USETECH
LTD V GRAEME YOUNG (HMIT) (2004)
[2004] EWHC 2248 (Ch)
Ch D (Park J) 8/10/2004
TAX
CONTRACT OF EMPLOYMENT : CONTRACTS FOR SERVICES :
INCOME TAX : INTERMEDIARIES : NATIONAL INSURANCE CONTRIBUTIONS : PROVISION OF
SERVICES THROUGH INTERMEDIARIES : MUTUALITY OF OBLIGATION : RELATIONSHIP OF EMPLOYEE
AND EMPLOYER : NOTIONAL CONTRACTS : HYPOTHETICAL CONTRACTS : RIGHT OF
SUBSTITUTION : IR35 LEGISLATION : Sch.12 FINANCE ACT 2000 : reg.6 SOCIAL
SECURITY CONTRIBUTIONS (INTERMEDIARIES) REGULATIONS 2000
The
taxpayer company was liable to account for income tax under the Finance Act
2000 Sch.12 and national insurance contributions under the Social Security
Contributions (Intermediaries) Regulations 2000 reg.6, where there was a
notional contract of employment, which the provisions required to be assumed,
between an engineer, who was the director of the taxpayer company, and a client
for the provision of his services.
The appellant taxpayer company (U) appealed
against a decision that it was liable to account for income tax under the Finance Act 2000 Sch.12 and national insurance
contributions under the Social Security Contributions (Intermediaries)
Regulations 2000 reg.6 .
U's business consisted of providing the services
of its principal shareholder and director (H) to third party users.
U contracted with an agency (N) which in turn
contracted with a company (B) for the provision of H's services.
U's agreement with N required U to provide the
services to the reasonable satisfaction of B, and contained a provision for the
substitution of H.
The contract between N and B was solely for the
provision of H's services, and there was no provision for the supply of a
substitute.
The issue was whether the transactions attracted
the operation of the provisions in the 2000 Act and 2000 Regulations (the IR35
legislation).
The tribunal held that the IR35 legislation
applied and a notional contract between B and H, which was a contract of
service had to be assumed.
U argued that (1) there had been a right of
substitution in the notional contract between H and B, the effect of which was
that the relationship between them was legally incapable of being the
relationship of employee and employer; (2) the contract could not be a contract
of employment unless there was mutuality of obligation.
HELD: (1) Whether a relationship was one
of employment or not required an evaluation of all of the circumstances, Synaptek Ltd v Young (HMIT) (2003) EWHC 645 (Ch), (2003) STC 543
considered.
There would not have been any right of
substitution in the notional contract between H and B, which the IR35
legislation required to be assumed.
A hypothetical contract between H and B would
not have contained a substitution provision.
The actual terms on which H's services were
provided to B did not contain a substitution provision, and there would be no
justification for assuming that if he had contracted directly with B, he would
have provided his services on a different basis.
Furthermore, it could not be argued that because
U and H did not have specific knowledge that the contract between N and B did
not contain a highly improbable provision, they escaped the operation of the
IR35 legislation.
(2) It was open to the tribunal to form the view
that, if there had been a direct contract between H and B, for the provision of
his services to B, it would have fallen to be regarded as a contract of
employment.
B provided work for H over a continuous period
of 17 months, and provided enough work for him to work 58 hours in a typical
week.
Further, the contract between N and B specified
a minimum of 37.5 hours per week.
If B sent H home in a week when he worked less
than 37.5 hours, B was liable to pay for unworked time up to a total of 37.5
hours for the week.
The minimum hours provision presented a
fundamental objection to the want of mutuality argument.
It was only where there was both no obligation
to provide work and no obligation to pay the worker for time in which work was
not provided that want of mutuality precluded the existence of a continuing
contract of employment, Clark v Oxfordshire Health
Authority (1998) IRLR 125 , applied.
Appeal
dismissed.
Counsel:
For the claimant: Simon Devonshire
For
the respondent: Akash Nawbatt
Solicitors:
For
the claimant: Nelsons
For the respondent:
Solicitor for Inland Revenue
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LTL 18/10/2004 : (2004) STC 1671 : Times, October 22, 2004 |
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Document
No. AC0107003 |
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Source: Lawtel http://www.lawtel.co.uk , copyright
acknowledged.