Castle Construction (Chesterfield) Ltd v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judgment Date | 03 December 2008 |
| Date | 03 December 2008 |
| Court | Special Commissioners |
special commissioners decision
Howard M Nowlan
David Yates, counsel, for the Appellant
David Seaman and David Weissand, Appeals Cross Cutting Group of HMRC, for the Respondents
Income tax and National Insurance - whether bricklayers and other construction workers engaged by the appellant were employees or self-employed sub-contractors - appeal allowed as regards the majority of the workers
A special commissioner decided that the majority of bricklayers and other construction workers employed by a building company were self-employed subcontractors for purposes of income tax and National Insurance contributions (NICs).
The taxpayer's trade was to undertake building work, generally on construction projects where another company (often one of the household name building companies) was the main contractor. The taxpayer's trade was initially confined to undertaking subcontracted bricklaying services but it sought to expand and also to provide scaffolding services, and to a lesser extent, carpentry and joinery services. Its workload varied according to the health of the building sector.
In common with many other building companies, the taxpayer had always hired its workers on a subcontract basis, and its only employees had been its permanent head office staff, quantity surveyors and trainee bricklayers and novices in the first two years following training.
The Revenue took the view that the workers were properly to be considered as employees.
Whether workers were properly classed as employees or self-employed subcontractors.
The special commissioner (Howard Nowlan) (allowing the appeal in relation to the majority of the workers) said that with the exception of seven workers, all the remaining workers, 314 out of the total of 321, were rightly classed as self-employed subcontractors.
Many people taking work with the taxpayer for the first time already had the CIS cards appropriate to subcontractors and assumed that they would continue as such. The flexibility and the higher pay clearly gave them an incentive to retain that status. Where new workers had not worked before, they were sometimes told by the taxpayer to apply for a CIS card so that they could be paid net of the tax deduction of 18%-20% applicable at different times to subcontractors. Having regard to a widespread belief that the self-employed status was common in the industry and correct for the type of labour concerned, and understood to have been confirmed as correct in 2000 by the Revenue, the self-employed status arose simply because everyone expected it, and it was believed to be attractive and appropriate.
It was clear that, as between the parties, the worker was meant to be a self-employed subcontractor. Weighing the factors on each side, and looking at the overall picture, the facts favoured the conclusion that the bricklayers were not employees. No distinction should be drawn between those bricklayers who might only work for short periods and those who might have worked for quite considerable periods. All were rightly classed by the taxpayer as self-employed (Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QBD 497, Usetech Ltd v Young (HMIT)TAX[2005] BTC 48; (2004) 76 TC 811 and Dragonfly Consulting Ltd v R & C CommrsSCD(2007) Sp C 655; [2008] BTC 639 considered).
As regards the other categories of worker, partially in reliance on the decision in Lewis t/a MAL Scaffolding v R & C CommrsSCD(2006) Sp C 527, but also because their casual terms of engagement were identical to those of the bricklayers, and that to some real extent, they also conducted their trade, regardless of the particular business for which they currently worked, the scaffolders were self-employed.
Although the status of the labourers was more finely balanced, when they worked side by side with the bricklayers and scaffolders on identical terms, their status was the same, as self-employed. The foremen/bricklayers and the supervisors of the scaffolders both worked as bricklayers and scaffolders and their only distinction was that they were effectively the team-leaders who interpreted and passed on the instructions of the main contractors. Whilst that factor mildly suggested that they were being incorporated into the establishment of the taxpayer, they nevertheless entirely remained site-workers and they were also self-employed.
However, the fork-lift truck drivers and the lorry driver fell into a different category. They were operating expensive plant owned or hired by the taxpayer and must have been subject to more control in the use of that equipment than the bricklayers and scaffolders. Notwithstanding their casual terms of engagement, they ranked as employees. Moreover, it was impossible to distinguish the lorry driver from the men driving countless other building and non-building lorries and, as a general rule, they would not be self-employed. Finally, the two slinger/signalmen spent part of their time as labourers and were not operating the plant and on the facts they were self-employed.
1. This has been a case on a very familiar topic, namely the issue of whether various workers are properly classed as employees or self-employed sub-contractors. It is also a case where my decision should be relatively straightforward since there are countless authorities on the subject. In the course of the hearing many of these authorities were drawn to my attention and I have read them all. Notwithstanding this, I have found it extremely difficult to reach my decision. In the event, my decision is that with the exception of 7 workers, all the remaining workers, that is 314 out of the total of 321, were rightly classed by the Appellant as self-employed sub-contractors.
2. The Appellant's trade is to undertake building work, generally on construction projects where another company (often one of the household name building companies) is the main contractor. The Appellant's trade was until recently confined to undertaking sub-contracted bricklaying services. It has recently sought to expand and also to provide scaffolding services, and to a lesser extent, carpentry and joinery services. Its workload varies very considerably according to the health of the building sector. On one occasion the Appellant was providing bricklaying services on 17 sites. At the date of the hearing that number was down, not surprisingly, to 5 projects.
3. In common with many other building companies, the Appellant has always hired its workers on a sub-contract basis, and its only employees have been its permanent head office staff, quantity surveyors and "trainee" bricklayers and "novices" in the first two years following training. Hiring workers on a sub-contract basis in all other cases, under which workers could be hired and terminated with absolute flexibility, has suited the company and its ever-fluctuating workload. It has suited virtually all of the workers who also relish the flexibility to come and go, much as they please, and to work for different contractors when that seems more attractive. The disparity in time worked by a random sample of the 321 workers whose status is in dispute in this case is not a theoretical matter with little reflection in reality. There is considerable evidence of workers commencing and ceasing engagements with regularity. On a different level there is a great disparity in time worked in each week by the people being engaged at any one time.
4. One of the unchallenged statistics given by Mr Botham, the director in charge of the Appellant's day-to-day business, was that in one year the Appellant had engaged 450 individual bricklayers at times during the year, but would have only required 150 to do the same work, had the 150 operated as full-time employees, each working an ordinary full week.
5. All the workers in the present case were paid only for hours worked; they were not paid if rain or frost prevented them from working; they were not paid if they took time off for holidays, illness or indeed for any reason whatsoever. For these various reasons, and because employee and employer National Insurance Contributions (NICs) did not have to be deducted and paid in respect of sub-contractors, the hourly-rate paid to the workers was considerably higher than the rate that would have been paid, had the workers been full-time employees doing the same work. This is because the extra pay had to compensate for these various disadvantages, and for the loss of state sick pay, and redundancy benefits and the absence of any State Earnings Related (SERPS) pension benefits, all of which resulted from the NIC implications of the sub-contractor status.
6. It is the Respondents who suggest that the workers must properly be analysed to be employees. When this was suggested and the Appellant notified its workers that pragmatically they would have to enter into employment contracts, it is said that many walked out in protest. As a result the Appellant decided that with a few exceptions it would continue the sub-contract arrangements, and challenge the Respondents' claims and assessments by bringing this appeal.
7. In the present case the Appellant company has invariably paid the workers that it has engaged under deduction of 18 or 20% tax under the Construction Industry Scheme ("the CIS scheme") so that virtually no liability to income tax has been affected by the "status" issue or by my conclusion that almost all of the workers were indeed rightly treated as self-employed. This case is thus essentially about the fact that Class 2 and possible Class 4 National Insurance Contributions ("NICs") payable by the self-employed, are lower than Class 1 primary and secondary contributions payable in respect of employees.
8. In 2002 HMRC officers had considered the status of the Appellant's...
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