IR35 Case 11 - Testing Employment Status
Key lessons from this case
- This case suggests there is not an automatic presumption of a legal and contractual relationship in a commercial context in which a contractor is working for a client via a third party
- The presumption that a commercial agreement will result in the parties creating legal relations and making a contract needs to be considered in the light of what is being said and done by all relevant parties at the time
- The Judge considered that the contractor, agency and client did not intend for there to be a contract of service, so decided there was no contract of service.
Summary of the case
Background
Originally Mr T K Welsh provided electrical/instrumentation contracting services to British Nuclear Fuels Ltd (BNFL) via employment agency Morson International Ltd, paying tax and National Insurance (NI) at source. When made aware of the tax advantages he then worked for Morson via his own personal services company.
This case was an appeal by BNFL against an employment tribunal′s decision in September 2001 that Mr Welsh was employed by BNFL, who took them to an Employment Tribunal alleging unfair dismissal when his contract was cancelled.
Why did the Inland Revenue act?
This particular case did not involve the IR. Originally Mr Welsh, when employed by Morson, paid tax and NI at source. BNFL acted against Mr Welsh appealing the decision that he was a direct employee of BNFL.
Why did the contractors appeal?
In the original tribunal Mr Welsh was claiming unfair dismissal and other employment law violations against BNFL. The original tribunal found in favour of Mr Welsh, suggesting that given the nature of the relationship he would automatically have worked towards a contract with BNFL. It was BNFL who appealed against Mr Welsh being an employee and having any rights under employment legislation.
Who won and why?
BNFL won the appeal. The Judge considered the original tribunal to have been totally wrong in assuming that, just because the nature of the arrangement was commercial, ie Mr Welsh was working for BNFL, there was a presumption that the arrangement would become legal with a contract. The Judge′s decision was based on the following:
- The agency, Morson, paid Mr Welsh and deducted tax and NI from source, not BNFL
- There was no contractual relationship between BNFL and Mr Welsh to start with
- There was a contract between Mr Welsh and Morson and there was no contract between Mr Welsh and BNFL
- The original tribunal found that BNFL, Morson and, in fact, Mr Welsh did not intend for there to be a contractual relationship with Mr Welsh
- Without any evidence, the original tribunal was wrong to presume Mr Welsh and BNFL intended to create a contract simply because this was in a commercial context; the Judge′s view was that any case should study what was said and done at the time.
Mr Welsh did not resign from a contract of service with BNFL, because he was never actually employed to start with.
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