Primary Path Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 06 July 2011 |
| Neutral Citation | [2011] UKFTT 454 (TC) |
| Date | 06 July 2011 |
| Court | First Tier Tribunal (Tax Chamber) |
[2011] UKFTT 454 (TC)
Edward Sadler (Tribunal Judge) (Chairman), Nigel Collard
Matthew Boddington, of Accountax Consulting, for the Appellant
David Lewis, of Her Majesty's Revenue and Customs, for the Respondents
Income tax - National Insurance contributions - IR 35 - provision of services through intermediary - earnings of worker supplied by taxpayer service company contracting to provide computer services - HMRC issuing determinations in respect of liability to pay NICs and PAYE income tax - if arrangements had taken form of contract between worker and client, worker would not have been employed by client under contract of service - taxpayer's appeal allowed - Social Security Contributions (Intermediaries) Regulations 2000 (SI 2000/727), reg. 6(1)(c) - Income Tax (Earnings and Pensions) Act 2003, Income Tax (Earnings and Pensions) Act 2003 section 48s. 48
Where the taxpayer company provided the services of its sole director and shareholder to a client, through the services of agency companies, the arrangements were such that, had they taken the form of a contract between the worker and the client, the worker would not have been regarded as an employee of the client so that the IR 35 legislation did not apply.
The taxpayer's business was the provision of services in the field of database software development. It had a sole shareholder and director (W). During the relevant period the taxpayer's business services were provided solely through W.
The taxpayer provided services to a client (G), through the services of agency companies, on two occasions during the period 4 June 2001 to 14 March 2003. HMRC took the view that the circumstances of those arrangements were such that, had they taken the form of a contract between W and G, W would have been regarded as an employee of G. Accordingly, HMRC issued a notice of decision pursuant to s. 8 of the Social Security Contributions (Transfer of Functions, etc.) Act 1999 and reg. 6(4) of the Social Security Contributions (Intermediaries) Regulations 2000 for the period 6 April 2001 to 5 August 2002 treating the taxpayer as liable to pay primary and secondary Class 1 National Insurance contributions in respect of W's attributable earnings from the arrangements, and issued two notices of determination under reg. 80 of the Income Tax (Pay As You Earn) Regulations 2003 for the tax years 2001/2002 and 2002/2003 requiring the taxpayer to pay in total £15,420.84 in relation to the attributable earnings of W from the arrangements with G. The taxpayer appealed against both the notice of decision and the two notices of determination.
Whether, if the arrangements had taken the form of a contract between W and G, W would have been employed by the client under contract of service.
The First-tier Tribunal (Judge Edward Sadler) allowed the taxpayer's appeal.
In order to decide whether the IR 35 legislation applied to the taxpayer the FTT had to ascertain first what would be the terms of a hypothetical contract between W (the worker) and G (the client), and then determine whether such a contract would be a contract of employment or a contract for the supply of the services of an independent contractor.
On the evidence the hypothetical contract between W and G would be on the following terms: (1) The services of W would be engaged for a series of fixed term contracts which could be terminated before the expiry of the term by four weeks' notice. (2) The services to be provided by W were specific and detailed for the development of software. (3) He would be paid on the basis of a specified hourly rate for the number of hours actually worked: there is no payment in the case of absence for holidays, sickness or other causes. (4) He was not entitled to any pension or insurance benefits, benefits in kind, or bonus, share options or other incentive arrangements provided to employees of G. (5) He had to co-operate with G, in providing his services, and take account of its directions, but he determined the manner, means and methods in or by which he performed the contracted services. (6) During his period of engagement W was entitled to undertake assignments for other contractors provided that there was no conflict with the interests of G. (7) The contract was for the engagement of the services of W, but if he was not available for any reason he could propose a substitute, provided that that substitute had comparable skills. (8) There was no provision for training or other skills development for W and no provision for appraisal nor any grievance or similar employee rights procedures. (9) There was a requirement for him to provide his own insurance cover. (10) The contract would include a declaration that W was not an employee of G.
Applying the guidance in the decided cases to the hypothetical contract it would not be a contract of service.
There was an obligation on G to pay W for the work he had done, but no obligation beyond that. The essence of the arrangement was that W was paid only for the hours he worked, and should at any time his strand of work within the overall project have suffered a hiatus for any reason, he had no contractual basis for demanding other work or payment whilst he waited for his work to resume. Nor was there anything to suggest that G had it in mind to offer work beyond the specific project for which W's services were engaged. That feature of his hypothetical contract called into question whether it was an employment contract - it was a feature which was more indicative of a contract for services (Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance[1968] 2 QB 497; [2010] BTC 49 and Dragonfly Consultancy Ltd v R & C Commrs[2008] BTC 639 considered).
The contract contemplated the possibility of substitution and no employment contract envisaged that the employee could or would send along someone else in his stead to perform the duties he had been engaged to perform (Usetech Ltd v Young (HMIT)[2005] BTC 48, Dragonfly Consultancy and Express and Echo Publications Ltd v Tanton[1999] ICR 693 considered).
There was minimum supervision of W on the part of G - he was hired for his expertise to be part of a team for a particular project, and subject only to such supervision and direction as was necessary for and in the course of the management of the project as a whole he was left to do the work as he saw fit. The level of control or supervision exercised did not go beyond that which one would expect in the hiring of an independent contractor.
Considering the other terms of the hypothetical contract and the fact that the taxpayer was exposed to financial risk in a manner and to an extent that W would not have been exposed to had he been an employee, the overall picture was that the taxpayer was in business on its own account and W would not be an employee of G but an independent contractor (Market Investigations Ltd v Minister of Social Security[1969] 2 QB 173; [2010] BTC 103 and Hall (HMIT) v Lorimer[1993] BTC 473 applied).
1.This is an appeal by Primary Path Ltd ("the Appellant") in relation to what is commonly referred to as the IR 35 legislation. That legislation has effect so that a company which makes available to its client the services of an individual (usually the controlling shareholder of the company) can be liable both to pay National Insurance contributions and to a charge under the Pay As You Earn regulations in relation to earnings attributed to the individual in question if the circumstances of the arrangements are such that the individual would have been an employee of the client (rather than a self-employed independent contractor) had the client engaged the services of the individual directly.
2.As detailed below, the Appellant provided the services of Mr Philip Winfield ("Mr Winfield") to the Appellant's client, GlaxoSmithKline plc ("GSK") (through the services of agency companies) on two occasions during the period 4 June 2001 to 14 March 2003. The Commissioners for Her Majesty's Revenue and Customs ("the Commissioners") took the view that the circumstances of those arrangements were such that, had they taken the form of a contract between Mr Winfield and GSK, Mr Winfield would have been regarded as an employee of GSK. Accordingly, the Commissioners:
(2) Issued a Notice of Decision dated 5 October 2007 addressed to the Appellant pursuant to Social Security Contributions (Transfer of Functions, etc) Act 1999 section 8section 8 of the Social Security Contributions (Transfer of Functions, etc.) Act 1999 and regulation 6(4) of the Social Security Contributions (Intermediaries) Regulations 2000 for the period 6 April 2001 to 5 August 2002 treating the Appellant as liable to pay primary and secondary Class 1 National Insurance contributions in respect of Mr Winfield's attributable earnings from the arrangements (rendering the Appellant liable to a net contribution, after credit for contributions paid, of £9,676.89); and
(3) Issued two Notices of Determination, each dated 5 October 2007, under regulation 80 of the Income Tax (Pay As You Earn) Regulations 2003 for the tax years 2001/2002 and 2002/2003 requiring the Appellant to pay in total £15,420.84 in relation to the attributable earnings of Mr Winfield from the arrangements with GSK.
3.The Appellant appealed against both the Notice of Decision and the two Notices of Determination on 24 October 2007.
4.At the hearing before us the Appellant agreed that if its appeal were decided in favour of the Commissioners, then the Commissioners were entitled to require further National Insurance contributions, for the period up to 14 March 2003, which is the date on which the arrangements between the Appellant and GSK were terminated. Accordingly, we were asked to give our decision in principle as to liability, leaving it to the parties to agree the final amounts due should we dismiss the Appellant's appeal.
5.The...
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