Twenty months after losing their appeal at the First Tier Tax Tribunal, Weight Watchers (UK) Ltd again suffered defeat to HMRC at the Upper Tier Tax Tribunal.
In February 2010, the First Tier Tax Tribunal ruled that Leaders of Weight Watchers should be reclassified as employees, for tax purposes, in the period April 2001 – 2007 leaving the slimming giant with a tax bill of £23M.
Weight Watchers leaders run the weekly meetings that take place in Britain which can reach as many as 6,000 in any one week. Those meetings involve thousands of individual members.
All Leaders were engaged on a self-employed basis and were given the Weight Watchers 'Self-employment and income tax booklet'. This highlighted the position of the self-employed with regard to income tax and NICs and that Leaders did not receive any company benefits. It also stated, however, that all workers were entitled to receive holiday pay and there was evidence that this was actually paid!
As well as taking meetings, Leaders acted on behalf of Weight Watchers in a variety of capacities, such as reaching agreements with a landlord for the hire of venues and promoting and selling Weight Watchers goods at meetings.
One of the documents produced as evidence was 'Conditions relating to Weight Watchers Leaders' which contained an unusual clause requiring a Leader to maintain her appropriate weight. The First Tier Tribunal viewed this as a significant limit on personal life and an obligation that went beyond aspiration. This document also purported to give a Leader discretion over time, date and place of a meeting but contradicted itself. “Absolute” discretion was supposedly afforded the Leader as to how any particular class was conducted. This width of discretion was, however, rejected by the First Tier Tribunal as Leaders have a Programme to follow and deliver.
Whilst there existed a substitution clause in the contractual terms, the reality was that if a replacement leader was used for any meeting the contract was then between Weight Watchers and the substitute Leader who would receive payment from the proceeds collected from each member and would not be paid by the traditional Leader. Any right of substitution was therefore not genuine.
There was no dispute that mutuality existed between Weight Watchers and Leaders, although there was a dispute about the extent of that mutuality.
The First Tier Tribunal decided that Weight Watchers had a considerable degree of control over every Leader to ensure that she delivered the Weight Watchers Programme and only that Programme at every meeting. Furthermore, Leaders were prevented from delivering any other weight management service simultaneously. This degree of control, together with the requirement of personal service was enough for the First Tier Tribunal to find for HMRC.
So Weight Watchers appealed the original decision to the Upper Tribunal. The Upper Tribunal however considered the First Tier Tribunal's conclusions concerning the contractual relationship between the taxpayer and its Leaders to be correct and could not fault their findings. There had been no error of law in the analysis and the appeal was dismissed.
With such a huge sum of tax and NICs at stake it would not be surprising to see Weight Watchers take their appeal further to the courts. If they do so and lose, then HMRC will have a little more ammunition to fire at contractors in future IR35 battles.
I don’t see ow this affects most contractors. The arrangements here and such that very few freelancers would be in the same boat, so I have to disagree entirely with your last paragraph – it is a unique case and will have little bearing on the affairs of just about anyone other than Weight Watchers.
I agree with Chris – dont see that it will have any relation to IR35 for IT contractors as there is no paid holiday or sick leave, I certainly have held more than one contract at a time so the “not allowed to provide simmilar services doesnt apply”. The right of substitution and degree of control is obviously down to each individual contract but again, in the weight watchers case, there is clearly a lot of control even to the extent that the leader has to maintain a certain weight – for contractors, every contract is different and you have to use your knowledge and experience to find the best approach – in my case, it’s usually the client asking me what to do next – so I also disagree with the conclusion.
HMRC will seek to use circumstances of particular employment status cases to draw similarities in IR35 enquiries. It does not matter therefore that a contractor’s working practices are identical but if there is some aspect of their working arrangements that HMRC can make parallels to then they will attempt to cite cases in support of their arguments.