Battersby v Campbell (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 12 September 2001 |
| Date | 12 September 2001 |
| Court | Special Commissioners |
special commissioners decision
Dr Nuala Brice.
National Insurance contributions - Services provided through service company - Whether if arrangements had taken form of contract between appellant and client appellant would have been regarded as employed - Social Security Contributions and Benefits Act 1992, s. 2, 4A - Social Security Contributions (Intermediaries) Regulations 2000 (SI 2000/727),SI 2000/727 regulation 6reg. 6(1).
1. Mr Eddie Battersby ("the appellant") appeals against a decision made on 29 November 2000 relating to national insurance contributions. The decision was:
That the circumstances of the arrangements between Mr E Battersby and Pennyright Bank for the performance of services from 31/05/2000 to 29/11/2000 are such that, had they taken the form of a contract between Mr E Battersby and Pennyright Bank, Mr E Battersby would be regarded for the purposes of Pt. I-V of the Social Security (Contributions and Benefits) Act 1992 as employed in employed earner's employment by Pennyright Bank. That E.B.Com Ltd is treated as liable to pay primary and secondary Class I contributions in respect of the worker's attributable earnings from this engagement.
2. The legislation relevant to the issue in the appeal has become known colloquially as the IR35 legislation because that was the reference number of a press release which was issued by the Inland Revenue on 9 March 1999. The press release was entitled "Countering avoidance in the provision of personal services". The legislation proposed in the press release changes the treatment, for the purposes of income tax and National Insurance contributions, of payments made to service companies. This appeal concerns only National Insurance contributions.
3. The legislation about the payment of National Insurance contributions is contained in the Social Security Contributions and Benefits Act 1992 which contains separate provisions applicable to employed earners on the one hand and self-employed earners on the other.Welfare Reform and Pensions Act 1999 section 75Section 75 of the Welfare Reform and Pensions Act 1999 inserted a new s. 4A into the 1992 Act to take effect from 22 December 1999. New s. 4A provided that regulations might make provision for securing that, in stated circumstances, payments to service companies should be treated as earnings paid to a worker in respect of an employment. The regulations made under the provisions of new s. 4A are the Social Security Contributions (Intermediaries) Regulations 2000 (SI 2000/727). These came into force on 6 April 2000. The relevant part of reg. 6 provides:
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6(1) These regulations apply where-
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(a) 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"),
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(b) the performance of those services by the worker is carried out, not under a contract directly between the client and the worker, but under arrangements involving an intermediary, and
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(c) the circumstances are such that, had the arrangements taken the form of a contract between the worker and the client, the worker would be regarded for the purposes of Parts I to V of the Contributions and Benefits Act as employed in employed earner's employment by the client.
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4. The appellant is a computer consultant. In 1988 he established a limited company through which he supplied his services ("the service company"). In 1993 he started supplying services to Pennyright Bank through the service company. It was not disputed that the appellant personally performed services for the purposes of the business carried on by Pennyright Bank and that the performance of those services was carried out not under a contract directly between the appellant and Pennyright Bank but under arrangements involving an intermediary (namely the service company) within the meaning of subpara. (a) and (b) ofSI 2000/727 regulation 6reg. 6(1).
5. Thus the issue for determination in the appeal was whether the circumstances were such that, had the arrangements taken the form of a contract between the appellant and Pennyright Bank, the appellant would be regarded for the purposes of the 1992 Act as employed in employed earner's employment by Pennyright Bank within the meaning of para. (c) of SI 2000/727 regulation 6reg. 6(1).
6. Oral evidence was given by the appellant on his own behalf. An agreed bundle of documents was produced. The appellant produced three more documents in addition to those in the bundle.
7. The appellant is a computer analyst and programmer. From 1982 he was employed by various companies. On 20 June 1988 he established a service company called EB Com Ltd of which he and his wife were the directors. The appellant then became self-employed. In the early 1990s there was an economic recession and the appellant was out of work for nine months. This caused him hardship because, as a self-employed person, he did not receive unemployment benefits. The appellant accepted work in Scotland but did not move his home there; he found the travelling between home and work to be inconvenient.
8. On 5 April 1994, the appellant started working for Pennyright Bank whose premises were a half hour's drive from his home. He obtained the contract through an agency called Grinstead Associates. Pennyright Bank paid Grinstead who paid EB Com from which the appellant took his remuneration in the form of dividends. When the appellant started to work for Pennyright Bank he was working on an old computer system that was to be replaced. Accordingly, he would not at that stage have been offered a permanent job with Pennyright Bank.
9. In 1996 EB Com bought out the contract with Grinstead for the sum of £5,460. Thereafter the appellant continued to work for Pennyright Bank as a self-employed contractor directly through EB Com. In May 1999, Pennyright Bank wished to consolidate the procurement of all its self-employed contractors and did that through a company called Staff Agency Ltd. Thereafter the contracts were between EB Com and Staff Agency; Pennyright Bank paid Staff Agency who paid EB Com from which the appellant received his remuneration.
10. The appellant's contracts with Pennyright Bank were initially for six months and later for 12 months at a time. The contract in force at the relevant time was a consultancy agreement between Staff Agency and EB Com. Under that agreement EB Com agreed to procure that the appellant would devote his time, attention, skill and ability in accordance with the requirements of Pennyright Bank at such location as Pennyright Bank might reasonably require. The agreement contained a special provision in the following terms:
This agreement does not create the relationship of employer/employee between the company [Staff Agency Ltd] or client [Pennyright Bank] and the contractor [EB Com] or any of its personnel [the appellant]…
11. At the relevant time the arrangements under which the appellant worked for Pennyright Bank had the following features:
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(a) EB Com agreed to assign to Pennyright Bank all intellectual property or other rights created during the performance of the appellant's services.
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(b) EB Com remained responsible for the appellant's sickness, disability and pension arrangements.
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(c) EB Com was only to be paid for time worked by the appellant and not for sickness and holidays. Any absence of the appellant had to be agreed and approved in advance by Pennyright Bank.
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(d) Staff Agency could end the agreement at any time on giving four weeks notice to EB Com or with immediate effect if there were technical incompetence, unprofessional performance, unsuitability or misconduct of the appellant.
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(e) Responsibility for the quality, quantity, and performance of the services rested with Pennyright Bank at all times.
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(f) The normal hours of work were seven hours a day and payment was of an hourly rate with overtime paid pro rata; reasonable travelling and subsistence expenses were also payable.
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(g) If Pennyright Bank complained about the appellant, or if the appellant withdrew, Staff Agency would provide Pennyright Bank with a replacement.
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(h) The equipment used by the appellant was a mainframe computer system which was owned by Pennyright Bank and which was situated at Pennyright Bank's premises.
12. At Pennyright Bank's premises the appellant worked in a large open plan office which accommodated about 55 people. As a self-employed contractor the appellant did not have a job title. The appellant managed a small group of seven, of whom two were self-employed contractors and the rest were permanent employees. The self-employed contractors were mainly involved in project planning and the employees mainly supplied general production support. However, they all used the same equipment and the work was managed as a whole. The appellant reported to a personal manager who was employed by Pennyright Bank. He had meetings with the personal manager to discuss how projects were going, whether he would meet his deadlines, and any other problems. The appellant was the technology manager for his team. However, as a self-employed contractor he was not able to undertake any personnel management of the permanent employees. This was done by another employed manager who reported to the same person as the appellant. The appellant could express views about the performance of the employees in his team but the permanent manager formally reviewed their performance. Although the appellant attended project meetings...
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