Eric Newman Developments Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 08 February 2012 |
| Neutral Citation | [2012] UKFTT 111 (TC) |
| Date | 08 February 2012 |
| Court | First Tier Tribunal (Tax Chamber) |
[2012] UKFTT 111 (TC)
Judge Aleksander (Chairman); Dr Christina Hill Williams DL
KWJ Saunders, chartered accountant of Simpson Wreford and Co. for the Appellant
David Lewis, an officer of HM Revenue and Customs, for the Respondents
Income Tax and National Insurance Contributions - individual providing construction services - whether relationship is one of employment - yes - regulation 80, Income Tax (PAYE) Regulations 2003 - appeal dismissed
1.Eric Newman Developments Limited appeals against decisions made under Social Security Contributions (Transfer of Functions, etc) Act 1999 section 8section 8, Social Security Contributions (Transfer of Functions etc) Act 1999 and determinations made under regulation 80, Income Tax (PAYE) Regulations 2003.
2.Details of the decisions and determinations are as follows
Tax Year |
Income Tax (Reg 80) (£) |
NICs (section 8) (£) |
2004/05 |
286.92 |
387.29 |
2005/06 |
1971.86 |
1774.19 |
2006/07 |
2449.10 |
2123.14 |
2007/08 |
1238.30 |
1000.38 |
2008/09 |
2307.00 |
2037.50 |
3.The decisions and determinations were made on the basis that the engagement of David Filipiak by the Appellant was one of employment. Payments made by the Appellant to Mr Filipiak would therefore be subject to deduction of income tax under PAYE, and would be subject to class 1 National Insurance Contributions.
4.The issue before the tribunal is whether Mr Filipiak was at the relevant times an employee of the Appellant.
5.The Appellant was represented by its accountant Mr Saunders and HMRC was represented by Mr Lewis. We heard evidence from Mr Eric Newman (a director of the Appellant), Mr Filipiak and Ms Gaynor Leadbeater (the HMRC officer responsible for the decisions and determinations). We also had before us bundles of written evidence.
6.As regards national insurance contributions ("NICs"), Social Security Benefits and Contributions Benefits Act 1992 section 2 subsec-or-para 1Section 2(1) Social Security Contributions and Benefits Act 1992 defines the phrases "employed earner" and "self-employed earner" as follows:
Categories of earners
(1)In this Part of this Act and Parts II to V below-
(a) "employed earner" means a person who is gainfully employed in Great Britain either under a contract of service, or in an office (including elective office) with general earnings; and
(b) "self-employed earner" means a person who is gainfully employed in Great Britain otherwise than in employed earner's employment (whether or not he is also employed in such employment).
7.Sections 6 and 7 of the same Act set up the circumstances in which Class 1 NICs are to be paid and who is liable to pay them. Paragraph 3 of Schedule 1 makes the employer liable to pay the primary (employee's) contribution and sets up the circumstances in which you can recover the contribution from the employee, as follows:
(1)Where earnings are paid to an employed earner and in respect of that payment liability arises for primary and secondary Class 1 contributions, the secondary contributor shall (except in prescribed circumstances), as well as being liable for any secondary contribution of his own, be liable in the first instance to pay also the earner's primary contribution or a prescribed part of the earner's primary contribution, on behalf of and to the exclusion of the earner; and for the purposes of this Act and the Administration Act contributions paid by the secondary contributor on behalf of the earner shall be taken to be contributions paid by the earner.
(2)…
(3)A secondary contributor shall be entitled, subject to and in accordance with regulations, to recover from an earner the amount of any primary Class 1 contribution paid or to be paid by him on behalf of the earner; and, subject to sub-paragraphs (3A) to (5) below but notwithstanding any other provision in any enactment], regulations under this sub-paragraph shall provide for recovery to be made by deduction from the earner's earnings, and for it not to be made in any other way.
8.Social Security Contributions (Transfer of Functions, etc) Act 1999 section 8Section 8 Social Security Contributions (Transfer of Functions, Etc) Act 1999 provides:
Decisions by officers of Board
(1)Subject to the provisions of this Part, it shall be for an officer of the Board-
(a) to decide whether for the purposes of Parts I to V of the Social Security Contributions and Benefits Act 1992 a person is or was an earner and, if so, the category of earners in which he is or was to be included,
(b) ....
(c) to decide whether a person is or was liable to pay contributions of any particular class and, if so, the amount that he is or was liable to pay,
9.Regulation 10 of the Social Security (Decisions and Appeals) Regulations 1999 SI 1999/1027 places the onus of proof on an appellant in respect of a decision and made under section 8 above.
10.The Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682SI 2003/2682) ("the PAYE Regulations") require an employer to deduct an account for PAYE when making payments of employment income to an employee. Regulation 80 of the PAYE Regulations provides:
Determination of unpaid tax and appeal against determination
(1)This regulation applies if it appears to [HMRC] that there may be tax payable for a tax year under regulation 68 by an employer which has neither been-
(a) paid to [HMRC], nor
(b) certified by [HMRC] under regulation 76, 77, 78 or 79.
(2)[HMRC] may determine the amount of that tax to the best of their judgment, and serve notice of their determination on the employer.
(3)A determination under this regulation must not include tax in respect of which a direction under regulation 72(5) has been made; and directions under that regulation do not apply to tax determined under this regulation.
(4)A determination under this regulation may-
(a) cover the tax payable by the employer under regulation 68 for any one or more tax periods in a tax year, and
-
(b) extend to the whole of that tax, or to such part of it as is payable in respect of-
(i) a class or classes of employees specified in the notice of determination (without naming the individual employees), or
(ii) one or more named employees specified in the notice.
(5)A determination under this regulation is subject to Parts 4, 5 … and 6 of TMA (assessment, appeals, collection and recovery) as if-
(a) the determination were an assessment, and
(b) the amount of tax determined were income tax charged on the employer,
and those Parts of that Act apply accordingly with any necessary modifications.
(6)…
[references to "HMRC" were added in 2008 and have been included for ease of reference]
11.Taxes Management Act 1970 section 50 subsec-or-para 6Section 50(6) Taxes Management Act 1970 places the onus of proof on an appellant in respect of a determination made under Regulation 80 of the PAYE Regulations.
12.On the basis of the evidence before us, we find the background facts to be as follows:
13.Eric Newman Developments Limited undertakes the business of property development. It buys properties which it improves or renovates and then sells. It also lets properties that it has bought and renovated, but which it is unable to sell at the price it desires, and undertakes maintenance on such properties. Mr Newman is the principal shareholder and director of the business. Also working in the business are his son and son-in-law who are both skilled tradesmen (carpenter and bricklayer).
14.Mr Filipiak started to work for the Appellant in 2004, shortly after Mr Filipiak came to the UK from Poland. Prior to coming to the UK, Mr Filipiak had some experience of construction work in Poland. He needed to work on a flexible basis, as his mother was in poor health, and he would need to return to Poland to be with her at short notice and for uncertain periods. This arrangement suited the Appellant, as Mr Newman was running down the business in the light of the uncertain economic situation and as he wanted to retire anyway. He therefore could not guarantee regular work and did not want to enter into long term commitments. It was therefore agreed that Mr Filipiak would be engaged on a self-employed basis. Mr Filipiak engaged an accountant to prepare his tax returns, and registered under the construction industry scheme.
15.Included in the document bundles are copies of the written agreement concluded between the Appellant and Mr Filipiak. Clause 4 of the agreement provides that the "Sub-contractor" (Mr Filipiak) shall
(a) perform the work in a professional and businesslike manner in accordance with normal practice and standards of the trade, by supplying expert and adequate level of personnel and materials
(b) use best endeavours at all times to do all things necessary to comply with the requirements of the Contractor [the Appellant]
(c) indemnify and hold the Contractor harmless from any claims or liability whatsoever arising from the Sub-contractor's work under this contract
(d) not be entitled to holiday pay, or sickness pay for any absence for such purposes nor be entitled to any benefits offered by the Contractor the Contractor's employees
(e) be entitled to engage their own staff and assistance as and when necessary to discharge the Sub-contractor's obligations towards the Contractor, provided that they shall accept all liability for the terms of engagement of such staff and assistance, and shall indemnify and hold the Contractor harmless from any claims or liability whatsoever
(f) in respect of all notified deadlines for parts of the services to be performed, time shall be of the essence
(g) be entitled to choose how and when to carry out the services as long as the performance of such services is to the satisfaction of the Contractor
(h) be responsible for providing their own equipment and materials whenever appropriate at own cost
(i) arrange for and be responsible for the provision of adequate public liability insurance and provide written...
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