This is part seventeen of our serialisation of an IR35 enquiry. To access the previous parts please visit our IR35 Chronicles Index.
Mr Turpin was neither impressed nor persuaded by Dee Fender's arguments that her client's contract with BIG IT fell outside of the IR35 legislation. Again, Mrs Fender was not too surprised at Turpin's attitude but she had hoped he might have taken a more reasonable view regarding some of the employment status tests.
The IR35 expert e-mailed a copy of Turpin's response to her last letter to Neil Down, which read as follows:
“ I refer to your letter dated…………
Firstly, may I assure you that, as in all matters of employment status, I remain both impartial and neutral. I simply seek to obtain all necessary facts and information and, having done so, to stand back and take an objective view as to whether or not a contract of service (employment) or contract for services (self-employment) exists between the relevant parties. You, however, appear to be suggesting otherwise which I find surprising and a suggestion that I absolutely refute.
My previous correspondence set out my initial opinion for you and your client's consideration. I did not indicate that it was my final decision as demonstrated by allowing you the right of response and the opportunity to present your case.
I shall respond to the points made in your letter in the same order that you presented them for ease of reference.
You have repeated your request for me to reveal information that BIG IT has deemed confidential and can only be volunteered upon their express permission. Whilst therefore I cannot relent to your request I can advise you that the clause appertaining to substitution in the upper level contract between BIG IT and Opportunity Knocks is very similar to that which featured in the Dragonfly case. In that case there were a number of substitution clauses that were laid down in the upper level contract, with the final clause stating that, “A substitute consultant may not be deployed without having first satisfied DPP (agency) and the Client that the new consultant is trained and suitable to undertake the services.”
I conclude that, in the period under appeal, unless BSOD could have shown that it and Opportunity Knocks was contractually entitled to send a substitute in place of Mr Down, BIG IT would have accepted (and paid for) a substitute only if the substitute's presence and person had been expressly agreed by it, and that BIG IT would not have been bound to accept any substitute for Mr Down or even one who, when offered, was found to be acceptable. Furthermore, it is clear to me that BIG IT regarded itself as having engaged the services supplied by Mr Down. He had been interviewed at the outset of his contracts with BIG IT. His services were highly valued. He was specifically sought by BIG IT who did not want any competent tester, it wanted Mr Down.
What has to be done
My discussions with the end client confirmed that BIG IT had the right to move Mr Down from task-to-task should the need arise. They have also confirmed that they had the final decision in what needed to be done. Until such time that you can provide evidence to the contrary I must assume that this was, in fact, the case.
When the work is done
You have argued that your client had some flexibility over the hours worked and there were times when Mr Down started and left earlier. Although there may have been some discretion over working time, this was not material and no more than would have been extended to an employee. You state that it was Mr Down's choice to work the maximum number of hours but the impression I am left with is a worker working 8 hours per week for 5 days a week, ie like an employee.
How the work is done
BIG IT engaged Mr Down for his expertise and therefore any control or intervention by BIG IT would have been limited and this aspect of the control test can be of no use in this instance.
Mutuality of obligation (MOO)
The fact that contracts were periodically renewed/extended demonstrate an ongoing relationship between the parties. It is reasonable to conclude that there would have been an expectancy by the parties that this relationship would continue unless terminated by one of the parties.
BSOD were contracted and therefore obliged to carry out the work until such time that the agreement reached its natural conclusion or BIG IT terminated the contract.
Business on own account
Your client's overheads and investment in both training and assets were modest and not material enough to suggest that a genuine business was being operated. Indeed, if the man on the street were to be asked the question he would not see a typical business model.
Whilst it is true to say that your client was responsible for correcting defective work, the reality is that such risk was extremely limited because of Mr Down's expertise.
BSOD's invoices were remitted within the terms of payment and therefore there was no risk to the company's cashflow.
The contract could have been terminated by BIG IT in the event of gross misconduct or negligence, which is no different to that of any of their employee's. Furthermore, certain risks were limited by the presence of insurances, e.g. professional indemnity.
As the relationship between the parties developed, BIG IT valued Mr Down's expertise to such highly that they sought to retain his services to the extent that he became integral to their organisation.
Mr Down was provided with similar facilities to that of BIG IT staff and the longer he worked for BIG IT then the more likely it would be that he would be viewed as 'part of the furniture'.
You have again asked me to provide you with details of the contractual clause that prevents Mr Down from working for other providers but I would reiterate that I am unable to comply with this request due to confidentiality reasons. Even if your client did have the right to work for others the reality is that it would have been impractical for Mr Down to do so.
This is irrelevant as, because both parties considered there to be a self-employed relationship, there would have been no expectancy of either Mr Down or BIG IT that such employment rights would have been provided.
Intention of parties
This is, again, irrelevant as this test is only used in a tie breaker situation when the facts present a picture of borderline status. Presently, I consider that your client's contract is conclusively one of employment and therefore do not need to consider the intention of the parties.
If you are unable to provide any new evidence that may alter my decision within 30 days of this letter, it is my intention to raise the necessary determinations under Regulation 80 of the Income Tax (PAYE) Regulations 2003 and Section 8 of the Social Security Contributions (Transfer of Functions) Act 1999.”
Next week: A possible glimmer of light?