Knot Builders Limited, R (on the application of) v Construction Industry Training Board
| Judge | Mrs Justice Ellenbogen |
| Neutral Citation | [2024] EWHC 115 (Admin) |
| Date | 25 January 2024 |
| Counsel | Ben Jaffey Kc,Christopher Leigh,Christopher Knight |
| Year | 2024 |
| Court | King's Bench Division (Administrative Court) |
Neutral Citation Number: [2024] EWHC 115 (Admin)
Case No: CO/3384/2020; AC-2020-LON-002644
IN THE HIGH COURT OF JUSTICE
KING'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 25/01/2024
Before :
MRS JUSTICE ELLENBOGEN
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Between :
The King (on the application of Knot Builders
Limited)
Claimant
- and -
Construction Industry Training Board Defendant
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Ben Jaffey KC and Christopher Leigh (instructed by KPMG Law) for the Claimant
Christopher Knight (instructed by Fieldfisher) for the Defendant
Hearing dates: 28 February and 1 March, 2023
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APPROVED JUDGMENT
This judgment was handed down remotely at 2pm on 25 January 2024 by circulation to the
parties or their representatives by e-mail and by release to the National Archives.
.............................
MRS JUSTICE ELLENBOGEN DBE
Judgment Approved by the court for handing down R(Knot Builders Ltd) v Construction Industry Training Board
Mrs Justice Ellenbogen DBE:
1. The Claimant was formerly known as Hudson Contract Services Ltd. Until 25 March
2018, it provided services to employers operating in the construction and engineering
industries in relation to the self-employed part of their workforce. By its contractual
arrangements with its clients, it received a fixed fee in return for contracting with, and
providing payroll services for, self-employed construction workers, known as
‘operatives’. In broad terms, the Claimant would bear the risk of such workers being
considered employees, with attendant rights. It did not itself supply labour to its
Construction Industry Training Board [2019] EWHC 45 (Admin), [5] to [8], its
business model was described by Lambert J as follows:
5. Hudson is a company established in 1996. Its headquarters is in
Bridlington, East Yorkshire although it has a small off-shoot office
in Manchester. Its clients are small construction firms who have been
engaged by a principal contractor to deliver a specific element of a
construction project. Where a client requires the services of self-
employed individuals ("operatives"), the client will identify the
operatives required and contract with Hudson that Hudson shall (a)
engage those operatives on a self-employed contract and (b) supply
the services of those operatives to the clients. The client is required
to use Hudson's method statement to explain to the operative that he
is to be engaged on a self-employed basis with Hudson (with the
option of employment if he wishes) and the operative will then sign
a contract for services with Hudson at the client's premises. The
contract for the provision of services (self-employed) between
Hudson and the operative spells out that, following the negotiation of
terms between the operative and the client, "Hudson will step into
the shoes of the Client and contract with the Freelance Operative on
the terms negotiated" and that the operative "has no contract of any
type whatsoever with the Client."
6. It is the client which checks the operative's qualifications and
competence, arranges the necessary insurance, negotiates the rates of
pay and which is responsible for health and safety issues. Copies of
the paperwork are sent to Hudson. Hudson supplies a software
package to the client for the purpose of entering details of pay and
hours for payroll purposes. The client must ensure that cleared funds
are in Hudson's account for payment of the operative. Hudson will
then pay the operative, withholding the tax liability and provide a
pay breakdown to the operative.
7. Hudson's own directly employed workforce (that is, those engaged
under contracts of employment or materially equivalent contracts) is
small, including only its directors and 2 members of staff together
with a small team of regional auditors. The directly employed staff
provide a wholly office-based function. As [Counsel for Hudson] put
it, none of those directly employed by Hudson wield a pickaxe or do
anything which is physical in the construction industry. Hudson is
Judgment Approved by the court for handing down R(Knot Builders Ltd) v Construction Industry Training Board
not contracted to deliver construction outputs or activities; it makes
no profit that is dependent upon construction operations; Hudson
itself maintains no pool or bank of operatives and does not select
them; the directly employed workforce has no supervisory or
management function in relation to construction work. Operatives
are not despatched or directed or controlled from Hudson's head
office and whilst members of the directly employed team may visit
construction sites for audit purposes (to check that operatives who
state they are self-employed, are self-employed), typically,
operatives will never visit the office in Bridlington (or Manchester)
and few will ever need to speak to the Hudson directly employed
team.
8. The function served by Hudson's business model is two-fold. It has
the effect of transferring to Hudson (a) the administrative burden of
operating a payroll function and (b) responsibility for and dealing
with compliance issues (including compliance with the terms of the
Construction Industry Scheme) and thus shifting to Hudson the risk
of Employment Tribunal proceedings and HMRC status enquiries
and adverse findings. For each operative engaged by Hudson,
Hudson is paid £15 per week. The Employment Tribunal recorded
that Hudson was currently paying around 27,000 operatives per
week and that, in the levy period under dispute, it paid around
20,702 operatives per week.
2. The Defendant is the statutory body responsible for training the workforce in the
construction industry. Pursuant to certain legislation to which I shall come, provision
was made for levy payments to be made to the Defendant by employers in the
industry, for the hypothecated purpose of promoting and supporting training in that
industry and for grants to be payable in specified circumstances. The Defendant paid
grants to employers who were subject to the levy, which could be offset against their
Contract Services Ltd) v Secretary of State for Business Innovation and Skills [2016]
EWHC 844 (Admin) [3] to [46] and need not be repeated here.
3. Over a period of years, the Defendant did not assess the Claimant for levy. Any such
assessment would have resulted in a nil, or negligible, liability, owing to the then
applicable formula under which a company in the Claimant’s position had been
entitled to deduct all sums received from its own clients, which, in the Claimant’s
case, exceeded those which it paid to self-employed contractors. Following a change
to the formula (the subject of an unsuccessful challenge by the Claimant, by way of
judicial review — see above), those subject to the levy could no longer deduct sums
which had been received from their clients. The Defendant registered and assessed the
Claimant for levy for the periods 2015/16, 2016/17 and 2017/18, in the aggregate sum
of £27,403,993. The Claimant’s appeal against the first of those assessments failed
([2020] ICR 1344). It is now common ground that the Claimant was not subject to
levy for the subsequent periods because it had ceased operating in the industry from
25 March 2018, as a result of which the Defendant withdrew its levy claims for those
periods. The remaining assessment is in the sum of £7,964,584, subject to set-off of
any grant due to the Claimant. As to that, for each of the periods 2015/16, 2016/17
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