Marlen Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 24 June 2011 |
| Neutral Citation | [2011] UKFTT 411 (TC) |
| Date | 24 June 2011 |
| Court | First Tier Tribunal (Tax Chamber) |
[2011] UKFTT 411 (TC)
Lady Mitting (Judge) (Chairman), Rayna Dean (Member)
Mr Matthew Boddington and Ms Nicola Smith of Accountax Consulting for the Appellant
Kelvin Shorte of HMRC for the Respondents
Income tax and NIC - IR35 legislation - worker supplied through intermediary - whether worker was an employee or a subcontractor - a subcontractor - appeal allowed
1.Marlen Ltd has appealed against a decision that a series of engagements under which the services of a Mr Gary Hughes were provided to JC Bamford Excavators Limited ("JCB") were subject to what is commonly known as IR35 legislation. Determinations were made in respect of National Insurance Contributions for the years ended 5 April 2003, 5 April 2004, 5 April 2005, 5 April 2006 and 5 April 2007. Similarly determinations were also made for income tax for the same years. The notices and determinations were made on 28 January 2009.
2.We heard oral evidence from Mr Gary Hughes and the Appellant also put in an unchallenged witness statement from a Mr Ken Walton, the international engineering manager for JCB. The Respondents called no oral evidence.
3.Regulation 6(1) of the Social Security Contributions (Intermediaries) Regulations 2000 provides:
These Regulations apply where-
(a) an individual ("the worker") personally performs, or is under an obligation personally to perform, services for the purposes of a business carried on by another person ("the client"),
(b) the performance of those services by the worker is carried out, not under a contract directly between the client and the worker, but under arrangements involving an intermediary, and
(c) the circumstances are such that, had the arrangements taken the form of a contract between the worker and the client, the worker would be regarded for the purposes of Parts I to V of the Contributions and Benefits Act [the Social Security Contributions and Benefits Act 1992] as employed in employed earner's employment by the client.
"Intermediary" is defined in regulation 5 and it is common ground that the Appellant is an intermediary for this purpose.
4.Similar provisions applying for PAYE purposes are contained in Finance Act 2000 schedule 12Schedule 12 to the Finance Act 2000 and Part 2, Chapter 8 Income Tax (Earnings and Pensions) Act 2003:
-
1(1)This Schedule applies where-
(a) an individual ("the worker") personally performs, or is under an obligation personally to perform, services for the purposes of a business carried on by another person ("the client"),
(b) the services are provided not under a contract directly between the client and the worker but under arrangements involving a third party ("the intermediary"), and
(c) the circumstances are such that, if the services were provided under a contract directly between the client and the worker, the worker would be regarded for income tax purposes as an employee of the client.
5.The approach to be taken by the Tribunal has been set out by His Honour Stephen Oliver QC in the IR35 case of Tilbury Consulting Ltd v Gittins SCD(2003) Sp C 379:
The legislation calls for a two stage exercise. The first is to find the facts as they existed during the period covered by the decision. The facts to be found are those that serve to identify the "arrangements" involving the intermediary and the circumstances in which those arrangements existed and the nature of the service performed by the "worker". The second is to assume that the worker was contracted to perform services to the client and to determine whether in the light of the facts as found (the worker) would be regarded as the (client's) employee.
6.The issue to be determined by the Tribunal therefore is whether, had the arrangements taken the form of a contract between Mr Hughes and JCB, Mr Hughes would have been regarded as employed by, i.e. an employee of, JCB.
7.Marlen Ltd ("Marlen"), of which Mr Hughes is the sole director and shareholder, was incorporated in 1989. It provides its clients through various agencies with the engineering, design and drafting services of Mr Hughes. In 2002 Marlen registered with an agency, DDC Precisions Ltd ("DDC"), through which Mr Hughes' services were supplied first to a company called Compact Products Ltd (a satellite of JCB) in Cheadle, Staffordshire, from April 2003 to January 2004, and then for JCB itself at its Rocester site from February 2004 to April 2007.
8.There is no written contract between Mr Hughes and Marlen.
9.In April 2003, JCB and DDC entered into an arrangement whereby DDC became the "sole preferred supplier to JCB for contract engineering resources". This arrangement was evidenced by a single-page agreement dated 5 March 2003 under which DDC was given two working weeks to fulfil each request from JCB. The requests from JCB were subject to a set of JCB's "Conditions of Purchase". This eight-page document was in no way personalised, referred to supplies of goods and services and contained no clauses of particular relevance to the determination of the issues before us. We were also referred to an Agreement between DDC and JCB dated 2 April 2007 (i.e. post-dating the periods under appeal). This Agreement sets out very fully the terms and conditions governing the supply by DDC to JCB of contract personnel, but no evidence was given as to whether this was the first such contract or a replacement for earlier ones and we therefore cannot say whether the contractual terms set out would have been in force during the periods under appeal. We therefore take no account of the terms of this contract.
10.Each engagement which DDC procured for Mr Hughes was offered by DDC to Mr Hughes by way of a Purchase Order letter. This was in the form of a personal letter to Mr Hughes from DDC beginning:
We have pleasure to advise the following purchase requirements referring to the above purchase order subject to the attached Terms and Conditions of Contract for Services.
The letter set out the description of the role as "engineering resource support" and the commencement and completion dates. The first engagement with Compact Products Limited was covered by four such contracts running from 31 March 2003 to 6 February 2004, the first three for three months each and the last one for four weeks. The second engagement with JCB was covered by nine contracts, again running continuously but for varying numbers of months. The evidence which we heard from Mr Hughes, and supported by Mr Walton in his witness statement, was that towards the end of each of the contract periods, Mr Hughes would speak to Mr Walton to see if he was to be offered a renewed contract. JCB was under no obligation to offer an extension or a further contract but given the volume of the work, a contract was on each occasion offered and accepted. Mr Hughes would inform DDC who would then liaise with JCB and Mr Hughes to generate the relevant paperwork. Mr Walton stressed that Mr Hughes would not expect further work from JCB automatically, which is why he continued to ask for work. Mr Walton describes speaking to the contractors about a month before their project is to end to see if the contractor had anything else lined up or if they were clear for, say, another six months. He stressed that any arrangement had to be agreed with DDC.
11.The final contract with Compact Products Limited commenced on 5 January 2004 and was due to end on 5 February 2004. However, Mr Hughes was given notice under that contract on Monday 20 January that his final working day and last paid day of work was to be Friday 25 January. The early termination was said to be as a result of a budget deficit at Compact Products. Mr Hughes was then out of work for two weeks before being offered his first contract with JCB. Mr Hughes terminated the engagement with JCB by serving one week's notice to take up a contract on higher pay with Rolls Royce.
12.We were referred to two written contracts between Marlen and DDC dated 6-8 February 2004 and 28 March 2004 respectively. The terms which are relevant to this case were in each version identical. These documents were headed "Terms and Conditions of Contract for Services" and were the terms and conditions referred to in the engagement letters. The relevant terms and conditions included the following:
Marlen was obliged to complete the services provided within any agreed timescale and was to devote such time as might be necessary for the proper performance of the services.
Marlen was obliged to perform the services with reasonable care and skill - rectification of unsatisfactory work being at Marlen's cost.
Marlen was to provide DDC with progress reports.
Marlen was to ensure that its personnel observed health and safety regulations at the premises where the services were being carried out.
In case of illness or injury to Marlen personnel, Marlen was to report the matter to DDC. Marlen was obliged to provide a suitably qualified replacement, incurring any additional training costs.
If DDC or the client considered any of Marlen's personnel unsuitable, there was provision for either an agreed replacement or termination of the contract.
DDC undertook to make all reasonable efforts to arrange access to the client's premises and to make available information necessary for Marlen to carry out the services.
The services were to be carried out at a location agreed between DDC and Marlen.
DDC was to pay Marlen monthly.
DDC was not obliged to offer future contracts to Marlen and Marlen was under no obligation to accept future contracts offered by DDC.
Marlen was entitled to enter into contracts with other parties, other than the client provided by DDC.
Nothing in the contract was to make Marlen and DDC partners or to make Marlen personnel employees of DDC.
Marlen and its personnel were excluded from any right against DDC or the client in respect of employment protection legislation and benefits etc.
The contract could be terminated by one week's notice.
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