Oleochem (Scotland) Ltd v Her Majesty's Revenue & Customs, SPC 00731

Spc00731

National Insurance Contributions; secondary contributor; mariner; whether member of crew of ship or vessel; foreign employer; commercial purpose of arrangements; host employer; agency rules; offshore installations; Floating Production Storage offload Facility (FPSO); whether ship or vessel; whether on voyage; Social Security Contributions and Benefits Act 1992 ; Social Security (Categorisation of Earners ) Regulations 1978; Social Security (Contributions) Regulations 2001

OLEOCHEM (SCOTLAND) LTD Appellant

• and –

Special Commissioner: J GORDON REID QC, F.C.I.Arb

Sitting in public in Edinburgh on 27^th, 28^th and 29^th October 2008

for the Appellant Rupert Baldry, barrister (of the English Bar)

for the Respondents Roderick N Thomson Q.C.

© CROWN COPYRIGHT 2008

Introduction

1. These are appeals against forty two decisions of the Respondents (“HMRC”) that the Appellants are liable to pay secondary Class 1 contributions in respect of the earnings of various individuals working off shore in the oil industry as process chemists.

2. All appeals raised or at least appeared to raise the same issues and were heard together, as one combined appeal, at Edinburgh on 27^th, 28^th and 29^th October 2008. Rupert Baldry, barrister, of the English Bar, appeared on behalf of the Appellants on the instructions of KPMG, Aberdeen. He led the evidence of Christopher Marsden, who, during the period in question, was the director and sole shareholder of the Appellants, Robin Smith, an accountant and member of the Society of Trust and Estate Practitioners; he is or at least was a director of Oleochem International Services Ltd (“International”), a wholly owned subsidiary of the Appellants and J Malcolm Stephen, an offshore process chemist (one of the 42- see file D/39). Roderick N, Thomson, then advocate (now Q.C.) appeared on behalf of HMRC on the instructions of Eric Brown of their Solicitors’ Office, Edinburgh. He led no evidence.

3. Parties produced joint bundles of productions and a statement of Agreed Facts (reproduced below). Signed written statements by the witnesses were produced in advance of the Hearing and were treated as part of their evidence.

The Decisions appealed against

4. Each Notice of Decision issued by HMRC stated that the individual in question was an employed earner in respect of his engagement with the Appellants during a specified period; that the Appellants are liable to pay primary and secondary Class 1 contributions in respect of the earnings from those engagements. The total of the sums said to be in dispute is in the order of £330,000.

The Grounds of Appeal

5. The grounds of appeal contained in the letters sent to HMRC in response to the Notices of Decision are that:-

6. (i) the individual concerned was not an employed earner in respect of engagements with the Appellants,

7. (ii) no payments of national insurance contributions were made by the Appellants;

8. (iii) the individuals concerned did not provide their personal services solely to the Appellants but to others at the same time. Therefore, as there was potentially more than one “host employer” as defined by paragraph 9 of Schedule 3 to the Social Security (Categorisation of Earners) Regulations 1978, this appeal will fail as there is no mechanism to apportion the personal services,

9. (iv) the individuals concerned were employed by International, a company registered in Jersey with no place of business in the UK. The employment with International will be treated by regulation 115 of the Social Security (Contributions) Regulations 2001 as that of a mariner. Even if the Appellants are viewed as having the personal service of the individual made available to them, the Appellants will not be treated as a host employer by virtue of paragraph 9 of Schedule 3 of the 1978 Regulations,

10. (v) the individuals were not paid by the Appellants and therefore even if the Appellants were deemed to be a host employer then the Appellants would still not be liable for national insurance contributions as no general earnings were paid by the Appellants as required by paragraph 10(2) of Schedule 4 of the Social Security (Contribution) Regulations 2001, and

11. (vi) no amounts of national insurance are due and payable by the Appellants.

Statutory Background¹

11. Section 1(1) of the Social Security Contributions and Benefits Act 1992 provides that the funds required for paying benefits out of the National Insurance Fund are to be provided by means of contribution payable to HMRC by earners, employers and others. Contributions are divided into various classes. These include primary Class 1 contributions from employed earners and secondary Class 1 contributions from employers and other persons paying earnings (section 1(2)(a)(ii)). There is no liability to pay Class 1 contributions unless the prescribed conditions as to residence or presence in Great Britain are fulfilled (section 1(6)(a)). The prescribed conditions are to be found in Regulation 145 of the Social Security (Contributions) Regulations 2001 SI 2001/1004 (the 2001 Regulations). These are the main administrative regulations and have been in force since 6/4/01. It is a matter of agreement between parties that their statutory predecessor, the Social Security (Contributions) Regulations 1979, is not materially different and does not require separate consideration.

11. Liability for payment of secondary Class 1 contributions is imposed on the secondary contributor (1992 Act section 6(1)&(4)(b)). Section 7 of the 1992 Act defines secondary contributor. In the case of an earner employed under a contract of service, the secondary contributor is his employer (Section 7(1)(a)). Section 7(2)² enables regulations to be made which provide that a prescribed person is to be treated as the secondary contributor. These regulations are the Social Security (Categorisation of Earners) Regulations 1978, SI 1978 /1689 as amended (the 1978 Regulations). The effect of one particular amendment is the subject of dispute between the parties. Regulation 1 of the 2001 Regulations also contains a definition of secondary contributor. However, the definition is described by reference to liability to pay the secondary Class 1 contribution which is somewhat circular.

11. By section 117 of the 1992 Act regulations may be made which modify inter alia Part 1 of the 1992 Act (which includes the sections mentioned above) in its application to persons who are...