[2011] UKFTT 379 (TC)

TC01234

 

 

 

Appeal number TC/2010/05385

 

National Insurance Contributions – categorisation of earners – construction industry – whether bricklayer on CIS4 self-employed or employed earner – found to be self employed

 

 

FIRST-TIER TRIBUNAL

 

TAX

 

 

PAUL ANTHONY BELL Appellant

 

 

- and -

 

 

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

 

 

TRIBUNAL: JOHN N. DENT (JUDGE)

ELIZABETH POLLARD (MEMBER)

 

Sitting in public at North Shields on 24^th March 2011

 

The Appellant in person

 

Mrs Oliver for the Respondents

 

 

© CROWN COPYRIGHT 2011

DECISION

 

1.     This appeal is about a decision by HMRC under Section 8 of the Social Security Contributions (Transfer of Functions etc) Act 1999 relating to a single day, 13 June 2005 and a Notice issued on on 24 September 2009 by HMRC that the appellant was not to be included as an employed earner in his association with Marshall Errock Construction Ltd on that day, resulting in the company not being regarded as a secondary contributor in relation to any payments made to him on that day

The Facts

2.     There was no dispute on the facts.

3.     The appellant submitted Tax Returns showing he was self employed. His Self Assessment Tax Return for the year to 5 April 2006, which he submitted to HMRC on 31 January 2007 shows only one source of income, namely profits as a self employed landscape gardener. The appellant was also in receipt of income following his engagement as a bricklayer by Marshall Errock Construction Limited (MECL) working at a construction site at Wellington Place in Leeds. The main Contractor for the site was Quarmby Construction Company Limited (QCCL). It is the nature of this employment/self employment which is in dispute.

4.     On 13 June 2005 the appellant had an accident at work. He made a civil claim against QCCL and Crossways Scaffolding (Elland) Ltd. The claim was settled in his favour in 2008.

5.     On 23 October 2007 the appellant made a claim to DWP for Industrial Injuries Disablement Benefit, claiming that his employers were MECL and QCCL. He put on the claim form that he was employed by MECL, a bricklaying subcontractor to QCCL.

6.     MECL advised that they had no record of the accident. DWP subsequently decided that disablement was not payable. The appellant appealed that decision and DWP asked HMRC for a decision on the appellant’s employment status.

7.     On 10 April 2008 the appellant met with Martin Walker of HMRC to discuss his engagement with MECL. The notes of that meeting,, which are signed by the appellant as being agreed, set out that the appellant was engaged as a CIS subcontractor by MECL. In order to get work with MECL he needed to hold a “CIS4” as contractors were not willing to put workers on their books. If he wanted to work, he had to comply. He had said that he was working on a CIS4 basis but always considered that he was an employee.. He was engaged from March/April 2005 – 16 June 2005 when he was sacked following the accident

8.     The appellant had signed a contract, but at the time of the interview he was unable to locate a copy. The Tribunal were provided with an unsigned copy which will be referred to later.

9.     At the interview the appellant had confirmed that he had signed the contract otherwise he would not have been taken on.. The appellant was putting right other bricklayers’ mistakes most of the time. He was told each day by the Site Manager what work he wanted him to do, and would be left to do the work, with the Site Manager checking things from time to time. The Site Manager would move him from job to job.

10.  He had set hours of work, 8.00 am to 16.30 pm 5 days a week, with occasional Saturday mornings. The Site Manager could ask him to redo something but had never done so. The Surveyor also checked the work on a weekly basis..

11.  The appellant was required to do the work personally as he had the CIS card. If ill or on holiday he would not get paid. He said he did not have any obligation or right to send in a stand in.

12.  He provided his own small tools of the trade, but power tools were provided on site because of Health and Safety rules. He was not charged for using them.. There were no restrictions placed upon him to stop him working on other contracts.

13.  MECL could dismiss him instantly for any reason. He said he was entitled to holiday pay, but was not paid any.

14.  He went to the site in his own car. He did not hold any Public Liability or Public Indemnity Insurance.

15.  The matter was previously erroneously brought before the First Tier Tribunal (Social Entitlement Chamber) as no formal decision had been made under Section 8 of the Social Security Contributions (Transfer of Functions etc) Act 1999. That decision was ignored by the Tribunal.

16.  The contract provided, which was said by MCL to be a blank copy of the contract which would have been signed by the appellant, is clear in its terms that it is a contract for services, that the subcontractor would use his own experience as to how works were to be completed, would have flexibility as to the site hours, that he could send a substitute or hire assistance at his own expense, and that the contract for services was for labour only. The rates included holiday pay, and the subcontractor agreed he was not entitled to any employment rights which might be available to a direct employee. The subcontractor acknowledged that he would at all times represent himself as an independent subcontractor and that he was in business for himself. Both parties acknowledged that their contractual relationship was governed by the Contract for Services as a legally binding agreement. The Tribunal found that on balance of probabilities the contract provided had been signed by the appellant.

17.  The appellant gave evidence to the Tribunal which confirmed that he had his accountant prepare annual accounts for him, claiming back expenses for petrol, hand tools and hotel expenses. He confirmed that QCCL had control over who worked on site. He was aware before commencement of work that he would be self employed. He had asked if he could work on PAYE, but he was told it was CIS or nothing. He could not remember signing a contract, but might have done. He was to be paid on piece work, an amount per 1000 bricks, with a fall back rate of £15 per hour. QCCL could have said they were not satisfied with his work and got him sacked.

HMRC Submissions

18.  The Respondents contend that although there is evidence of some control by the site manager, that person was with QCCL, the site contractor, and that there is not evidence of sufficient control by MECL to conclude that the appellant was an employee of that company.

19.  They contend that the submission by the appellant that MECL controlled his working day and that the site manager was employed by MECL does not accord with the information given earlier to HMRC, or with what is known to be common industry practice on construction sites where there is a main contractor who engages other contractors and subcontractors to carry out the various types of work to be done. They point out that it was noticeable that MECL were unaware of the accident and that when it came to civil action MECL was not thought to carry any responsibility.

The Appellant’s submissions

20.  The appellant made a written submission through his solicitors Hadaway & Hadaway. The submission is at pages C25-C27 of the papers.

21.  They asked that the following case law and tests should be considered in deciding whether the appellant was an employee or a self employed person on 13 June 2005:

(a) Section 230(1) of the Employment Rights Act 1996 states an employee means “an individual who has entered into and works under a contract of employment”. Section 230(2) of the ERA 1996 states a contract of employment means a contract of service whether express or implied and whether oral or in writing.

(b) The economic reality test as set out in Ready Mixed Concrete Limited v Minister of Pensions and National Insurance 1968, Carmichael v National Power Plc 1999.

(c) The control tests set out in Yewens v Noakes 1880.

(d) The business test formulated in the case of Market Investigation v The Minister of Social Security 1969

(e) HMRC’s leaflet IR56.

21. They referred to the working day being controlled by MECL and the requirement to sign in and out of MECL’s office, to the control of what work was done, and to the fact that the only tools supplied by the appellant were his tradesman’s hand tools. His working day was also controlled. They referred to the payment being made weekly with payslips at an hourly rate less tax deducted in accordance with the CIS4 card, and to the appellant being unable to employ his own people or bring others on site to do the work that he was required to undertake.

22.  He would receive regular monthly training in relation to health and safety issues from MECL. He paid Class 4 National Insurance contributions annually and Class 2 contributions weekly. He employed an accountant to deal with his taxes at the end of the year.

23.  It was submitted that he had no financial risk or access to any profits, did not invoice MECL, and could not delegate work. The site foreman would deal with incorrect work, disagreements and other issues. not make a written submission, and the appellant’s submissions are taken from oral information given to the Tribunal.

The Law

24.  Section 8(1)(b) of the Social Security Contributions (Transfer of Functions etc) Act 1999 permits an officer of the Board to decide whether ...a person is or was employed in employed earner’s employment for the purposes of Part V of the Social Security Contribution and Benefits Act 1992 (industrial injuries)

Case Law

25. The Tribunal was referred to the case of Ready Mixed Concrete v Minister of Pensions and National Insurance [1968] 2 QB 497 where Mackenna J considered what was meant by a contract of service. This required three conditions to be fulfilled, namely

(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

26. Mackenna J went on to say that to find where the right under (ii) resides it is necessary to look first to the express terms of the contract, and if they deal fully with the matter one may look no further.

27. HMRC also referred the Tribunal to Commissioners for HM Revenue and Customs v Philip John Wright [2007] EWCH 526(Ch). The issue is whether the the “employer” has sufficient day to day control over his workers to make them his employees. The facts in that case were similar to those in this case, except that the employer provided transport to the site, and no training was given.

28. The Tribunal were referred by the Appellant’s solicitors to Carmichael & Another v National Power plc [1999] 1 WLR 2042.  In the view of the Tribunal this case did not take the issue much further as it determined that the important point was that, where the parties do not intend the written documentation to be a comprehensive record of the legal relationship, you will have to consider the surrounding circumstances and the conduct of the parties. In this case, there was, in the finding of the Tribunal, a contract which governed the relationship between the parties.

29. Yewens v Noakes (1880) 6 QBD 530, addressed the question of the division between master and servant. In the view of the Tribunal these issues were fully argued in Ready Mixed Concrete v Minister of Pensions and National Insurance.

30. In Market Investigations Ltd v Minister of Social Security [1969] 2QB173 it was said:

 The fundamental test to be applied is this: “Is the person who has engaged himself to perform these services performing them as a person in business on his own account?” If the answer to that question is 'yes' then the contract is a contract for services. If the answer is 'no' then the contract is a contract of service. No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of the considerations which are relevant in determining' [whether there is a contract of employment] 'nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases. The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors which may be of importance are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk he takes, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task.

 The Tribunal took this into account in its findings.

Findings

31. The Tribunal found that in this case there was a contract for services between MECL and the appellant which governed the relationship between the parties. The contract was similar to many in the construction industry where workers move from employer to employer on short term contracts, and where the worker considers himself to be self employed.

32. The appellant took the contract on the basis that it was self employment, as that was all that was on offer. He was able to terminate the agreement without notice.

33. In reality it is necessary for the main contractor to have overall control of the work being done, as he must build to the specification required in his own contract. However, provided the work is done to the standard required and in the position required, he exercises no other control over the manner in which it is done. The Tribunal found that the mere fact that workers were told what to do by a site foreman does not amount to control by MECL.

34. The fact that the times of work were specified by MECL does not, in the finding or the Tribunal amount to control.  For health and safety reasons, it is sensible to have set site times and in the finding of the Tribunal, this does not demonstrate the sort of control necessary to demonstrate that the appellant was an employee rather than performing a contract for services.

35. The condition relating to control, needs to be sub-divided as indicated by McKenna J. The first element is the power of deciding the thing to be done. As it remains within the choice of MECL to decide whether to offer the opportunity of work on a particular occasion and within the choice of MECL to decide whether to offer work to the contractor for the particular occasion, this choice is whether to enter into a contract at all, rather than to decide what is to be done under the terms of any such contract. If the contract is entered into, the agreed work is provided. It is open to MECL to request the contractor to move to a different part of the site. It was open to the appellant, if he wished, to refuse to accept the change, and to look for work elsewhere. Thus MECL is not in a position to dictate to the contractor what work needs to be done.

36. The next element of the control condition is the power of deciding the way in which the work is to be done. It is clear from the evidence that the nature of work to be done is dictated by the main contractor, QCCL. QCCL can decide the precise order in which the work is done, although clearly the broad overall pattern needs to be followed. MECL supervises the quality of the work, but the contractor uses his acquired skill in ensuring that quality is maintained.  The Tribunal did not view this as  amounting to control of the way in which the contractors carry out their task. We did not consider that this is “control” in the sense referred to by McKenna J. As already mentioned, he was looking at “control in a sufficient degree to make that other master”. Rules of general application to everyone, in whatever capacity they were present on QCCL’s premises, cannot be seen as control of the nature being considered by McKenna J. In order to be taken into account in establishing the nature of the particular relationship, such control must be a specific feature of that relationship. These general rules are thus of no assistance in assessing whether MECL had control over the way in which the contractors did their work. On the question of control of the way in which the work was to be done, we found that MECL did not exercise control over this element of the contractors’ work.

37. The next part of the control condition is power of deciding the means to be employed in carrying out the work. QCCL provided the power tools and the materials for the work. The appellant provided his own small tools of the trade. As the construction was being carried out in accordance with a specification, there was no scope for MECL or the contractor to make any decisions in relation to it. Thus this element of the control condition is not met.

38. The remaining elements of the control condition are the power of deciding the time when and the place where the work is to be done. In relation to place, there was no choice as to where the work was done, as this could only be on the site being developed. MECL and QCCL could decide on priority within the site, but this was a matter of practicality in ensuring that the construction proceeded in the most efficient manner. However, the restrictions did not arise from the terms of the relationship between MECL and the appellant; indeed, they applied equally to all the contractors. We found that MECL was not able to control the decision as to place.

39. The Tribunal took into account the case of HMRC v Philip John Wright (2007) EWCH 526 where the Judge commented that he did not regard the fact that workers were told what to do by, for example, a site foreman, amounted to control by the engager.

40. In relation to the parties’ declared intention that the relationship should be one of self-employment, the appellant was effectively arguing that such a declaration ought to be disregarded if the remainder of the contractual terms governing the realities of the relationship showed the relationship of employer and employee. In Massey v Crown Life Assurance Co [1978] 2 All ER 576 the Court of Appeal indicated that in cases of doubt it was open to the parties to stipulate what the legal situation between them should be. Thus the way in which they drew up their agreement and expressed it might be a very important factor in defining what was the true relation between them.

41. On our view of the contractual terms, if the position is open to a degree of doubt, the parties’ declared intention are a relevant factor, as mentioned by Lord Denning MR in Massey. Taken together with all the other terms and circumstances, it supports the overall conclusion which we have already reached, that the appellant was self-employed and not engaged under a contract of service.

42. The Tribunal took into account HMRC’s leaflet IR56. This is merely commentary on the law, and the Tribunal took into account the cases which set out in details what the law is

43. In view of these findings, the Tribunal determined that the appellant was not an employed earner with MECL on 13 June 2005, and the appeal is dismissed.

44. The Tribunal made no order as to Costs

45. 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.

 

 

 

 

TRIBUNAL JUDGE

RELEASE DATE: 9 June 2011