IR35: Integration Explained

Independent contractor or just part of the furniture?

In the 1968 film musical, ‘Oliver Twist’, the Artful Dodger made it quite clear to Oliver that upon joining Fagin’s gang he had become a cog in the gang’s wheel when he sang…

 “Consider yourself at home
  Consider yourself one of the family
  We’ve taken to you so strong ………
 
  Consider yourself well in
  Consider yourself part of the furniture”

When performing the services for an end client this is not how a contractor should perceive themselves nor, more importantly, how the end client perceives them.

The ‘part and parcel‘ or integration employment status test asks whether the worker is integral to the end client’s business or merely an accessory to it? A genuinely self-employed person should only be an accessory to their client’s business rather than be part and parcel of it and carrying on a business outside and separate from their clients’ organisation.

An employee will be integrated into the business of their employer where they are provided with their own desk, a designated computer terminal at which to work, their own stationery, access to normal employee facilities and have unrestricted access to the employer premises. Employees will also be allowed to join company pension schemes and receive invitations to staff functions such as Christmas parties.

When the case of Future Online Ltd v Foulds (HMRC) was being heard by the Special Commissioners (SpC406), Stephen Oliver QC, said, “Finally, I am satisfied that Mr Roberts, throughout the time he worked for EDS, was part and parcel of the organisation. In the particular circumstances of the present arrangements Mr Roberts was well integrated into EDS’s structure assembled to carry through the CSR project. He had a manager to whom he was accountable. Mr Roberts in turn worked as part of a team managing other people. He was involved in discussions as to work allocation with EDS’s project line manager. He was expected to be available to advise and assist other members of the team. He attended meetings with interested parties alongside other EDS managers. Although Mr Roberts’ role in the organisation will not necessarily be determinative, it is clear that in the present circumstances he was an integral part of the EDS organisation dedicated to the CSR project”.

In the first tier tax tribunal case of Slush Puppie Ltd v HMRC (2012), Mr Sandford was engaged by Slush Puppie Ltd (SPL) as a self-employed engineer until he changed his mind and decided he was an employee.

All SPL service suppliers were provided with a uniform which usually comprised of a shirt or T-shirt carrying the SPL logo. It was particularly important for engineers to wear their uniform when visiting customers such as schools where personal ID was important to the customer. For similar reasons, all service suppliers carried an SPL business card.

SPL provided Mr Sandford, as other service providers, with a mobile phone for work purposes and requested that this be kept switched on at all times so that contact could be made whenever necessary. By retaining ownership and control of the phone SPL sought to protect their customer base.

Mr Sandford did attend the service meetings organised by SPL, but was not strictly obliged to do so, and he did on occasion provide ad hoc training to other service providers or SPL staff.

Initially a car, and later a van, was provided by SPL. Neither carried SPL’s logo save when Mr Sandford travelled out of his area or when covering for an employee. Whilst the van was serviced by SPL, Mr Sandford paid for fuel and insurance and, on one occasion vehicle repairs

Mr Sandford’s business stationery showed SPL’s mobile phone number and an SPL e-mail address.

The tribunal concluded that attending service meetings or working in close co-operation with SPL did not demonstrate that Sandford was an integral part of SPL’s business in the way that employees were.

The outward appearances of Mr Sandford’s business made it appear to SPL customers as though they were dealing with SPL itself. The wearing of a uniform, being issued with SPL business cards, and displaying an SPL telephone number and e-mail address on his own business stationery, combined to reassure customers that Mr Sandord was ‘an SPL man and that SPL vouched for him’.  This was important to SPL so as to instil customer confidence but it was not decisive of Mr Sandford’s employment status.

It is important to make a distinction between being part of a team and being an integral part of an organisation. A musician, for example, may be part and parcel of an orchestra but it does not follow that they are an integral part of the organisation that runs the orchestra.

Lengthy engagements or where contracts are consistently renewed on an annual or bi-annual basis may suggest that the end client considers the freelancer to be an essential component of their business rather than simply assisting it.

Whilst the courts have dumbed down the significance of this test over the years to the point that it is seen as only a factor pointing towards employment, if deemed to be part and parcel of an end client organisation it could help HMRC to argue that mutual obligations exist and that the business on own account test is not relevant to the contractual arrangements. Better then for a contractor to keep at arm’s length although this does not preclude building up a rapport with end client staff. Just as long as those staff know and consider the freelancer not to be ‘just like them’ then this status test should not prove too difficult to navigate.