Tax tribunal finds contractor wasn't employee
Another slap for unpopular IR35 law
The Tax Tribunal has found that a contractor was not an employee in a case involving controversial tax avoidance law IR35.
Whether or not a worker is an employee of a company or not can only be decided by looking at a wide range of facts related to their working life. It said a designer in the aircraft industry was not an Airbus employee.
Mark Fitzpatrick founded MBF Design Services (MBF), a company through which he sold his services as a designer in the aircraft business.
He supplied his services through that company. The IR35 law which seeks to stop contractors using companies to disguise their employee status did not apply, the Tribunal found.
Her Majesty's Revenue and Customs (HMRC) found that Fitzpatrick's working relationship with Airbus was not as a contracting company but as an employee, for the purposes of national insurance contributions and income tax.
The Tribunal overturned that decision, though, ruling that many aspects of Fitzpatrick's working life pointed to his being a contractor rather than an employee.
The ruling said that many factors should be considered when deciding whether or not a worker owes tax and national insurance contributions, including whether or not a substitute worker could take the person's place; whether the worker was given or sought promotions; whether work was checked and overseen by the company; and whether the person worked at the company's premises or not.
The Tribunal said that Fitzpatrick was not an employee despite the fact that his situation in relation to many of these considerations could be seen as confirming his employee status.
Fitzpatrick worked at Airbus's site; his work was checked by Airbus employees and managers; he did not send substitutes in his place; and he worked in a way that was co-ordinated by Airbus.
But though in other cases these facts would suggest an employer-employee relationship, they did not in Fitzpatrick's case because of the peculiarities of the aircraft industry.
"In some respects, the evidence about this seems ambiguous: thus the negotiation of remuneration at various stages, the absence of any prospect of Mr Fitzpatrick actually sending a substitute, the degree of checking and approval of designs, the work allocation and coordination by the permanent team leaders, the broad similarity of working hours from one week to the next, the fact of almost all work being done on site, the close integration with Airbus’s own workers, all these could be interpreted either way," said the ruling.
"We are satisfied, however, that these factors should fairly be seen in the context of others which point to independence."
The ruling said that the integration of Fitzpatrick's work and the checking of it were necessary if the process of building an aircraft was to be done properly and safely; it said that it was not unusual for non-employees to work on site to use a company's systems, as Fitzpatrick did.
HMRC had argued that Fitzpatrick behaved on a week to week basis like an employee - he worked a 35 hour week under the direction of Airbus managers at its facilities and using its equipment.
The Tribunal said that such issues did not decide the case.
"There is the appearance of a set number of hours being allocated to Mr Fitzpatrick specifically, but it is apparent that this is in effect an accounting mechanism reflecting the different rates of hourly payment for each of the groups to which he was in turn allocated," it said.
"And although Airbus had specifically chosen the persons to make up each group, vetting their CVs, and thus could be said to have required their personal services, there remains an absence of the mutuality of obligation needed for a contract of employment to exist."
"The right... to cancel [the work] without notice is characteristic of a contract for services but quite foreign to the world of employment, as is the provision for agreeing compensation in such an event," it said.
"Each contracted worker was fundamentally insecure, having neither a specified role in the company nor a particular line of duty beyond what was for time being allocated by the permanent staff."
The ruling set out what should be examined when deciding on the nature of a worker's hypothetical contract. It said that a tribunal should look at the terms of the contract; the obligations due from one party to the other; the control exerted by one party over another; whether the worker was in business on their own account; the intention of the parties; and the overall view of the situation.
“This is a significant victory for the freelance community with particular emphasis on Mutuality of Obligation - a forgotten core principle of being in business," said Chris Bryce, chairman of the Professional Contractors' Group, which campaigns against IR35.
"It shows yet again that IR35 is wasting taxpayers' money in its application to freelancers. We are working closely with the Office of Tax Simplification to try and bring clarity for the freelance community."
Copyright © 2011, OUT-LAW.com
OUT-LAW.COM is part of international law firm Pinsent Masons.
Did you choke on your humble pie, sat on your soap box as you ranted away whilst reading the daily mail?
Given the recent financial crisis you should be glad contractors exist as most would have got the bullet first saving your unambitious arse from landing on the street. Why don't you go and explain to them where their redundancy payments went to seeing as you're so sure they're employees?
Where's a fuckwit icon when you need one?
""Each contracted worker was fundamentally insecure, having neither a specified role in the company nor a particular line of duty beyond what was for time being allocated by the permanent staff."
It's about time this piece of shit legislation was binned. With the above statement, so many people that hmrc deem to earn enough to go after are now pretty much in the clear as far as IR35 goes. The people that the legislation was originally targetted at don't earn enough as individuals to make it worth their while to chase.
How much money does HMRC lose by trying to enforce IR35 again? I thought it was supposed to make a profit and pay for itself.
"Or perhaps you can't..perhaps you're not good enough."
I doubt that is his problem, after all, we've all met really shite contractors who somehow manage to hang on for 3 months.
No, I think his problem is a complete lack of BOLLOCKS. Simply because there *is* no security, which is why we are *contractors* and NOT *employees*.