Appeal tribunal rules O'Murphy was not a Hewlett Packard employee

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In this issue:

• Comment on O’Murphy v HP Employment Appeals
• Tribunal
  
• PCG AGM & Conference
  
• Contract Opinion document

Comment on O’Murphy v HP Employment Appeals Tribunal

Most members will already be aware that judgement has now been passed down for Employment Appeal Tribunal (EAT/612/01) involving Hewlett Packard and O’Murphy. O’Murphy, who had contracted with HP for six years, was found to be “an employee” at the initial tribunal, but the EAT concluded that O’Murphy was *not* an HP employee.

Kevin Miller of PCG has looked at the Judgement:

"This judgement needs careful analysis. It is well known that Employment law and Tax law do not always see status issues in the same light. PCG has asked Francesca Lagerberg, senior tax consultant at the tax faculty of the Institute of Chartered Accountants in England and Wales (and a qualified barrister), to analyse the judgement and let us have her views on the implications of the judgement for IR35.

Our initial assessment is that the EAT's judgement seems to hinge on two factors. First that there was no contractual relationship between HP and O'Murphy and the Employment Tribunal were wrong to ignore this aspect. In their decision the EAT state:

"…If the Tribunal had asked itself that question and answered it in accordance with the evidence it would we think be bound to have come to the conclusion that there was no contractual nexus between Mr O' Murphy and HP"

In considering this issue the Appeal Court has looked closely at the decision in the Costain vs Smith case from 2000, which they argue is very similar in its issues. The judgement goes on to discuss the argument of O'Murphy's lawyer John Antell that a contract between HP and O'Murphy can be inferred and they say:

" The work and payment are not in dispute but what was disputed was whether they rose by way of mutual obligation which they clearly did not"

This comment raises the second issue - that of mutuality of obligation.

The Judgement makes much of the fact that there is no contract between O'Murphy and HP. This echoes the view taken by some tax advisers that the lack of a contract between the contractor and the end client could well be an insurmountable problem under IR35. However, this may not so helpful when it comes to IR35 issues because, unlike in employment law issues, IR35 legislation requires that you construct a hypothetical contract between the worker and the end client.

However, the comment about mutuality of obligation could be very helpful - unless it can be argued that, under the hypothetical relationship, mutuality would exist? Nevertheless this recalls a comment made by Mr Justice Burton in his judgement on the PCG judicial review. He said:

"Of course there is in fact no contract between the client and the service contractor, and thus no obligation on either party owed to each other, but it must be significant, when applying the common law test, to consider whether, looking at the actual relationship, and a notional contract, between the client and the service contractor, any obligation would be owed by the client."

Once we have considered the judgement fully PCG will consider whether there might be scope to assist contractors in general based on this decision, or by taking the case further. For example, Mr O'Murphy may take his case to the Appeal Court or he could apply for a Revenue opinion his HP contract on the basis that a finding that it is caught by IR35 could be appealed to the special commissioners.

Ultimately there is a strong emotional argument that says it must be wrong that if an EAT has concluded that Mr O'Murphy was never at any time an employee of HP that tax law could seek to tax him as if he was."

Further discussion of this case is taking place in the PCG discussion forums:

NB To make this link you must be a full member of PCG and logged into the discussion forums.

PCG AGM & Conference

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Last opportunity to make your booking for the conference, taking place in York this Saturday (13th October).

See link below for full details – the Conference is an exceptional opportunity to meet fellow members, as well as the Directors and key PCG suppliers, such as Accountax, Qdos, Bond Pearce and Blackmore Borley.

Our panel of guest speakers will provide you with top level advice and information to support the running of your business – an event not to be missed!

Contract Opinion document

The Clearance Procedure document, recently agreed with the IR, provides guidance as to what information you need to present to the Revenue to ensure they are aware of all relevant facts when they make an IR35 assessment of your business.

The purpose of the Clearance Procedure is:

• to ensure members understand what is required to pass the status tests,
  
• to assist members to apply those requirements in their working relationships
  
• to demonstrate to the Revenue wherever possible what the correct interpretation of status tests is in the situation of knowledge based contracting and
  
• to obtain Revenue agreement to practical guidance that assists PCG members to pass those status tests.

See link below for full details:

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PCG Press