Coming only weeks after the Christa Ackroyd IR35 case, the First-tier Tribunal (FTT) has in MDCM again had to consider the issue of whether an individual providing services through an intermediary company should be taxed as if he were an employee of the ultimate contracting company under the IR35 legislation.
While the FTT had little difficulty deciding on the facts that the individual was providing his services in the manner of a self-employed contractor so that IR35 did not apply, the approach taken and conclusions in respect of the control exercised by the ultimate contracting company were nonetheless interesting.
Control
Mr Daniels provides construction supervision and management services to construction companies through his company, MDCM. The FTT looked at two projects for a construction company, STL, for which MDCM had been engaged to provide Mr Daniels' services.
Mr Daniels worked fixed shift times to supervise the overnight construction operations and, at the start of each shift, he would be given instructions as to what work should be carried out that night although he had no line manager as such and was only subject to fairly perfunctory supervision once a week. It was clear that STL would not have accepted a substitute for Mr Daniels and there was no one else at MDCM who could have acted as a substitute in any case.
After the Christa Ackroyd case, there was concern that the lack of control by end-users over skilled workers and the importance of the individuals providing their services personally would make it difficult to show that anyone could be a contractor. Here, however, while the FTT accepted that STL told Mr Daniels what to do during his shifts, the judge considered that the instructions Mr Daniels received were more in the nature of updates on the current state of the construction process which would then dictate what was done. The FTT held that this was not control, but simply information necessary for him to provide his services.
Length of contract and integration into the business
It was clear that Christa Ackroyd had provided her services to the BBC on a virtually full time basis, and did so for a number of years without a break. Although MDCM's contract with STL was open-ended, in reality the projects lasted a matter of months rather than years, unlike what would normally be expected from a contract of employment.
In addition, the fact that HMRC had not challenged other contracts that MDCM had entered into indicates that MDCM was actively operating in the industry independently of the engagement with STL. This was not addressed expressly in the judgment, but is a key difference from Christa Ackroyd's position.
Finally, while seemingly a small detail, Mr Daniels was not invited to STL meetings which, along with the above points, showed a lack of integration with the end client which was consistent with the position of a contractor.
Other factors
The FTT set out its decision under headings of all the factors which it considered to play a part in determining Mr Daniels' employment status. Without getting bogged down in the minutiae of his working arrangements, as the list of factors was long, other key influences of its decision were:
- That MDCM was paid on a per day basis and not via any flat monthly fee comparable to a salary.
- Mr Daniels was asked, not told, if he could work on a project at another site.
- He was not entitled to employee benefits such as sick pay, holiday pay or a notice period.
Comment
The ability to exercise ultimate control over what work is done, how, when and where – regardless of whether such control is exercised in practice – is likely to continue to be a focus of upcoming IR35 cases.
However, particularly in cases where the worker in question is highly skilled and experienced and therefore needs little instruction or supervision, the level of integration into the end user business will also be critical. The length of the contract, while not strictly relevant in itself, will evidence this to some extent, as will matters such as involvement in meetings and other administrative and managerial matters.
Individuals and public sector bodies employing contractors should assess arrangements to ensure the tax is being dealt with on the correct basis, and private sector entities would also be advised to be aware of the issues involved in case the public sector intermediaries' rules are extended to the private sector, as seems likely following publication of the government consultation Off-payroll working in the private sector last week.
