Write v HMRC (2009) - Brookson Ltd

Write v HMRC (2009)

Following on from the recent case of Larkstar another case, Wright v HMRC, has hit the headlines as a result of HMRC seeking a review of the original decision by the General Commissioners.

In the same way that the General Commissioners found in favour of the tax payer in Larkstar, holding that IR35 did not apply to the assignment being considered, the General Commissioners also found in favour of the tax payer in Wright v HMRC. This was clearly a good decision for Mr Wright, however, HMRC decided to appeal to the High Court again, this time for clarification on the issue of control.

The High Court was asked to consider whether, where an individual is under the control of someone other than the client, HMRC can still decide that the individual is being treated as a disguised employee of the client? Recent cases have suggested that the answer to this question is “no”; this was confirmed by the High Court who sent the case back to the General Commissioners to decide whether this principle applied to the facts of Mr Wright’s case.

When reviewing the General Commissioners’ initial decision, it seemed a forgone conclusion that the tax payer was correct to challenge HMRC’s decision that he should account for additional tax and National Insurance Contributions. This was further supported by the High Court’s decision. However, things took a surprising turn when the High Court asked the General Commissioners to reconsider the case.

For some reason, the General Commissioners asked the Special Commissioners to hear the case instead of them. Without knowing the reason for this turn of events, Mr Wright chose not to attend the Special Commissioner’s hearing. This is a decision he may now regret as the Special Commissioner overturned the General Commissioners' original decision.

What was said about the issue of control?

The Special Commissioner considered the following issues as being indicative of an individual being subject to “control” for the purposes of determining employment status:

The following items pointed towards control:

The following items suggested that there was no control:

Holidays had to be authorised in advance. Failure to have any time off authorised would result in dismissal.

The client was not always present on site and so gave a third party the right to control the individuals in his absence.

The individual would be told each morning where he would be working and what he was required to do.

The individual was not paid whilst absent from work.

The individual could be moved to another site / project at the client’s discretion.

 

The individual could not refuse to undertake any work offered to him for any reason. The penalty for refusing work was dismissal.

 

The individual was not able to “come and go as he pleased”. He was required to work fixed hours and days as required by the client (including overtime).

 

The individual was largely unskilled and so required significant instruction from the Client as to what needed to be done.

 

 

Evidently there were far more factors suggesting that there was control in this case, which led the Special Commissioner to unequivocally decide that there was an employment relationship.

Was there anything which suggested the individual was in business of his own account?

In this regard, the Special Commissioner considered the following points:

  • The individual did not have to draw up accounts;
  • There was no ability to profit from sound management;
  • The individual was engaged on a casual basis without any regard to their specific skills or qualifications

Whilst this is not the exhaustive list of factors that can prove that someone is or is not in business of their own account, the Special Commissioner listed these as reasons for concluding that it was inconceivable that the individual was in business of his own account. This seemed to be a factor, in addition to control, which concreted the opinion that there was an employment relationship in this case.

Whilst this case centred on the issue of control, it has shown how important the “control” factor can be in deciding employment status in every case, especially where there is too much of it.

Why didn’t the High Court just decide the case instead of referring it back to the General Commissioners?

There are two reasons for this. Firstly, HMRC did not ask the High Court to make this decision when they appealed. Secondly, because HMRC did not ask the High Court to make this decision, HMRC did not supply the High Court with enough information for them to make this decision. HMRC only provided them with the original General Commissioner’s decision and their reasons as to why they believed it was wrong.

In order for this matter to be heard fairly, a new General Commissioner would have to hear the entire case. However, as the General Commissioners were soon to be abolished and this was a complex employment status case, the General Commissioner probably thought the Special Commissioners were better placed to review the case.

What should I learn from this IR35 case?

Firstly, this case demonstrates the importance of attending every hearing, even if you think the case is unreasonable or has already been decided.

Mr Wright attended the General Commissioner’s hearing and the High Court hearing, both of which seemed to sway in his favour. However, Mr Wright did not attend the Special Commissioner’s hearing. This meant that he could not put his side of the case forward. When the witnesses said anything which went against him, he could not cross-examine them and defend himself, whereas HMRC could, did and won as a result.

Secondly, don’t be complacent about control. Make sure that you are in control of your work and the services you provide.

Having the ability to come and go as you choose, picking your own working hours and establishing the scope of your services at the outset of the contract all demonstrate that you are not subject to your client’s control.

Conversely, letting your client move you around from project to project or site to site at its discretion, or allowing them to dictate your hours of work (including overtime) will suggest that you are subject to sufficient control to affect your IR35 status. This case also highlights the importance of getting professional advice on your IR35 status for each assignment you undertake.

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