IR35 Case 8 - Long-term single client contracts
Key lessons from this case
- The tests for being an employee are clear: if you are offering your own personal skill set, have a manager at the client who tells you what to do and other factors support you being treated just like an employee, then the IR will probably treat you as employed and tax you accordingly
- Having no direct contractual relationship with the client and working through a personal services company and an agency do not shield a contractor from IR35 and the resulting tax and National Insurance liabilities.
Summary of the case
Background
William Hood provided specialist CAD services, producing design drawings for clients in the oil extraction sector through his personal services company Usetech Ltd, owned jointly with his wife. He was recruited by agency NES as a Pro-engineer (specialist design software) expert for ABB Vecto Grey (ABB). Although the original engagement was to be for just a few weeks, the assignment lasted 17 months.
Why did the Inland Revenue act?
Mr Hood and Usetech were investigated by an inspector from the IR. The inspector concluded that the period of time spent with ABB satisfied IR35 criteria, and that the income generated for Usetech from the contract should be classed as Mr Hood′s personal income. As personal income, there were tax and National Insurance implications.
Why did the contractors appeal?
Mr Hood appealed as he did not consider that the hypothetical relationship created by the IR, for the purposes of IR35 tests between him and the client ABB, was a contract of service.
Who won and why?
The IR won the appeal. The Special Commissioner used precedent and case law to determine that Mr Hood would in fact have been employed by ABB had the relationship been direct and not through his company Usetech and the agency NES. The key criteria defined by case law to determine if someone has a contract of service (ie, is employed) are:
- The contractor agrees to be paid for doing his own work/using his own skills for his master
- The contractor agrees that when providing the service the client will have sufficient control to be termed the "master" in the relationship
- Other provisions of the contract are consistent with it being a contract of service.
The Special Commissioner in this appeal emphasised that identifying the distinction between a contract for services and a contract of service depends on the facts of the situation, and on the impression given by the actions of the parties to the situation.
In this context Mr Hood:
- Worked the expected normal office hours of ABB
- Worked on site using ABB′s systems & equipment
- Had a line manager who told him what his tasks were (but not specifically how to complete them)
- Was treated no differently from ABB employees
- Was wanted by ABB; they wanted specifically his skills, not a company supplying Pro-Engineer specialists.
Mr Hood also claimed he had a right of substitution and a want of mutuality, but these were rejected. If they had been proved in full, they would have been incompatible with a contract of service.
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