Oleochem (Scotland) Ltd v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judgment Date | 12 January 2009 |
| Date | 12 January 2009 |
| Court | Special Commissioners |
special commissioners decision
J Gordon Reid QC, F.C.I.Arb
for the Appellant Rupert Baldry, barrister (of the English Bar)
for the Respondents Roderick N Thomson QC
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 Benefits and Contributions Benefits Act 1992Social Security Contributions and Benefits Act 1992; SI 1978/1689Social Security (Categorisation of Earners ) Regulations 1978 (SI 1978/1689); SI 2001/1004Social Security (Contributions) Regulations 2001 (SI 2001/1004)
A special commissioner decided in principle that the taxpayer did not employ various individuals working off shore in the oil industry as process chemists. It could therefore only be liable for secondary Class 1 National Insurance contributions (NICs) if the relevant statutory provisions treated it as a secondary contributor. In principle, those who worked on floating production, storage and offloading facilities (FPSOs) during the relevant period were mariners within the meaning of SI 2001/1004 regulation 115reg. 115 of the Social Security (Contributions) Regulations 2001 (SI 2001/1004) and so the condition of liability set out in SI 2001/1004 subsec-or-para c regulation 117reg. 117(c) of the regulations was not satisfied. There was no other statutory enactment by virtue of which the taxpayer fell to be treated as secondary contributor in respect of the earnings of such chemists.
The taxpayer appealed against decisions of HMRC that it was liable to pay secondary Class 1 NICs in respect of the earnings of various individuals working off shore in the oil industry as process chemists.
Each notice of decision stated that the individual worker in question was an employed earner in respect of his engagement with the taxpayer during a specified period, and that the taxpayer was 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 was about £330,000. The taxpayer argued that the workers concerned were not employed earners in respect of engagements with the taxpayer so that it was not liable for payments of their NICs. The workers did not provide their personal services solely to the taxpayer but to others at the same time. There was therefore potentially more than one "host employer" as defined by SI 1978/1689 schedule 3 subsec-or-para 9para. 9 of Sch. 3 to the Social Security (Categorisation of Earners) Regulations 1978 (SI 1978/1689), and no mechanism to apportion the personal services. Further, the workers were employed by International, a company registered in Jersey with no place of business in the UK. The employment with International would be treated by SI 2001/1004 regulation 115reg. 115 of the Social Security (Contributions) Regulations 2001 as that of a mariner. Even if the taxpayer was viewed as having the personal service of the individual worker made available to it, the taxpayer would not be treated as a host employer by virtue of SI 1978/1689 schedule 3 subsec-or-para 9Sch. 3, para. 9 to the 1978 regulations. The individuals were not paid by the taxpayer and therefore even if the taxpayer was deemed to be a host employer, the taxpayer would still not be liable for NICs as no general earnings were paid by the taxpayer as required by SI 2001/1004 schedule 4 subsec-or-para 10para. 10(2) of Sch. 4 to the Social Security (Contribution) Regulations 2001, and no amounts of National Insurance were due and payable by the taxpayer.
Whether the taxpayer was liable to pay NICs in respect of the chemists' earnings.
The special commissioner (J Gordon Reid QC) (making a determination in principle) said that it was plain from the findings of fact that the chemists were employed by International which was a foreign employer for the purposes of the statutory provisions. International paid the chemists' salaries. Thus the taxpayer was not the employer of the chemists; nor did it pay their earnings. It could therefore only be liable for secondary Class 1 contributions as secondary contributor if the statutory provisions treated it as a secondary contributor.
The provisions of SI 1978/1689 schedule 3 subsec-or-para 2para. 2 of Sch. 3 to the 1978 regulations could not apply where there was an actual employer. In this case, International was the actual employer of the chemists. There could therefore be no room for deeming or treating the chemists as having been employed by the taxpayer.
The taxpayer had correctly submitted that the amendment in 2003 to the 1978 regulations imposed a restriction on the rules. Mariners were not previously liable but in 2003 a restricted form of liability was imposed (mariners working in inland waters). Prior to the 2003 amendment, what were described as the Host Employer Regulations did not apply to mariners. Rules relating to mariners formed part of a discrete code which modified the provisions which would otherwise apply. The general rule in SI 2001/1004 regulation 145reg. 145 of the 2001 regulations prescribing conditions as to residence or presence in Great Britain was made under what was now SSCBA 1992, Social Security Benefits and Contributions Benefits Act 1992 section 1 subsec-or-para 6s. 1(6)(a).
Social Security Benefits and Contributions Benefits Act 1992 section 117Section 117 of the 1992 Act authorised modifications in relation to persons who were or had been or were to be employed on board a ship, vessel, hovercraft or aircraft. SI 2001/1004 regulation 117Regulation 117 of the 2001 regulations made it plain that as respects the employment of a mariner, SI 2001/1004 regulation 145reg. 145 was disapplied, and, under SI 2001/1004 regulation 17reg. 17, it was a condition of liability to pay secondary contributions that the secondary contributor was resident or had a place of business in Great Britain. The 2003 regulations did not change the law relating to mariners working beyond territorial waters.
The general purpose of the relevant statutory provisions was to impose liability for secondary Class 1 contributions on employers and others where they had a place of business in Great Britain. The categories of persons so liable had been broadened over the years and various exceptions had been created. The legislative structure was not all embracing. Mariners were given separate treatment under the 2001 regulations; that accorded with the separate basis in the primary legislation for the general provisions (1992 Act, Social Security Benefits and Contributions Benefits Act 1992 section 1 subsec-or-para 6s. 1(6)(a)) and the provisions relating to mariners and certain others (1992 Act, Social Security Benefits and Contributions Benefits Act 1992 section 117s. 117).
The facts showed that the commercial structure was set up to take advantage of the legislative structure in relation to liability for secondary Class 1 contributions. That enabled the taxpayer to trade competitively in the relevant sector of the offshore oil industry. The legislation dealt specifically with mariners and others working in the offshore oil industry, foreign employers and host employers, and agency workers. On the evidence, the facts were not embraced by the statutory provisions relied on by HMRC, however one construed those provisions. Resort to the principle in WT Ramsay v IR CommrsELR[1982] AC 300; 54 TC 101 did not affect that conclusion.
Accordingly, in principle, those of the chemists who worked on FPSOs during the relevant period were mariners within the meaning of SI 2001/1004 regulation 115reg. 115 of the 2001 regulations. They were employed by International. Throughout the relevant period, International did not have a place of business in Great Britain. The condition of liability set out in SI 2001/1004 subsec-or-para c regulation 117reg. 117(c) of the 2001 regulations was not satisfied. There was no other statutory enactment by virtue of which the taxpayer fell to be treated as a secondary contributor in respect of the earnings of such chemists.
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, 28 and 29 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.
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;...
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