J and C Littlewood t/a JL Window & Door Services(1) Mark Molloy(2) v Her Majesty's Revenue & Customs, SPC 00733

Spc00733

Income tax – PAYE determinations – National Insurance – status decisions – whether workers employees or sub-contractors – the latter

J AND C LITTLEWOOD T/A JL WINDOW & DOOR SERVICES (1)

MARK MOLLOY (2) Appellants

- and -

Special Commissioner: JOHN CLARK

Sitting in public in London on 12-14 November 2008

Dave Smith, Chartered Tax Adviser, Accountax Consulting Ltd, for the Appellants

David Seaman, Local Compliance Appeals Unit (Leeds), HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1. These two appeals relate to an employment status dispute. The first Appellants, Mr and Mrs Littlewood, maintain that the individuals who worked for their firm were independent contractors and not employees. Mr Molloy, who was one of those workers, has appealed against the decision that he was an employed earner in respect of such work. The dispute concerns both income tax and National Insurance Contributions. For convenience, I refer to Mr and Mrs Littlewood’s firm as “JL Windows”.

2. The evidence consisted of two bundles of documents, the second, entitled “Additional Documents”, mainly containing various documents supplied by the Appellants described as “not previously provided and not agreed”. However, in the course of the hearing reference was made to these documents by both parties without any suggestion of objection to them. In addition, witness statements were provided by Mr Littlewood, Richard Lindley, Gary Greenwood, Ian Gilligan, Jamie Hoult and Mr Molloy on behalf of the Appellants, and by Sheena Howe and John Fakes on behalf of the Respondents (“HMRC”) All the witnesses also gave oral evidence. The parties provided a statement of facts not in dispute; this is set out below. I then set out my remaining findings of fact, except for disputed matters which I consider later.

3. Subject to minor editorial corrections, the statement of facts not in dispute was as follows:

   1. Mr J and Mrs C Littlewood traded in partnership as JL Windows and Doors.

   2. The trade of the Partnership consisted mainly of installing windows, doors and curtain walling for commercial buildings.

   3. The Partnership ceased trading on 13 March 2006.

   4. The Partnership traded from [details omitted], which is the partners’ home address.

   5. HMRC opened a review of the Partnership’s operation of the Construction Industry Scheme and the status of its workers by a letter dated 26 September 2005.

   6. A meeting was held between HMRC officers and the partners on 19 October 2005.

   7. A number of the Partnership’s workers were approached and meetings were held with three of them.

   8. Opinions as to the status of the workers were issued on 13 July 2006 to the Partnership and to those workers who had been interviewed.

   9. The opinion issued was that the status of workers was that of employees.

   10. Accountax Consulting Ltd were engaged to act for the Partnership on 21 September 2006 and on 28 September 2006 requested that formal determinations be made.

   11. Further discussion of the issues took place between Accountax and HMRC between 4 December 2006 and 27 November 2007.

   12. On 22 January 2008 HMRC made formal determinations under Regulation 80 of the Income Tax (Pay As You Earn) Regulations 2003 SI 2003/2682 for the years 2001-02, 2002-03, 2003-04, 2004-05 and 2005-06.

   13. On the same date Notices of Decision under Section 8 of the Social Security (Transfer of Functions) Act 1999 were issued in respect of a number of workers who had been engaged by the Partnership during these years.

   14. On 18 February 2008 formal appeals against these determinations and Notices were made by Accountax Consulting Ltd with an election for the Special Commissioners.

4. Many years previously, Mr Littlewood had worked as a sub-contractor and had been asked to take over the work on a particular job. He had not been able to take the whole of it over, and had approached a Mr Gibbons to do so. Mr Littlewood had then worked for Mr Gibbons as a sub-contractor. When Mr Gibbons retired in the late 1970s, Mr Littlewood had taken over all the work. He took on a couple of sub-contractors on a self-employed basis.

5. Having obtained some larger contracts, his firm began to expand and Mr Littlewood’s role changed. He no longer worked on the fitting work, and began to visit clients, examine drawings, price the jobs and meet contract managers. He could never be sure that his firm would be awarded the next contract for a major client, Dortech, at Sheffield Business Park; JL Windows had a good rapport with the main contractor, but it was never certain when the next block was going to be ready for JL Windows to be involved.

6. When Mr Littlewood had stopped doing the fitting work himself, he had had between eight and ten workers carrying out jobs for him. At first he had used some family members, but other people heard that he had work available, and they approached him or in some cases he approached them. Workers knew each other and information about possible work was circulated by word of mouth. The largest number of men working for JL Windows had been about 20, and the smallest number about 10.

7. The first thing which he would ask a new worker was whether the worker held a CIS [Construction Industry Scheme] card and whether that worker was registered as self-employed. He would ensure, for every worker whom he had engaged during the period under enquiry, that the worker had a CIS card, and would deduct tax at 18 per cent.

8. The majority of the workers were paid on “price work”, but a daily rate was paid to those dealing with “snagging”. Mr Littlewood estimated that about 90 per cent of the work was on a price basis. A major exception was a project at Norwich which had begun in 2005, but had been too big and too complicated to price.

9. The processes of pricing and payment worked in the following way. When Mr Littlewood was offered a contract, he discussed the details with individuals known as “charge hands”, who were regarded as the representatives of teams of workers. The teams consisted of between two and five people. The charge hands were more experienced and could calculate the expected amount of work required for the team to complete the contract work. The charge hands gave Mr Littlewood a price for the contract after agreeing the prices with the other workers on their teams. How the money was divided among the team members was a matter for the charge hand or “fixer”. However, the payment system involved making payments to the individual workers rather than through the charge hands, so Mr Littlewood needed to know whom to pay and how much.

10. Payments to the workers were made on the basis of a rate for a day’s work. These payments continued while the contract was running. No payment was made for a day or part of a day when a worker was not on site; this also applied when the reason for absence was a training course. Once the job was completed, the costings were worked out. If the team had managed to finish the job in less time than the assumed length of the contract, there would be a balance of money left for that contract. This was split between the various members of the teams on a basis decided by the charge hand. Such further payments became known among the workers as the “bonus”, but it was actually the balance of the money due for the job. The typical amount to be shared on any one job would be between £500 and £1,000, but it was sometimes bigger.

11. In relation to the customers Mr Littlewood took into account the amount agreed with the charge...