A recent First Tier Tax Tribunal case involved one of those rare occurrences of HMRC arguing strongly that a taxpayer should be treated as self-employed and not employed as the individual had claimed.
The Facts
Mr Coffey was, for many years, a partner in ‘Coffey Builders‘ until his retirement due to ill health.
Within the period spanning 6th April 2003 – 5th April 2006, Mr Coffey had been involved in the refurbishment of Dr Selvarajan’s clinic in Bolton, despite having retired in 2003 and instructing his accountant to de-register the business from VAT. During this time Mr Coffey claimed that he supervised the building works for which he received a weekly amount of £500 regardless of hours worked and apparently included holidays and other absences. No invoices were raised for this remuneration.
No estimate or quotation was prepared and no written contract drawn up. During the project however, Dr Selvarajan’s lenders had insisted on a Builders Contract being drawn up which Mr Coffery signed as the contractor. He also signed a document as Coffey Builders responsible for health and safety, in addition to various liability insurance documents.
Materials, tools, equipment and sub-contractors were all paid for by the doctor who had opened accounts at local builders’ merchants.
Whilst there was no disagreement that Mr Coffey did not possess a right of substitution, he claimed that he was not permitted to engage helpers. Dr Selvarajan however stated that all labourers who worked on the project were found by Mr Coffey and that he did not know the full names of the workers, their home addresses, rates of payment or qualifications.
It was alleged by Mr Coffey that although Dr Selvarajan was a GP, he knew a great deal about building work and was therefore able to take on the role as principal contractor, with Mr Coffey being hired as an expert in an advisory capacity.
In January 2006, HMRC opened an enquiry into the accounts and returns of Coffey Builders, covering the tax years 1998/99 – 2005/06 and ultimately raised assessments to recover additional amounts of tax for those years.
HMRC also raised an NIC’s assessment on Dr Selvarajan but these showed no contributions due, presumably to allow the doctor to appeal against the decisions and thus ensure he would be a witness in the dispute with Mr Coffey.
The Decision
The Tribunal found the evidence of Dr Selvarajan to be more credible that that of Mr Coffey.
Control
As a GP the Tribunal found that he simply did not have the relevant knowledge or experience to control such aspects of the project as finding labourers or fixing their rate of pay. They found that Mr Coffey did have such experience and that it was wholly unlikely that his role would be so limited. It was found as a fact that Dr Selvarajan had not directed Mr Coffey in his task nor was the builder subject to appraisal or monitoring by the doctor. It was therefore concluded as fact that Mr Coffey had far more control over the building project than he accepted.
Whilst the refurbishment project was in progress, Mr Coffey undertook separate building jobs which the Tribunal inferred as him being able to dictate his hours and days of work to allow him to do so.
Despite his ill health and intended retirement, Mr Coffey was still willing and able to undertake work as a builder which supported the Tribunal’s view that he was engaged by the doctor as much more than an advisor and that this was one of a number of “one-off” jobs undertaken after retirement.
The documents that Mr Coffey signed reinforced the Tribunal’s view that his role carried with it significant responsibilities and control. Mr Coffey had explained that he had simply signed the documents without checking them, prior to their completion and after the work had commenced. In the absence of any written agreement the Tribunal considered the documents provided an indication as to the intentions/standpoint of the parties. The titles under which Mr Coffey had signed his name, such as ‘principal contractor’ and ‘planning supervisor’ were pre-printed so there could have been little doubt as to what he was signing.
HMRC relied upon a handwritten note made on a diary page, which contained a list of names and amounts, as evidence that indicated Mr Coffey dictated and controlled the workers’ payments. The Tribunal was satisfied that this was further evidence that Mr Coffey, rather than Dr Selvarajan, had a significant degree of control over the project.
Intention of the Parties
Mr Coffey contended that from the outset it was intended that he would be employed to manage and advise on the project and that Dr Selvarajan would take responsibility for PAYE deductions. The Tribunal rejected this as there was no credible explanation as to why Mr Coffey would suddenly change his lifetime’s habit of trading.
Financial Risk
That Mr Coffey was paid a weekly fee of £500 did not cause the Tribunal to describe it as an employees wage/benefit. Indeed there were periods where the payment differed.
One of the documents that bore Mr Coffey’s signature indicated a potential liability to rectify defective work. The Public and Employers Liability Insurance in respect of Mr Coffey’s work as a builder covered part of the period of the project for himself and up to 8 workers. The Tribunal considered these documents indicated a significant degree of responsibility, financial risk and management of the project by Mr Coffey.
Integration
The notion that Mr Coffey should be viewed as part and parcel of the GP practice was found to be misconceived by the Tribunal. They could not see how Mr Coffey could be deemed to as an integral or even ancillary part of the practice. The assertion that a construction project had any part to play in the running of the main organisation as a medical clinic was rejected.
The Tribunal concluded therefore that Mr Coffey was self-employed throughout the period of the engagement with Dr Selvarajan.
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