Do you have something silly that particularly annoys you? Cyclists ignoring red traffic lights? The tendency of some writers to carelessly split infinitives? A particular politician (or all of them)?
HM Revenue & Customs (HMRC) are very annoyed by self-employment, where they think the workers concerned are really employees. They have been on this crusade for many years, and have amassed a considerable body of legislation, all of which has failed to have much effect on people who want to be self-employed and take the trouble to organise themselves properly.
Background
The earliest legislation is known by the Inland Revenue (yes, it’s that old) leaflet that announced it – IR35. This states that if a worker is provided by an intermediary (typically a company that only exists to provide his services) and he works for a third party in such a way that if the contract was directly between him and the person he works for he would be an employee, then (broadly speaking) tax will be charged as if he were an employee.
The favourite get-out was a ‘substitution clause’ in the contract, stating that the service company could send a suitably qualified substitute instead of the worker concerned. Provided this was a genuine term of the contract (even if it had never in fact occurred), IR35 did not apply.
New legislation relating to ‘agency workers’ and ‘intermediaries’ supplying workers has removed the ‘substitution clause’ escape route for work after April 2014, by making the test simply whether or not the worker actually provides the services personally – the ability to send a substitute does not alter the position.
Supervision, direction or control
There remains one crucial test – is the worker subject to ‘supervision, direction, or control’ at work by any person, or does any person have the right to supervise, direct, or control him? If not, the legislation does not apply.
A recent case involving security guards (Gabriel Oziegbe v HMRC [2014] UKFTT 608 (TC)) looked at what this means, and the case report very helpfully includes the full wording of the contract between Gabriel and his security men, which the tribunal found did not provide any right for anyone to ‘supervise, direct, or control’ them.
The contract recited that Gabriel had no obligation to provide work, and the guards had no obligation to accept work if offered. It was up to the guards how they did their work, provided they did it where and when they were asked, and adhered to ‘standards of quality’ laid down by Gabriel. They provided their own uniforms and other equipment, and would have any losses due to their negligence deducted from their pay. They had to be qualified to act as guards and it was their own responsibility to obtain these qualifications.
The tribunal was highly critical of the way HMRC conducted its enquiry, making no attempt to interview any of the guards or the clients, and only raising the ‘agency’ legislation after having had to admit that the guards were not employees of Gabriel’s. The tribunal clearly thought that was a misuse of the legislation, which they said was meant to apply where it was the client who ‘controlled’ the workers, not as a technicality to trap someone who was not an employer. Gabriel won his case and did not have to pay the huge sums demanded by HMRC.
Practical Tip:
If you are an ‘agent’ or an ‘intermediary’, the contract between Gabriel and his workers provides a model approved by the tribunal, but be careful – Gabriel won on the basis of all the facts, not just the wording of the contract.
