Note, this piece is designed to be “evidence based”. This means it is necessarily longer because for each assertion or opinion I provide the authority, which means statute or court and in some cases where court over-rides or “clarifies” statute.
This is not easy reading, but offers real insight into the subject which in these present times is having a massive impact on thousands of people and their families. It also shows up how what is reported in the press and the like perhaps over simplifies what you really need to know if you are going to be able to use the matters in play in your own affairs.
You will need this transcript open concurrently or copy this link in to your browser:
https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j11052/TC07088.pdf
My Terms of reference from 49(1)c
“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 or the holder of an office under the client”
Summary Information
The relevant legislation
Chapter 8 of Part 8 to the ITEPA 2003 deals with the provision of services through an intermediary.
Decision Number: TC 07088
Appellant: Atholl House Productions Limited
Respondent: The Commissioners For Her Majesty’s Revenue & Customs
Chairmen / Special
Commissioners:
Judge Tony BEARE
MR DUNCAN MCBRIDE
Date Of Decision: 11/04/2019
Main Category: PROCEDURE
Main Subcategory: Other
Notes: INCOME TAX AND NATIONAL INSURANCE — intermediaries legislation — IR35 — personal service company — if the contracts in question had been directly between the end user and the individual, would they have been contracts of employment — no — appeal allowed
Decision(s) to Download: TC07088.pdf TC07088.pdf
Sitting in public at Taylor House, 88 Rosebery Avenue, London EC1R 4QU on
11 and 12 March 2019
Ms Rebecca Murray, instructed by Carter Backer Winter LLP, for the
Appellant
Ms Elisabeth Roxburgh, instructed by the General Counsel and Solicitor to HM
Revenue and Customs, for the Respondents
Transcript 53 pages
My Analysis and observations
(Page 2) the burden of proof is on the Appellant to show that the conclusion is incorrect.
(Page 3) 6. The Appellant is the personal service company of
Interesting, given acceptance of this term despite it not being defined in law. Is it based on the worker being named in the contract with the company? I believe so. For example here is the explicit statutory wording:
49(1) (a) an individual (“the worker”) personally performs, or is under an obligation personally to perform, services for another person (“the client”),
Digression A: Personally performs?
In Tanton the Court of Appeal
LORD JUSTICE PETER GIBSON: “Once again this court is asked to look at the question whether a person engaged to work for another in return for payment is an employee under a contract of service or a self-employed contractor under a contract for services.”
Expresso and Echo Publications Ltd v Tanton 1999 IRLR 367 CA emphasised that it is the terms of contract which are important not what actually happens, so that the fact that the worker is free to use a substitute whenever she wishes means that the contract cannot be one of service even if, in fact, she does do the work herself.
The Court of Appeal holds that it is necessary for a contract of employment to contain an obligation on the part of the employee to provide his or her services personally. (Sounds like the employee side of MOO).
That seems to reduce the “personally performs” phrase to irrelevance in the context of being employment. You may still be a “worker”, but not an “employee”. Granted this is pre IR35.
What we seem to have here is a court decision (Court of Appeal is high authority) modifying or clarifying the statute wording “personally performs”: rendering it irrelevant to employment if there is no obligation.
So, for a contract to be a contract of service, there must be a basic obligationof personal service, not merely or only “personally performs”.
Without such an obligation the contract cannot be one of employment. With such an obligation a contract can (but not must — there are other factors) be a contract of employment.
End of digression A
And so the Kaye Adams case transcript continued:
of Ms Kaye Adams, who performs services for the BBC and other media organisations. Ms Adams started her career with Central Television in 1984 and has been a freelance journalist since the mid-1990s. Her work other than for the BBC has included appearances on TV in programmes such as “Loose Women” on ITV and the newspaper review on Sky, together with columns for various newspapers and magazines such as The Daily Mirror, The Sunday People and No 1 magazine. In addition, Ms Adams has worked extensively in the corporate sector, hosting events and awards evenings and giving presentations. Ms Adams also has a significant social media profile and has written two books in collaboration with her friend and colleague, Ms Nadia Sawalha.
That is long term variety of work and clients. Just reading it feels like the life of a freelancer.
(Page 3) 7 At the hearing, we were provided with the terms of two written agreements between the BBC and the Appellant — one relating to the period from 16 March 2015 to 31 March 2016 and the other relating to the period from 4 April 2016 to 31 March 2017. Each written agreement related to the presentation of 160 programmes during the period specified by the agreement and the parties informed us at the hearing that both written agreements were on the same terms. Accordingly, for the purposes of this decision, we make no distinction between the terms of the two written agreements.
Here we have deliverables AND start and end dates, so do we have MOO? Looks like “yes”., but she still wins.
(Page 5) 10. In this case, it is common ground that, in respect of the two tax years of assessment in question:
(a) Ms Adams personally performed services for the BBC (so that Section 49(1)(a) of the ITEPA 2003 was satisfied);
Based on Tanton I would challenge that, but clearly there is an “obligation personally” so it is moot — if cute of HMRC to use that part of 49(1)a which breathes life in to ‘personally performed” when the Court of Appeal has previously decided to render it irrelevant when without an obligation.
(Page 8) The relevant case law
This is pretty crucial stuff so rather than copy and paste it in here, I refer you to Page 18 para 16 onwards to para 25.
However, a quote in there from another case demonstrates the wisdom in play. Our judges are not daft, not a bit of it.
extract from the judgment of Elias J in Consistent Group Limited v Kalwak 2007 IRLR 560 (“Kalwak”):
57. The concern to which tribunals must be alive is that armies of lawyers will simply place substitution clauses, or clauses denying any obligation to accept or provide work in employment contracts, as a matter of form, even where such terms do not begin to reflect the real relationship. Peter Gibson LJ was alive to the problem. He said this (p 697G)
’Of course, it is important that the industrial tribunal should be alert in this area of the law to look at the reality of any obligations. If the obligation is a sham it will want to say so.’
58. In other words, if the reality of the situation is that no one seriously expects that a worker will seek to provide a substitute, or refuse the work offered, the fact that the contract expressly provides for these unrealistic possibilities will not alter the true nature of the relationship. But if these clauses genuinely reflect what might realistically be expected to occur, the fact that the rights conferred have not in fact been exercised will not render the right meaningless.
59. … Tribunals should take a sensible and robust view of these matters in order to prevent form undermining substance…”
That looks like the foundation of the practical need to examine working practices. HMRC tend to go there the moment the contract is seen as outside IR35, then they try to show the contract terms are not followed in practice.
You have to live the dream, not just dream it. Take your contracts seriously. Don’t behave like an employee.
(Page 10) Paras 24 and 25 are opposing counsels’ respective arguments about contract terms being disregarded.
(Page 11 para 21) last sentence
But in each case the question the court has to answer is: what contractual terms did the parties actually agree?”
Page 12 para 23
But one thing, I think, is clear in legal principle, morality and the authorities . . . that for acts or documents to be a ‘sham’, with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.”
And here we have it:
Page 12 para 25
58 In other words, if the reality of the situation is that no one seriously expects that a worker will seek to provide a substitute, or refuse the work offered, the fact that the contract expressly provides for these unrealistic possibilities will not alter the true nature of the relationship. But if these clauses genuinely reflect what might realistically be expected to occur, the fact that the rights conferred have not in fact been exercised will not render the right meaningless.
Page 13 para 31
She added in paras 52, 53 and 55:
“52. I regret that that short paragraph requires some clarification in that my reference to ‘as time goes by’ is capable of misunderstanding. What I wished to say was that the court or tribunal must consider whether or not the words of the written contract represent the true intentions or expectations of the parties (and therefore their implied agreement and contractual obligations), not only at the inception of the contract but at any later stage where the evidence shows that the parties have expressly or impliedly varied the agreement between them.
There is a LOT of “Chatter” here showing deliberations in progress about opposing counsels’ opposing opinions. It is very useful to acquire a feel for how courts allow themselves to deal with explicit contract terms.
Page 16 para 33
the Supreme Court held in Rock that a contract which stipulates that it cannot be amended except in writing — which is the situation in relation to each written agreement between the BBC and the Appellant in this case — can be amended only by way of a subsequent written agreement between the parties.
Page 16 A contract for services or a contract of service
The original old chestnut.
And here we have it:
Page 17 para 36
First, the approach which needs to be adopted is the one described by Nolan LJ
in Hall v Lorimer 1994 WLR 209 (“Hall”) at page 216, citing the judgment of Mummery J at first instance in that case) to the following effect:
“In order to decide whether a person carries on business on his own account it is necessary to consider many different aspects of that person’s work activity. This is not a mechanical exercise of running through items on a check list to see whether they are present in, or absent from, a given situation. The object of the exercise is to paint a picture from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole.
It is a matter of evaluation of the overall effect of the detail, which is not necessarily the same as the sum total of the individual details. Not all details are of equal weight or importance in any given situation. The details may also vary in importance from one situation to another. The process involves painting a picture in each individual case. As Vinelott J said in Walls v Sinnett (Inspector of Taxes) 1986 STC 236 at 245: “It is, in my judgment, impossible in a field where a very large number of factors have to be weighed to gain any real assistance by looking at the facts of another case and comparing them one by one to see what facts are common, what are different and what particular weight was given by another tribunal to the common facts. The facts as a whole must be looked at, and a factor which may be compelling in one case in the light of the facts of that case may not be compelling in the context of another case.””
This is why the examination of working practices by way of questionnaires is both helpful yet can be misleading. They do gather facts, but they do not evaluate the overall view. Getting your questionnaire also signed by your client adds great weight in my opinion. As does repeating it over time.
Page 17 para 38
The extent to which the individual is dependent upon or independent of a particular pay master for the financial exploitation of his talents may well be significant.”
and if then that is employment as opposed to a mere engagement in the course of carrying on a profession,
Pages 19 to 20 para 44
The traditional definition of an employment contract is the one set out by McKenna J in RMC at page 515, as follows:
“A contract of service exists if these three conditions are fulfilled.
(i) The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master.
(ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master.
(iii) The other provisions of the contract are consistent with its being a contract of service.
I need say little about (i) and (ii).
As to (ii). Control includes the power of deciding the thing to be done, the way in which it shall be done, the means to be employed in doing it, the time when and the place where it shall be done. All these aspects of control must be considered in deciding whether the right exists in a sufficient degree to make one party the master and the other his servant. The right need not be unrestricted.
”What matters is lawful authority to command so far as there is scope for it. And there must always be some room for it, if only in incidental or collateral matters.” — Zuijs v. Wirth Brothers Proprietary, Ltd.
To find where the right resides one must look first to the express terms of the contract, and if they deal fully with the matter one may look no further. If the contract does not expressly provide which party shall have the right, the question must be answered in the ordinary way by implication.
The third and negative condition is for my purpose the important one, and I shall try with the help of five examples to explain what I mean by provisions inconsistent with the nature of a contract of service.
(i) A contract obliges one party to build for the other, providing at his own expense the necessary plant and materials. This is not a contract of service, even though the builder may be obliged to use his own labour only and to accept a high degree of control: it is a building contract. It is not a contract to serve another for a wage, but a contract to produce a thing (or a result) for a price.
(ii) A contract obliges one party to carry another’s goods, providing at his own expense everything needed for performance. This is not a contract of service, even though the carrier may be obliged to drive the vehicle himself and to accept the other’s control over his performance: it is a contract of carriage.
(iii) A contract obliges a labourer to work for a builder, providing some simple tools, and to accept the builder’s control. Notwithstanding the obligation to provide the tools, the contract is one of service. That obligation is not inconsistent with the nature of a contract of service. It is not a sufficiently important matter to affect the substance of the contract.
(iv) A contract obliges one party to work for the other, accepting his control, and to provide his own transport. This is still a contract of service. The obligation to provide his own transport does not affect the substance. Transport in this example is incidental to the main purpose of the contract. Transport in the second example was the essential part of the performance.
(v) The same instrument provides that one party shall work for the other subject to the other’s control, and also that he shall sell him his land. The first part of the instrument is no less a contract of service because the second part imposes obligations of a different kind: Amalgamated Engineering Union v. Minister of Pensions and National Insurance.
And here surfaces MOO!
Mutuality of obligation
Page 21 para 46
The first of MacKenna J’s three conditions is commonly termed “mutuality of obligation”. In order for a contract to be an employment contract, there should be an obligation on the part of the putative employer to provide work and an obligation on the part of the putative employee to accept work. A feature of an employment contract is that the employer is obliged to pay the employee regardless of whether or not the services in question are performed — see Sir Christopher Slade in Clark v Oxfordshire Health Authority 41 BMLR 18 at page 30, Carmichael v National Power PLC 1999 ICR 1226 (“Carmichael”) at page 1230G, Stevedoring & Haulage Services Ltd v Fuller 2001 EWCA Civ 651 at paragraphs 9 and 10 and Usetech (HC) at paragraph 64.
And substitution
This is like reading every text ever written (and yes it feels like it, we are at page 21 of 53) about these matters, but they never quote their sources.
Page 21 para 47
Another feature of the “mutuality of obligation” is that it generally involves a requirement that the employee performs the work in question personally (leaving aside a limited or an occasional power of delegation). In other words, an unrestricted right to provide a substitute is inconsistent with a contract of employment — see Weightwatchers UK Ltd v The Commissioners for Her Majesty’s Revenue and Customs 2012 STC 265 at paragraph 37.
So that is where “personally performs” comes from. Very clearly it is in the context of obligation. And we see substitution alone destroys “employment”.
Control
Page 22 para 48 end
“some sufficient framework of control must surely exist. A contractual relationship concerning work to be carried out in which the one party has no control over the other could not sensibly be called a contract of employment
That’s a bit blunt of an instrument. Lacks the “manner”.
Interesting:
Page 22 para 51
(a) first, in the current age of flexible working, when employees frequently work from home, using their own equipment, the fact that a putative employee fulfils the terms of the agreement by working from home and using his or her own computer is not as potent a contra- indicator of employment status as it once was;
So to the contract. I will extract bits I find key:
The written agreements
Page 23 para 55
(a) it specified that the Appellant was to provide the services of Ms Adams as presenter of the Kaye Adams Programme for a minimum commitment of 160 programmes (the “Minimum Commitment”) during the term of the agreement (Part A and clauses 3 and 6.1 of Part B);
So that’s deliverables between dates.
(b) it specified that, in return for the Minimum Commitment, subject to the compliance by the Appellant and Ms Adams with its and her obligations pursuant to the agreement, the BBC would pay the Appellant a minimum fee of £155,000 (the “Minimum Fee”) and that, if the BBC required Ms Adams to exceed the Minimum Commitment, then the Appellant would be entitled to invoice and be paid for the additional programmes at the rate of £968.75 per programme (clause 6.1 of Part B);
And there’s the price AND a rate for a deliverable.
Para f note this expression:
required the Appellant to procure that Ms Adams…
That word “procure”. I don’t like it. Avoid it. Sounds like control to me.
And finally
(t) it specified that no amendment to the terms of the agreement “will be valid or binding unless made by prior written contract between the parties and signed by them or their authorised representatives” (clause 16.7 of Part B) and that the agreement would “prevail at all times over all other terms and conditions which may purport to apply in connection with the services, unless amended by the prior written agreement of the parties…” (clause 16.10 of Part B).
(Page 33)
From the producer’s evidence
(i) he confirmed that, while she was presenting the programme, Ms Adams would wear BBC headphones and while she was in the studio, Ms Adams would have a BBC computer available to her and would also have access to the BBC’s messenger service so that she could communicate with the team during the show. However, Ms Adams also had access to her own laptop and Ipad which she would use both inside and outside the studio; and
(j) he explained that there were differences in the way in which the BBC dealt with Ms Adams from the way in which it dealt with its employees. For example, if the BBC wanted to change an employee’s job, it would have to go through a formal and clearly laid-down process whereas any change to the relationship with Ms Adams could be achieved through informal discussions with her. Similarly, there was a process within the BBC under which employees could apply for other jobs internally once their fixed term contracts came to an end and he was not sure that that process would extend to Ms Adams. In addition, an employee was required to undertake compulsory training and was entitled to holiday and sick pay and maternity leave, which was not the case with Ms Adams.
The arguments of the parties
- As we have observed in paragraphs 16 to 51 above, there is very little disagreement between the parties in relation to the legal principles which are applicable in this case.
- They are agreed that the appeal stands or falls on the question of whether the terms of each hypothetical contract between the BBC and Ms Adams were such that the relevant hypothetical contract should be seen as a contract for services (as the Appellant contends) or as a contract of service (as the Respondents contend).
- They are also agreed that the terms of each hypothetical contract are to be derived from the terms of each actual agreement between the BBC and the Appellant.
- Furthermore, they are also agreed that, in determining whether each hypothetical contract amounts to an employment contract, the three-stage test set out by MacKenna J in RMC should be applied — that is to say:
(Page 34)
(a) does the hypothetical contract involve “mutuality of obligation”?
(b) does the hypothetical contract involve sufficient control by the BBC
over Ms Adams to make the BBC Ms Adams’s master? and
© are the other provisions of the hypothetical contract consistent with its being an employment contract?
- However, the parties do diverge in their construction of the terms of the hypothetical contract for the above purposes.
Paras 66 to 92 contain the ebb and flow of argument, a good read best not pasted in here.
THEN, and these are of great interest because they amount to working practices that monied the contract IN FAVOUR of the appellant.
- We found both Ms Adams and Mr Paterson to be very credible witnesses and we have accordingly concluded, on balance, that, notwithstanding the terms of each written agreement, including clause 16.5 of Part B of each written agreement, the evidence described in paragraphs 87 to 89 above is so compelling that we are satisfied that, to the extent that the position summarised in paragraphs 87 to 89 above is contrary to the terms of each written agreement, the relevant written agreement did not reflect the terms of the actual agreement between the BBC and the Appellant which the relevant written agreement purportedly recorded. Accordingly, we find as facts that:
(a) during the term of each actual agreement between the BBC and the Appellant, the BBC did not have the right of first call on the services of Ms Adams and Ms Adams was not required to seek the prior written consent of the BBC before taking on other engagements;
(b) the BBC could not control the content of Ms Adams’s other engagements (although the BBC could penalise Ms Adams retrospectively by suspending, or, in a severe case, terminating, the actual agreement if it considered that that content brought the BBC into disrepute or could result in the BBC’s suffering OFCOM sanctions); and
© instead, subject to the retrospective sanction mentioned in paragraph 93(b) above, Ms Adams was free to enter into her other engagements as she wished, although, in practice, she quite sensibly ensured that the programme’s editorial team was aware in general terms of her work on TV and radio.
Right of substitution
- In similar vein, although clause 16.7 of Part B of each written agreement ostensibly provided for Ms Adams to have a right of substitution “in exceptional circumstances” and subject to the BBC’s prior approval, the evidence of Ms Adams and Mr Hollywood mentioned in paragraph 57(t) and paragraph 59(b) above demonstrates that this right was illusory.
- Accordingly, we find as a fact that there was no right of substitution under each actual agreement between the BBC and the Appellant.
(Page 45 Para 102) the hypothetical contract. What might yours look like given this example?
Now we are getting to it: CONCLUSIONS
- Nolan LJ in Hall went on to explain that, in the case of such a person, it is far more meaningful to consider the extent to which the individual in question is dependent on one particular paymaster for the financial exploitation of his or her talents, the length of the relevant engagements, and the number of different clients involved in those engagements.
- In considering those features in the present case, there was some debate between the parties as to the precise percentage which Ms Adams’s work for the BBC over the two tax years of assessment in question bore to Ms Adams’s work overall, both in terms of financial remuneration and in terms of time taken. It is clear that the percentage in each case was significant — both parties agreed that her remuneration under the two contracts with the BBC amounted to over 50% of her income and, on the days on which she presented the programme, a significant part of her working day would be taken up with the programme. However, we do not think that Ms Adams’s other work over that period can aptly be described as being de minimis or insignificant, either in terms of remuneration or in terms of Ms Adams’s overall working time. Even on the basis of the Respondents’ own figures — which are lower than those of the Appellant — approximately 30%, on average, of Ms Adams’s gross income over the two tax years of assessment derived from engagements which were not with the BBC and it is therefore apparent that Ms Adams must have spent a meaningful part of her overall working time on those other engagements.
114. Thus, the overall impression which we have derived from the evidence before us is that Ms Adams generally carries on her profession as an independent provider of services and not as an employee.
The remainder considers if the two years in question constituted employments on their own; relevant but rejected.
Other case of Ackroyd distinguished :
- Notwithstanding the above, we believe that there are significant differences in the facts of the two cases which are material in this context. First, in Ackroyd, the contract between the BBC and Ms Ackroyd’s service company was 7 years’ long and it followed a contract which was 5 years’ long. In contrast, each contract in this case was for approximately 1 year. Secondly, the ratio of Ms Ackroyd’s non-BBC income to Ms Ackroyd’s BBC income was materially different from the comparable ratio in relation to Ms Adams. Ms Ackroyd’s non-BBC income was effectively de minimis.
Conclusion
- For the reasons set out in paragraphs 102 to 132 above, we have concluded that the appeal should be allowed.
If you have got this far, well done. This is not easy reading, but offers real insight into the subject which in these present times is having a massive impact on thousands of people and their families. It also shows up how what is reported in the press and the like perhaps over simplifies what you really need to know if you are going to be able to use the matters in play in your own affairs.
