Jensal Software Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 16 May 2018 |
| Neutral Citation | [2018] UKFTT 271 (TC) |
| Date | 16 May 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0271 (TC)
Judge Jennifer Dean
Mr A. Vessey of Qdos Consulting Ltd appeared for the appellant
Ms G. Hicks, Counsel instructed by HM Revenue and Customs, appeared for the respondents
Income tax and National insurance – Intermediaries legislation – IR35 – ITEPA 2003, s. 48–61 – Personal service company – Contract for services or contract of service – Appeal allowed.
The First-Tier Tribunal (FTT) found that in the IR35 appeal the relationship was consistent with a contract for services not a contract of service.
By Notice of Appeal dated 27 December 2016 the Appellant appealed against a reg. 80 determination assessed in the sum of £14,658 and notice of decision in respect of Class 1 NICs assessed in the sum of £12,011 arising from the application of the intermediaries legislation (commonly referred to as “the IR35 legislation”).
By way of background, between 28 May 2012 and 4 April 2013 Mr Ian Wells (W) provided business analyst services through a personal service company, Jensal Software Limited (“the Appellant”) via an agency, Capita Resourcing Ltd (“Capita”) to the Department of Work and Pensions (“DWP”).
HMRC concluded that had there been a direct contract between W and the DWP during the period of engagement it would have been a contract of service, not a contract for services; the Appellant was therefore required to account for income tax and NICs in the relevant period.
The Grounds of Appeal relied upon by the Appellant could be summarised: it was disputed that IR35 applied to its contract with the DWP via Capita during the relevant period as the three prerequisites for a contract of employment to exist were not present (relying on Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [2010] BTC 49). During their investigation HMRC reviewed two contracts involving the Appellant during the period of enquiry, those being with the DWP and Lloyds Banking Group; HMRC agreed that the latter fell outside of the intermediaries legislation. The Appellant contended that the contract with the DWP also fell outside of IR35.
The Appellant did not dispute the amount of tax owed, subject to the determination as to whether the legislation applied. The issues therefore remaining between the parties could be summarised: Whether W personally performed or was under an obligation to perform services for the DWP, who was the client for the purposes of s. 49(1)(a) ITEPA 2003; and whether for the material time the provision contained in s. 49(1)(c) ITEPA 2003 was satisfied; namely, whether the hypothetical notional contract between Wand the DWP would have been a contract of service, as HMRC contended, or a contract for services as the Appellant contended.
The F-TT set out the legislation and relevant case law as authorities.
The DWP required “contingent labour to take forward some business critical work for the [Universal Credit] programme as [they] could not secure civil servants for a temporary period.” The DWP contacted Capita to source suitable candidates. Capita sent the CVs of suitably qualified candidates to Mr Gary McDonald (GM) at the DWP who interviewed the candidates by telephone and W was offered the job.The series of contracts between Capita and the Appellant which formed the basis of this appeal were: 28 May and 25 August 2012; 26 August to 24 November 2012; 25 November 2012 to 23 February 2013; and 10 March to 29 June 2013. Each of the contracts was fulfilled with the exception of the final contract which was terminated by W on 4 April 2013.
W was the Director and majority shareholder of the Appellant which provided IT services to private and public sector clients on a contract basis. The Appellant has operated successfully in the contract/freelance market for approximately 25 years. W explained that he was well-versed in the IR35 legislation and has applied his understanding of the legislation to the Appellant's engagements. W explained that he has experience of IR35 from a previous HMRC enquiry in 2003. His experience is significant, having worked with approximately private and public sector clients comprising in the region of 60 contracts, having been subject to periods of non-payment, summary termination and early closure of contracts with engagements varying in duration from 3 months to 2 years.
GM has worked as a project manager in the Universal Credit Programme in the DWP since 2012 and had responsibility for the strategic design of a number of operational services. W's remit was to design and develop “demand and workflow” management arrangements in Universal Credit. Mr Lemon (L) has worked as a project manager in the Universal Credit Programme in the DWP since 2012. L confirmed that he was not personally involved in the recruitment process involving W and that his role working alongside W commenced after the contract began. He explained that W was tasked to provide expert input into the design of a new national workflow process to be adopted in Universal Credit from April 2013. W described in detail the working relationship with GM and L.
W explained that he was required to provide expert advice in relation to the operational readiness of approximately 16 components of the Universal Credit Programme. He was paid a daily rate; W explained that the number of working hours was never specified but he was paid for a “professional working day”.
W explained that initially he was engaged in a broad role to look at the operational aspect and assess the design readiness of the areas involved; the completeness of the designs for the areas were coded as red, amber and green. W stated that he probably spoke with GM about once each month about the project. He identified the status of a number of areas, for instance one key area was identified within telephony as being critical and required W to take the initiative in completing the design to an appropriate level of detail. W explained that this typically required visits to a number of site visits according to a schedule set by him and identification of tasks for incorporation in plans used by the DWP. The Appellant did not set work hours as the work was goal orientated and focussed on delivery to projected timescales; consequently the hours varied. The Appellant had no line management responsibilities.
W stated that he had a right of substitution which was confirmed by Capita.
L confirmed that the arrangement with W was flexible in terms of the location from which he worked. He recalled that W based himself at the DWP office in Leeds for the majority of time and that he worked at home at least one day per week. L recalled that W worked late on the majority of occasions and finished after 6pm on a regular basis. W managed his own time and location around the demands of the role, occasionally travelling to DWP sites when needed.
In applying the terms of the hypothetical contract between W and the DWP the First-tier Tribunal (F-TT) made the following findings.
Mutuality of obligation – On the particular facts of this case the F-TT took the view that although W provided his services for payment, the mutuality of obligation did not of itself demonstrate a contract of service. The essence of the relationship was that there was no continuing obligation on the part of the DWP to provide work; if it chose to abandon the project there was no contractual basis upon which W could demand further work. The F-TT was satisfied that these factors pointed away from a contract of service.
Substitution – In such cases the real question was in the F-TT's judgment whether the ambit of the substitution clause, purposively construed in the context of the contract as a whole, was so wide as to permit, without breach of contract, the contractor to decide never personally to turn up for work at all. The F-TT considered the ambit of the right to substitution which existed in the hypothetical contract in this case. Although the right was fettered by requiring the agreement of the DWP in relation to the proposed substitute's skills and security checks, the F-TT was satisfied that, purposively construed in the context of the contract, the right fell at the wider end of the spectrum. There was no restriction on the substitution clause being used only in specified circumstances, for instance in the event of W's inability to carry out the work. this factor was not determinative but in the context of this case the F-TT was satisfied that it pointed away from an employment contract.
Control – The issue was whether a contractual right of control existed to a sufficient degree, irrespective of whether that right was exercised (Autoclenz Ltd v Belcher [2011] UKSC 41; [2011] 4 All ER 745. The Appellant/Capita contract was widely drafted, allowing W the freedom to decide the method and manner in which to undertake the work with “due regard to the reasonable requests of the Client, and the documented requirements of the Assignment (if any).”
The F-TT considered the evidence of GM and L that they were ultimately accountable for W's work; This did not amount to control such as would be expected of a manager over an employee but was more akin to the responsibility of ensuring the needs of the DWP are met as would be required of any independent contractor engaged to provide a specific service.
The witnesses agreed that W decided where to work, which was dependent on the nature of the task in hand, and the F-TT did not consider the fact that W chose a base for the occasions he was office based as an indicator of a sufficient degree of control.
There was no dispute that W was subject to minimum checks. The evidence of all of the witnesses, taken together with the documentary evidence indicated that the control to which he was subject was substantially less and clearly distinct from that over employees. W's involvement with the team of employees and frequency of meetings with GM and L was no more than an indication of a professional and close...
To continue reading
Request your trial
-
RALC Consulting Ltd
...concerns the operation of IR35 or Intermediaries legislation, the purpose of which was explained by Judge Dean in Jensal Software Ltd [2018] TC 06501 at [2]–[3] in the following manner: [2] The purpose of the IR35 legislation was set out by Robert Walker LJ as he then was in R (on the appli......
-
Petrol Services Ltd
...rate of pay, and no entitlement to employee benefits were not consistent with employment. Mr Powrie also took us to Jensal Software Ltd [2018] TC 06501 paras [120] to [122] where the following extracts from various decisions are cited:McKenna J's decision in Weight Watchers (UK) Ltd v R & C......
-
Northern Lights Solutions Ltd
...law is that whether a relationship is unemployment or not required an evaluation of all the circumstances [21] In Jensal Software Ltd [2018] TC 06501 at para. 61 Judge Dean helpfully summarised the factors that might usefully be considered; From the authorities I derive the following as rel......