[2011] UKFTT 24 (TC)

TC00901
Appeal numbers: TC/2009/15556,TC/2009/15574

EMPLOYMENT OR SELF-EMPLOYMENT – entertainers on cruise lines – whether seafarers’ earnings deduction applies – no – whether HMRC letter relating to a different person creates a legitimate expectation that the same treatment will apply – no – discovery assessment – whether valid – yes  – appeals dismissed 

FIRST-TIER TRIBUNAL

TAX 

	PETE MATTHEWS (1) KEITH SIDWICK (2)	Appellants

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		TRIBUNAL: 	JOHN F AVERY JONES CBE (TRIBUNAL JUDGE)					ANDREW PERRIN FCA				

Sitting in public at 45 Bedford Square, London WC1 on 14 December 2010

Daniel Cobelli and Matthew Boddington, Accountax Consulting, for the Appellant

Jane Hodge, HMRC Appeals Unit, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	These are appeals by Mr Keith Sidwick against assessments to income tax for the years 2002-03 to 2006-07 and by Mr Pete Matthews against assessments for the years 2005-06 to 2007-08.  The Appellants were represented by Mr Daniel Cobelli and Mr Matthew Boddington, and the Respondents (“HMRC”) by Mrs Jane Hodge.
2.	The issue in these appeals is whether the Appellants, who are entertainers on board cruise ships, are employed, as the Appellants contend (in which case it is common ground that they are exempt from income tax because of the seafarers’ earnings deduction in s 378 ITEPA 2003), or whether, as HMRC contends, they are self-employed.  The Appellants also make a claim for legitimate expectation if they are found to be self-employed.  Mr Sidwick also claims that HMRC were not entitled to make a discovery assessment.  We should also mention that another 12 appeals on the same issue are stayed behind this one.
3.	There was an agreed statement of facts not in dispute as follows:
Background
(1)	Prior to these appeals being notified to the Tribunal, the Appellants’ accountant was Jones Harris. Jones Harris has a number of seafaring clients on its books and in 1998 the employment status of one of them was considered by HMRC, namely Mr D. McLaine, who was engaged as a Cabaret Singer on board cruise liners.  
(2)	The inspector dealing with the case consulted HMRC’s Schedule E Technical Specialists and HMRC's Marine Office in Cardiff. He informed Jones that Cardiff's view was "whilst anyone is engaged to work on board a cruise liner they are under the complete control of the Captain and Purser who have the final word on all matters" and "they accept such individuals should be regarded as employees for tax purposes". A copy of HMRC’s letter is in the joint documents bundle.
(3)	Going forward Jones Harris took this statement into account when advising its other seafaring clients (including Mr Mathews and Mr Sidwick) on their employment status whilst working on board cruise ships. The Appellants submitted their tax returns with claims for Seafarers Earnings Deduction (SED) on the basis that they were working under contracts of employment and they met the other relevant criteria for entitlement to SED.
(4)	As shown at paragraphs 17 and 19 below, between November 2007 and February 2009 HMRC enquired into the Appellants' tax returns.
(5)	Having enquired into the Appellants' tax returns, HMRC concluded they were not entitled to SED on the basis that they were self-employed. As shown at paragraphs 17 and 19 below closure notices were issued to the Appellants and subsequently appealed by Jones Harris who was the Appellants’ representative at the time.
Point at Issue
(6)	Whether Pete Matthews and Keith Sidwick were employed under contracts of service or self-employed working under contracts for services, whilst working on board various cruise ships during the periods under appeal.
Appellants' profession
(7)	Pete Matthews is a juggler who performed solely on board cruise ships during the periods under appeal.  
(8)	Keith Sidwick is a piano showman who works under the name of Tommy Bond.  
(a)	Prior to the periods under appeal Mr Sidwick carried out a small number of performances in the UK on a self-employed basis.  
(b)	Mr Sidwick also carried out a small number of self-employed engagements during the periods under appeal, however these engagements relate to studio work which involved writing music and producing shows for clients.
Cruise Lines
(9)	During the relevant periods the Appellants were engaged as entertainers on cruise ships for a number of cruise lines as follows:
(a)	Mr Matthews: Celebrity Cruises, Cunard, Holland and America Line, Norwegian Cruise Line, Princess Cruises and Royal Caribbean International.
(b)	Mr Sidwick: Celebrity Cruises, Crystal Cruises, Cunard, Holland and America Line, Princess Cruises and Royal Caribbean International.
(c)	These cruise lines are owned by four corporations, namely Carnival Corporation & Carnival PLC, NCL Corporation Ltd, Nippon Yusen Kaisha and Royal Caribbean Cruises Ltd:  Details of the ownership of the relevant cruise line brands is as follows:
(d)	Carnival Corporation & Carnival PLC operate Cunard, Holland and America Line and Princess Cruises.
(e)	NCL Corporation Ltd operates Norwegian Cruise Line.
(f)	Nippon Yusen Kaisha operates Crystal Cruises. 
International Cruises Ltd (Bahamas), which provides entertainment services on board the cruise vessels operated by Crystal Cruises, is probably part of the Nippon Yusen Kaisha group.
(g)	Royal Caribbean Cruises Ltd operates Celebrity Cruises and Royal Caribbean International.
Appellants' engagements
(10)	A summary of the number of engagements and a schedule of cruise line engagements is attached at Annexes 1 and 2 for Pete Matthews and Annexes 3 and 4 for Keith Sidwick.
(a)	The average length of each engagement is 4 days for Pete Matthews and 13 days for Keith Sidwick.
(b)	The average number of engagements per year is 38 for Pete Matthews and 16 for Keith Sidwick.
(11)	The Appellants were engaged by the various cruise lines (except for Norwegian Cruise Line) under standard written contracts which are in the joint contracts bundle.
(a)	Norwegian Cruise Line does not provide written contracts. It issues an entertainer information sheet to the booking agent with details of the length of the engagement and the fee for that engagement.
(12)	The Appellants' contracts are representative of each cruise line’s contract for all of the years under appeal.
Appellants' booking agent
(13)	Blackburn International (UK) Ltd (Blackburn) is a theatrical booking agency and both of the Appellants used Blackburn’s services during all of the periods under appeal.  
(a)	The Appellants do not have a written contract with Blackburn.
(b)	Blackburn has a number of highly skilled entertainment acts (including the Appellants) on its books and is able to provide cruise lines with individuals to fill entertainment positions on board their cruise ships.  
(c)	The cruise lines contact Blackburn when they have engagements to offer the Appellants. Blackburn will then provide the details of such engagements to the Appellants. 
(d)	If the Appellants carry out an engagement their fees are paid to Blackburn who pays the Appellants less 15% commission for its service.
Tax
(14)	No tax or National Insurance Contributions (NICs) were deducted from the cruise lines' payments to the Appellants.
(15)	The Appellants were not registered for VAT during the years under appeal.
(16)	HMRC has agreed that no tax or NICs is due on the Appellants' cruise line income if the appeals succeed.
Returns, assessments and appeals
Pete Matthews
(17)	Pete Matthews submitted his tax returns and HMRC made enquiries as shown in the table below.
Tax return	Date return submitted to HMRC	Date HMRC opened enquiry	Date HMRC issued closure notice	Date of appeal	
2005-06	22-Jan-07	29-Nov-07	28-Nov-08	12-Dec-08	
2006-07	29-Jan-08	08-Dec-08	11-Dec-08	13-Jan-09	
2007-08	11-Dec-08	21-Jan-09	11-Feb-09	17-Feb-09	
(18)	Pete Matthews completed his tax returns to show the following.
Tax return	Employer	Employment income	Seafarer's Earnings Deduction	UK work	Tax due	
2005-06	Cunard	£61,951	£61,951	N/A	Nil 	
2006-07	Cunard 	£67,874	£67,874	N/A	Nil	
2007-08	Cunard	£67,978	£67,978	£150	Nil	
Keith Sidwick
(19)	Keith Sidwick submitted his tax returns and HMRC made enquiries as shown in the table below.
Tax return	Date return submitted to HMRC	Date HMRC opened enquiry 	Date HMRC issued closure notice/discovery assessment	Date of appeal	
2002-03	20-Oct-03	N/A	17-Nov-08	21-Nov-08	
2003-04	22-Dec-04	N/A	17-Nov-08	21-Nov-08	
2004-05	3-Jan-06	N/A	17-Nov-08	21-Nov-08	
2005-06	9-Jan-07	21-Aug-07	14-Nov-08	21-Nov-08	
2006-07	25-Jan-08	12-Feb-08	17-Nov-08	21-Nov-08	
(20)	Keith Sidwick completed his tax returns to show the following.
Tax return	Employer	Employment income	Seafarer's Earnings Deduction	Self employment turnover	Tax due	
2002-03	Seafaring	£37,973	£37,973	£3,614	Nil	
2003-04	Seafaring	£39,339	£39,339	£3,261	Nil	
2004-05	Seafaring	£39,180	£39,180	£8,313	£132.05	
2005-06	Seafaring	£38,109	£38,109	£5,060	Nil	
2006-07	Seafaring	£36,102	£36,102	£7,404	Nil	

Mr Matthews
Tax Year	Data	Celebrity Cruises	Cunard	Holland America Line	Norwegian Cruise Line	Princess Cruises	Royal Caribbean International	Total for tax year	
2005-06	Number of engagements	 	6	 	 	9	25	40	
 	Average duration (days)	 	4			5	4	4	
2006-07	Number of engagements	1	3	 	10	17	6	37	
 	Average duration (days)	8	5		5	5	5	5	
2007-08	Number of engagements	2	1	4	1	8	20	36	
 	Average duration (days)	5	5	4	5	4	3	4	
Total Number of engagements	3	10	4	11	34	51	113	
Total Average duration (days)	6	5	4	5	5	4	4	
Average number of engagements per year	 	 	 	 	 	38	
							
Mr Sidwick							
Tax Year	Data	Celebrity Cruises	Crystal Cruises	Cunard	Holland America Line	Princess Cruises	Royal Caribbean International	Total for tax year	
2002-03	Number of engagements	 	 	2	8	1	2	13	
 	Average duration (days)	 		26	14	22	14	16	
2003-04	Number of engagements	2	1	6	4	 	4	17	
 	Average duration (days)	10	12	10	18		8	11	
2004-05	Number of engagements	5	 	3	5	 	 	13	
 	Average duration (days)	23		7	12			15	
2005-06	Number of engagements	 	 	3	11	 	6	20	
 	Average duration (days)	 		6	14		7	11	
2006-07	Number of engagements	4	 	1	9	 	2	16	
 	Average duration (days)	12		17	14		14	14	
Total Number of engagements	11	1	15	37	1	14	79	
Total Average duration (days)	17	12	11	14	22	9	13	
Average number of engagements per year	 	 	 	 	 	16	

4.	We had two bundles of documents and heard evidence from both Appellants.  We find the following additional facts.
(1)	Mr Sidwick’s professional name is Tommy Bond and on his website he describes his occupation as piano showman, recording artiste and composer.  He has recorded four albums (three on cassette and one on CD) and a fifth is due to be released soon.  Apart from performing on cruise ships his income comes from assisting young performers to perfect their performances and recording backing tracks and CDs in his own studio.  
(2)	Mr Matthews’ website describes him as an international comedy juggler.  His work was solely performances on cruise ships during the period under appeal but his and his agent’s website shows that before and after those years he also performed elsewhere.
(3)	We saw sample contracts entered into with each cruise line rather than actual contracts.  They included the following terms
(4)	Celebrity Cruises Inc.  
(a)	The Appellant is described as “guest entertainer”
(b)	The contract provides that “While on board any of the vessels, Artist shall be subject to, and be governed himself/herself if (sic) accordance with the rules and regulations of the vessel and its Captain.  Failure to comply with shipboard rules and regulations shall be grounds for immediate dismissal.”  We did not see a copy of any rules and regulations.
(c)	The contract is terminable if “Artist’s performance does not meet accepted standards as determined by CCI’s on board management (in CCT’s sole discretion)” and also “if Artist fails to comply with any of CCI’s shipboard rules or regulations.”
(d)	Both parties acknowledge that the Artist is an independent contractor.
(5)	International Cruise Services Limited
(a)	The Appellant’s services are to be provided “at all reasonable places and hours, and such other entertainment as may be requested by the Vessel’s Cruise Director; that Contractor will welcome and socialize with passengers…”
(b)	“…failure to perform the Services to the standards required by ICSL shall be deemed a breach of this Agreement and ICSL may terminate this Agreement at the sole discretion of ICSL without notice and without further obligation to Contractor.”
(c)	“Both parties acknowledge and agree that Contractor is an independent contractor and not an employee of ICSL…”
(6)	Cunard Line Limited
(a)	The contract is for “separate [ ] minute cabaret shows repeated on each day.”
(b)	“Nothing in this agreement shall be construed to create the relationship of principal and agent, employer and employee, joint venturers, partners or any similar relationship between the Parties.”
(c)	“The Artiste and Artiste’s Personnel will conform to all of the rules and regulations of the ship as required by the Master, Staff Captain, and Cruise Director for proper maintenance of discipline on board the Queen [].”
(d)	“Cunard shall identify where on board the Vessel, and at what times(s), the Services is to be performed, provided however that any changes to location or scheduling reasonably deemed necessary by the Cruise Director once a voyage has begun shall be made in the Cruise Director’s sole discretion.”
(e)	The Artist is required to act in a professional manner at all times and to conform to the Vessel’s dress code.  There is a prohibition on participating in Bingo, and casino gaming is permitted so long as no passenger is waiting to play.
(7)	Holland America Line Inc
(a)	“Artist will be advised of exact performance times/show length by Ship’s Cruise Director shortly after arrival on Ship.  Company has the sole right to determine performance schedule.”
(b)	“… not to include in his/her/its performance of any material, language or text that a reasonable person would find objectionable on grounds such as obscenity….”
(c)	“…not make any statements that a reasonable person would construe as being disparaging or damaging to the reputation of Holland America Line, Windstar Cruises, the Ship, any officer crewmember of employee of the Ship or any passenger on the Ship.”
(d)	There is a prohibition on gambling except in the Ship’s casino, and a requirement to dress and act in a professional manner at all times.
(e)	The Artist agrees to “obey all lawful commands of any officer of the Ship, all rules, regulations, policies, procedures and guidelines established from time to time by Company’s Entertainment Department and all regulations of the Ship’s registry.”
(f)	“In no event shall Contractor or Artist be considered or treated as employees of Company for tax purposes or for any other purpose with respect to the Services.”
(8)	Princess Cruise Lines Limited
(a)	The person acknowledges that he is not an employee or agent of Princess.
(b)	“The Contractor shall be a party to, and sign, the ship’s Crew agreement and shall comply with all applicable laws, regulations and orders, including those of the ship’s Captain in respect of, but not limited to, any matters concerning discipline and safety.”
(9)	Royal Caribbean Cruises Limited
(a)	“During the Engagement, Artist shall be required to perform the number of performances per week as may be scheduled by the Cruise Director of the applicable vessel.
(b)	“While of board any of the vessels, Artist and each member of Artist’s Company shall be subject to, and shall govern himself/herself in accordance with, the rules and regulations of the vessel and its Captain.”
(c)	The parties acknowledge that the Artist is an independent contractor and not an employee.
(10)	Norwegian Cruise Lines does not issue any contract to entertainers but issues an Entertainer Information Sheet
(11)	The Appellants are paid a daily, or overall, fee under all the contracts rather than a fee per performance.
(12)	The agreed statement of facts had attached to it an annex (not reproduced) listing each engagement.  In several cases a number of consecutive engagements (with breaks between each of them) were entered into with the same cruise line with different ships.  For an extreme example, Mr Matthews entered into 11 consecutive engagements with Royal Caribbean Cruises Limited between 20 June 2007 and 3 September 2007 alternating between two different ships except that the last two were on the same ship.  Mr Sidwick similarly entered into 8 consecutive engagements with Holland America Line Inc between 8 November 2005 and 19 April 2006 on 6 different ships.  Although there is no evidence we infer that some or all of these were probably entered into at the same time and may have been in a single contract.  The number of separate bookings may be fewer than the statistics in the annex reproduced above shows, although nevertheless each is a separate engagement in the sense that the Appellant concerned was free to decide whether to enter into each one separately.
(13)	We did not detect any difference between the two Appellants in relation to what they did on board ship and so the following is applicable to both of them.  While on board (and on their way to the ship if travelling with passengers) the cruise line expects the highest standards of behaviour by the Appellant concerned.  The Appellant will comply with the directions of the Cruise Director including certain matters of content of their act (in the sense of the Cruise Director not wanting a particular joke or piece included, or wanting a particular piece to be included, and not including jokes about faults on board the ship), timing (both in relation to rehearsal times and performance times in the sense of the Cruise Director wanting a shorter performance at certain times, an example given being so that passengers could see a volcano when the ship was passing it), taking part in additional activities such as a coffee chat, game show, the ship’s television, being included in a “walk down” (when staff come on stage), or hosting a table at dinner.  Whether they comply with the Cruise Director’s directions because that is required as a matter of interpretation of the contract, or because a good report from the Cruise Director is essential to their being engaged again is not something we can decide in the abstract as it will partly depend on rules and regulations which we have not seen and the type of directions.  There also seem to be unwritten rules that are not strictly contractual but with which the Appellants as experienced entertainers understand.  In practice the Cruise Director’s directions are of great importance and have to be complied with.
(14)	HMRC wrote to the cruise lines asking a number of questions one of which was whether the entertainer had freedom to determine the artistic content of the performance subject to any restrictions in the contract.  All said that they did.  Although the Appellant have not had the opportunity to cross-examine the writers of the replies we accept this subject to the point made in the previous paragraph.
(15)	The Appellants are treated more like crew than passengers but may, for example, dine in the restaurants with passengers (one example was given of one of the Appellants coming back to the ship after drinking too much and was made to dine in the crew mess as a punishment).  They travel to the ship on flights organised by the cruise line, which may not be the most direct route.  They sign the crew articles.  They wear name badges some of which say “employee ID.”  They are given some crew training such as water tight door training if, as is common, the cabin is in the crew quarters.  Food and accommodation is provided free but they are expected to pay gratuities at the recommended arte, and they do not share in the gratuities.  They are expected not to occupy a bar stool if a passenger is standing, and not to occupy places in the hot tub when passengers are waiting.  They are expected to assist passengers finding their way round the ship.  Compliance with the dress code is required, whereas this is merely encouraged for passengers.  One example was given of one of the Appellants being asked to tuck in his shirt while in the bar.  There are normally restrictions on gambling.  Compliance with the cruise line’s rules is strictly enforced.
Employment status
5.	We shall go through the factors which the courts have regarded as relevant to determination of employment status and summarise the facts relating to each of them.
(1)	Mutuality of obligation.  This obviously exists during the engagement but there is no contractual obligation binding the Appellants when they are not engaged by a particular cruise line.
(2)	Personal service and right of substitution.  The Appellants were obliged to perform personally and there was no right of substitution.
(3)	 Control.  There is no doubt that the contracts give a lot of control to the Cruise Director.  So far as the content of the performance is concerned we find that the Appellants have artistic freedom but within certain limits, such as timing, length and unacceptable content.  If the Cruise Director goes further than this in trying to dictate content we consider that this is an expression of his wishes, that it is in the Appellants’ interest to comply with if they want to be booked again, rather than a legally binding direction.  The Cruise Director has an overall view of different entertainments on offer and it is to be expected that he has a good view of what will appeal to passengers that will lead him to make suggestions to entertainers.  
(4)	In business on own account.  The Appellants are in business on their own account in that they seek separate engagements with cruise lines.  Mr Sidwick has other self-employment income.  Having accepted an engagement the fee for it was fixed and they cannot earn more by working more.
(5)	Business risk.  They have the risk of not being engaged at a particular time by any cruise line but once booked there is little or no risk.
(6)	Provision of equipment.  Mr Sidwick is not expected to provide his own piano for obvious reasons.  Mr Matthew provides his own props (and he gave an account of the problems of carrying knives used in his performance through airport security).
(7)	Length and number of engagements, and exclusivity.  The Appellants earn their living when performing on cruise ships by entering into numerous separate engagements: an average of 16 engagements pa of 13 days each with six cruise lines for Mr Sidwick; and an average of 38 engagements pa of 4 days each with six cruise lines for Mr Matthews. 
(8)	Payment terms.  They are paid a daily rate.  We are not clear whether they invoice this to the cruise line but the impression given by the contracts is that they are paid without an invoice following the end of the engagement.
(9)	 Provision of benefits.  They received free accommodation and meals on board ship, in the same way as the crew.
(10)	Rights of termination.  These are short-term engagements for which this is not particularly relevant.  However, in four of the contracts the cruise line can terminate the contract; in the Cunard contract the Appellants can terminate it if they or their immediate family suffer a medical emergency; and in the Holland America contract eithr party can terminate between assignments.
(11)	Intention of the parties.  All of the contracts state that they do not create an employment.
(12)	  Part and parcel of the organisation.  From the passengers’ point of view the Appellants would seem no different from the ship’s permanent employees.  They wear employee badges.
6.	Essentially the contentions of the parties were that Mr Cobelli and Mr Boddington concentrate on the terms of the contracts with cruise lines from which they contend that in particular the degree of control means that the Appellants are employed.  By contrast Mrs Hodge concentrates on the working pattern of the Appellants and contends that they enter into numerous separate engagements in the course of their self-employment, the terms of each separate engagement not being of particular significance.  For the reasons set out below we prefer Mrs Hodge’s contention and regard the Appellants in the same way as actors entering into separate engagements.
7.	Rowlatt J said in Davies v Braithwaite (1933) 18 TC 198, 204:
“…it seems to me that when you have taken "employments" out of Schedule D and put it into Schedule E alongside "offices", you are speaking of employments which are something like offices, and I thought of the expression "posts". When a person occupies a post resting on a contract, not roughly called something in the nature of a post, and if, then, that is an employment as opposed to a mere engagement in the course of carrying on a profession, I do not think that is a very difficult term of distinction, though in general, perhaps it is a little difficult to apply to all cases, as every distinction is. But I would go further than that, and what I say is that it seems to me that where one finds a method of earning a livelihood which does not contemplate the obtaining of a post and staying in it, but essentially contemplates a series of engagements and moving from one to the other-and in the case of an actor's or actress's life it certainly involves going from one to the other and not going on playing one part for the rest of his or her life, but in obtaining first one engagement and then another, and a whole series of them - then each of those engagements could not be considered an employment, but is a mere engagement in the course of exercising a profession, and every profession and every trade does involve the making of successive engagements and successive contracts and, in one sense of the word, employments. That is the line which I draw on that principle, rightly or wrongly.
8.	In contrast, in Fall v Hitchen (1972) 49 TC 433 Mr Hitchen held a post as ballet dancer as a member of the Sadler’s Wells corps de ballet under a contract for a 22 week period earning a regular income whether or not he was called on to perform.  The distinction between this and Davies v Braithwaite was explained at 433:
I do not think most people today would use the word "post", which does not seem very apt to cover the countless instances of employment in the sense of a contract of service; but every word of that judgment is applicable as between the carrying on of a profession and an engagement in the course of carrying on that profession, on the one hand, and a contract of employment, on the other hand. The fact that an actor normally undertakes a succession of engagements in the course of carrying on that profession in no way involves the result that, if an actor enters an acting employment in the nature of a post, then he is not assessable under Schedule E in respect of the income arising from that employment.
9.	Mrs Hodge also relied on the unpublished Special Commissioners’ decision relating to Mr Alec McCowan and Mr Timothy West including providing us with a copy of the Society of West End Theatres and British Actors’ Equity Association standard contract in issue in that case.  That decision relied on the distinction made in Davies v Braithwaite between a post (or series of posts) and various engagements.  That decision led to the change of Revenue practice set out in a Schedule E Memo of 31 August 1994 reference TS121/1994.  They were held to be self-employed on the basis that they entered into specific contracts to play a particular part during the run of a play.
10.	One of the problems is that a standard contract may be used for actors who fall into either category.  The context in which the contract is entered into has to be considered as well as the terms of a particular contract.
11.	The same distinction between holding a post and entering into a series of separate engagements is illustrated outside acting by Hall v Lorimer (1992) 66 TC 349, in which Mr Lorimer entered into between 120 and 150 separate engagements in a year ranging between 1 and 19 days with 20 or more production companies as a freelance vision mixer.  He was held to be self-employed.
12.	In giving weight to the various factors listed above control is the principal one relied on by the Appellants.  We consider that much of this is required by the context of a cruise ship.  The passengers have paid for their trip and the staff (whether employed or self-employed) are paid to serve the passengers.  It is to be expected that the staff will be closely controlled so as to achieve the cruise line’s objective because the staff are in the public eye at all times.  This factor seems to us to have less bearing on the employment status of the staff than might be the case if the context were different.  It is not the case that self-employed have complete freedom over what they do.  An actor can discuss points of interpretation with the director as an equal but in the end the director’s wishes will prevail.  We put forward the example of the Tribunal telling an undoubtedly self-employed barrister to move on to the next point.  This is not a contractual control but it would make no difference to the barrister’s status if he had contracted to abide by the Tribunal’s directions.
13.	The factor principally relied on by HMRC is the pattern of work and the distinction made in Davies v Braithwaite between a post (or series of posts) and engagements entered into as part of self-employment.  We consider that the Appellants are firmly on the Davies v Braithwaite and Hall v Lorimer side of the line and not the Fall v Hitchen side. They do not have a series of posts with the various cruise lines, lasting an average of only 13 days for Mr Sidwick, or 4 days for Mr Matthews, but earn their living by entering into a series of separate engagements with a number of different cruise lines in a similar way to actors but with far shorter engagements than normally for actors.
14.	In the context of engagements on board ship we consider it right to give more weight to the Davies v Braithwaite point than to control.  On that basis we find that each engagement is not an employment but that the Appellants in the course of their self-employment enter into a series of engagements with different cruise lines.
15.	Accordingly we decide that the Appellants are self-employed.
Legitimate expectation
16.	In relation to legitimate expectation we find the following further facts:
(1)	The Appellants’ accountant Jones Harris & Co received a letter of 5 March 1998 from and Inspector of Taxes at St Annes District in relation to another client which stated:
“As you are aware I have been considering the implications of your client’s activities as a Cabaret Singer on board Cruise Liners.  During the course of this investigation I have requested and received various contracts for services from the various cruise ships and have referred these to my colleagues at Schedule E Technical Specialists who agreed with my view that in general these contracts were “for service” and as such the income derived will be assessable under Schedule D.  As you realise the whole point at issue is obviously a status dispute and in view of this I took the matter further and consulted my colleagues at Cardiff 1.  In general they deal with a large proportion of Sea Farers and the general view of that office is that whilst anyone is engaged to work on board a cruise liner they are under the complete control of the Captain and Purser who have the final work on all matters.  Whilst an informal view and not in line with the Taxes Act they accept that such individuals should be regarded as employees for tax purposes.”
(2)	Mr Cobelli’s skeleton states (and we accept although there is no direct evidence of this) that Messrs Jones Harris relied on this letter when preparing tax returns for other clients, including the Appellants.
17.	The letter is remarkably frank in admitting that the Inspector is preferring the informal view of a colleague who deals with a lot of seafarers over that of the technical specialists who had seen the contracts.  On the assumption that this is a matter within this Tribunal’s jurisdiction (as to which, see the next paragraph), in favour of the letter creating a legitimate expectation that it would be followed in other cases is that the Inspector is following the view of the district that deals with most seafarers and so the practice is apparently being applied consistently by HMRC.  Against it is that the last sentence admits that it is based on an informal view and not in line with the Taxes Act, and we know that it is not the view of the Schedule E technical specialists and so is a concession.  We consider that there is no legitimate expectation that HMRC will continue to break the law in other cases.  At best it creates a legitimate expectation that they will not withdraw the ruling in that case without giving notice as in R v IRC ex p. Unilever [1996] STC 681.  If the Appellants wanted to rely on the letter this should have been stated specifically in the tax returns.  We do not therefore consider that the Appellants can rely on this letter to create a legitimate expectation that HMRC would follow it in their case.  
18.	The First-tier Tribunal’s jurisdiction in relation to legitimate expectation is currently a matter of some doubt.  Sales J in Oxfam v HMRC [2010] STC 686 said that the tribunal did have such jurisdiction.  Judge Hellier in CGI Group (Europe) Limited v HMRC [2010] SFTD 1001 followed this in a preliminary ruling although on the appeal ([2010] SFTD 1178) it was decided that the relevant Notice did not apply to the facts of that case.  The opposite point of view is that there is other High Court authority against such jurisdiction, that did not bind Sales J but does bind this tribunal.  It is fair to say that the decisions of the First-tier Tribunal on this issue have shown considerable differences.  The issue was not fully argued in this appeal and our decision on the application of the facts means that it is unnecessary for us to express a conclusion on the law.
Discovery assessment
19.	We are not sure whether the issue of whether HMRC could make a discovery assessment on Mr Sidwick is still in issue but we shall deal with it.  As the statement of facts discloses Mr Sidwick’s tax returns for the years in question (and we were told by Mrs Hodge without objection by Mr Cobelli, and therefore find as a fact) also the two previous years describe the employer as “seafaring.”
20.	Section 29 of the Taxes Management Act 1970 (as in force at the time of the discovery assessment made on 17 November 2008) provides:
“(1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment—
(a)     that any income which ought to have been assessed to income tax, or chargeable gains which ought to have been assessed to capital gains tax, have not been assessed, or
(b)     that an assessment to tax is or has become insufficient, or
(c)     that any relief which has been given is or has become excessive,
the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.
(2) …
(3) Where the taxpayer has made and delivered a return under section 8 or 8A of this Act in respect of the relevant year of assessment, he shall not be assessed under subsection (1) above—
(a)     in respect of the year of assessment mentioned in that subsection; and
(b)     ... in the same capacity as that in which he made and delivered the return,
unless one of the two conditions mentioned below is fulfilled.
(4) ….
(5) The second condition is that at the time when an officer of the Board—
(a)     ceased to be entitled to give notice of his intention to enquire into the taxpayer's return under section 8 or 8A of this Act in respect of the relevant year of assessment; or
(b)     informed the taxpayer that he had completed his enquiries into that return,
the officer could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware of the situation mentioned in subsection (1) above.
(6) For the purposes of subsection (5) above, information is made available to an officer of the Board if—
(a)     it is contained in the taxpayer's return under section 8 or 8A of this Act in respect of the relevant year of assessment (the return), or in any accounts, statements or documents accompanying the return;
(b)     it is contained in any claim made as regards the relevant year of assessment by the taxpayer acting in the same capacity as that in which he made the return, or in any accounts, statements or documents accompanying any such claim;
(c)     it is contained in any documents, accounts or particulars which, for the purposes of any enquiries into the return or any such claim by an officer of the Board, are produced or furnished by the taxpayer to the officer, whether in pursuance of a notice under section 19A of this Act or otherwise; or
(d)     it is information the existence of which, and the relevance of which as regards the situation mentioned in subsection (1) above—
(i)     could reasonably be expected to be inferred by an officer of the Board from information falling within paragraphs (a) to (c) above; or
(ii)     are notified in writing by the taxpayer to an officer of the Board.
(7) In subsection (6) above—
(a)     any reference to the taxpayer's return under section 8 or 8A of this Act in respect of the relevant year of assessment includes—
(i)     a reference to any return of his under that section for either of the two immediately preceding chargeable periods; and
(ii)     where the return is under section 8 and the taxpayer carries on a trade, profession or business in partnership, a reference to any partnership return with respect to the partnership for the relevant year of assessment or either of those periods; and
(b)     any reference in paragraphs (b) to (d) to the taxpayer includes a reference to a person acting on his behalf.
(8) An objection to the making of an assessment under this section on the ground that neither of the two conditions mentioned above is fulfilled shall not be made otherwise than on an appeal against the assessment.
(9) Any reference in this section to the relevant year of assessment is a reference to—
(a)     in the case of the situation mentioned in paragraph (a) or (b) of subsection (1) above, the year of assessment mentioned in that subsection; and
(b)     in the case of the situation mentioned in paragraph (c) of that subsection, the year of assessment in respect of which the claim was made.”
21.	The only information available to the officer was that Mr Sidwick was claiming to be a seafarer having employment income for which the seafarer’s earnings deduction was claimed.  This information was insufficient for the officer to know whether the employment status was in any doubt.  We do not consider that there is anything to prevent the officer from making a discovery assessment.
22.	Accordingly our decision is that:
(1)	The Appellants are self-employed with the consequence that the seafarers’ earnings deduction does not apply.
(2)	They cannot on the facts succeed on a claim to legitimate expectation even if the Tribunal has jurisdiction to consider it.
(3)	The discovery assessment on Mr Sidwick is valid.
We dismiss the appeals in principle even though the figures are we believe not in dispute in case the changed status entitles the Appellants to further allowable deductions.
23.	This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

JOHN F AVERY JONES

TRIBUNAL JUDGE
RELEASE DATE: 29 December 2010