, that he was self-employed and liable to tax under Income and Corporation Taxes Act 1988Sch. D.
In 1988 the taxpayer started working for his father's firm which carried on a business of duplicating video tapes with a view eventually to becoming a partner. He wanted to be self-employed to be free to pursue other activities and it was understood between the firm and the taxpayer that he was to be an independent contractor and not an employee. The arrangement was that he should receive regular payments for the work that he did but that he should work his own hours.
The taxpayer was assessed to tax under Income and Corporation Taxes Act 1988Sch. D for the years 1988-89, 1989-90 and 1990-91. The assessments were appealed and compromised under theTaxes Management Act 1970 section 54Taxes Management Act 1970, s. 54, all on the basis that he was self-employed. All the assessments were duly paid. Later when additional income from the firm came to light and further assessments were made under Income and Corporation Taxes Act 1988Sch. D, Case I for the years 1989-90 and 1990-91, the taxpayer said that he had been offered a partnership which never materialised and that he considered himself a full-time employee of the firm.
The commissioners found that the taxpayer worked for the firm and no one else; he was paid weekly or monthly and was paid for the one week's holiday that he took during the relevant period; he asked for permission when he wanted a haircut during working hours; he never submitted invoices; he received three equal post-dated cheques on leaving as compensation for any outstanding loss or claim.
On the appeal a preliminary issue arose as to whether it was open to the taxpayer to challenge the additional assessments on a ground which was implicitly decided in favour of the inspector in respect of the previous assessments.
Held, dismissing the taxpayer's appeal:
1. An agreement under the Taxes Management Act 1970 section 54Taxes Management Act 1970, s. 54 had the same effect as a determination by the appeal commissioners. The appeal commissioners' decision did not determine the outcome of a later assessment, although a previous determination of a question might be a cogent factor on a subsequent determination of the same question. Accordingly, it was open to the taxpayer to challenge the additional assessments on the ground that he was never an independent contractor.
2. There was no one conclusive test for determining whether a particular case fell into Income and Corporation Taxes Act 1988Sch. E or Income and Corporation Taxes Act 1988Sch. D. Three factors in favour of the taxpayer being an independent contractor outweighed the factors relied on as favouring an employment. The first was that the taxpayer had the right to work when he chose. The second was a clear agreement that he should be an independent contractor. The third was the cogent factor of the previous determinations all made on the same basis.
3. The commissioners were entitled on the evidence to reach the conclusion that the taxpayer was correctly assessed underIncome and Corporation Taxes Act 1988Sch. D, Case I.
1. At a meeting of the commissioners for the general purposes of the income tax for the division of Flitt held on 23 June 1993, Spencer Allan Barnett, ("the taxpayer") appealed against the following assessments to income tax under Income and Corporation Taxes Act 1988Sch. D, Case I and to Class 4 National Insurance Contributions in respect of profits as a video and television technician.
Year |
Type of assessment |
Type of tax |
Amount |
1989-90 |
Further |
Sch. D, Case I Class 4 NIC |
£7,167 £7,167 |
1990-91 |
Further |
Sch. D, Case I Class 4 NIC |
£10,626 £10,626 |
2. The question for determination was whether the assessments underIncome and Corporation Taxes Act 1988Sch. D, Case Iwere correctly made, as being income of the trade of the taxpayer, or whether as the taxpayer contended his income from the partnership of Mr BJ Barnett ("BJB") and Mrs GE Flack trading as LTV ("LTV") was assessable under Income and Corporation Taxes Act 1988 schedule ESch. E of the Income and Corporation Taxes Act 1988, as income from his employment with LTV.
3. The taxpayer was represented by Mr Ian Grant, a fellow of the Institute of Chartered Accountants and a partner in the firm of Pannell Kerr Forster ("PKF"). The inspector was represented by Mr I Slade ("Mr Slade"), an inspector of taxes, assisting the inspector at Luton tax district.
[Paragraph 4 listed the documents proved or admitted.]
5. No oral evidence was given although BJB and Mrs Flack were available to give evidence.
6. The following facts were proved or admitted:
(i) BJB, the father of the taxpayer, and Mrs G Flack commenced trading asLTV on 20 August 1986. The principal activity of LTV was to duplicate video tapes.
(ii) Between March and November 1988 the taxpayer was working as a croupier in South Africa. While he was there the taxpayer was invited by BJB to come back to work for and possibly become a partner in LTV whose business had become successful.
(iii) The taxpayer returned to the UK in November 1988 and commenced working for LTV on 1 December 1988.
(iv) There were no employees of LTV when the taxpayer commenced working. LTV employees taken on after March 1992 had written service agreements. Self-employed engineers who worked for LTV submitted invoices. The taxpayer did not submit invoices.
(v) The taxpayer was initially paid weekly and later monthly. During 1989 when he complained that he was being paid less than the foreman BJB's response was that the latter was putting in more time. In 1990 by sometimes working up to 50 hours a week the taxpayer more than doubled his income.
(vi) In the absence of a written contract the taxpayer's relationship with LTV was based on one or more verbal agreements, the terms of which are largely disputed.
(vii) LTV's view was that by his own choice the taxpayer was to be a self-employed technician free to exploit alternative interests including possibly as a croupier. While receiving regular payments of moneys due he was able to nominate his own hours, work times and absences. Like the partners he was to be ultimately responsible for the payment of his own income tax and National Insurance Contributions.
(viii) The taxpayer's view was that while he would have been happy to be a partner he was never offered a partnership on acceptable terms. He had therefore only been an employee of the partnership working as and when directed by the partners at their premises. As an illustration he had to obtain permission to have his hair cut in office hours. It had always been his understanding that LTV would remit to the Revenue any tax and National Insurance Contributions due on his earnings.
(ix) The taxpayer did no work other than for LTV and worked exclusively at the partnership's premises.
(x) Although not sick during the relevant period any absences did not effect the amount which the taxpayer received from LTV. The taxpayer took one week's holiday in 23 months and this period of absence was paid at the usual rate which the taxpayer received when working.
(xi) LTV provided all necessary tools and equipment.
(xii) The taxpayer did not provide any capital and because he was regularly paid what he was owed ran no realistic chance of incurring a loss.
(xiii) The taxpayer was involved in the management side of LTV including the process of hiring...
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