Special Commissioners grant witness summons in IR35 appeal

In July Special Commissioner Dr Nuala Brice, sitting at a preliminary appeal hearing, heard an application on behalf of a Revenue inspector Margaret Gittins (the respondent) regarding an application for granting a witness summons. The application was contested by Tilbury Consulting Limited (the appellant).

The decision was issued in mid August.

Background

The appellant is appealing a decision by the respondent that, under the arrangements between the appellant, its agent Compuware and the end client Ford Motor Company, the appellant's director Roger Tilbury would be regarded as employed in employed earner's employment by Ford under the IR35 legislation.

As part of the appeal the respondent is seeking to call as a witness Ian Baker, an employee of Ford Motors. At the preliminary hearing in July the appellant contested the application for the witness summons. This was on the basis that the Revenue had already obtained a written statement from Mr Baker and requiring Mr Baker to appear before the Special Commissioner's hearing would not add anything to his evidence but would seriously risk endangering the commercial relationship between the appellant and Ford Motors.

This case arose when the appellant asked the Revenue for an opinion on their contract in September 2001. With the consent of the appellant the Inspector wrote to Ian Baker of Ford asking him to confirm details of the exact nature of the terms and conditions which existed between Mr Tilbury's company and his end client Ford. In mid July 2002 Mr Baker responded and in August 2002 the respondent wrote to Mr Tilbury's representatives to say that having considered the information from Ford she was of the opinion that if there had been a contract between Ford and Mr Tilbury it would have been a contract of service (i.e. caught by IR35).

Further exchanges took place and in January 2003 the Inspector again wrote to Mr Baker at Ford, without informing Mr Tilbury that she was going to. Mr Baker replied later that month and his tone indicated that he was not pleased to have been troubled again on this matter.

The Revenue's arguments

The Revenue's case was put by Mr Barry Williams who appears to be handling most of the Revenue's IR35 cases before the Commissioners (for example FS Consulting, Lime IT and Synaptek). He argued that in order to decide the appeal it was necessary for the Special Commissioners to have evidence from both parties to the notional contract. In particular he referred to the comment by the Special Commissioner in the Lime IT case (which the Revenue lost) where they noted that " In future cases on this legislation … the Special Commissioners will wish to explore at a preliminary hearing whether it is possible to obtain evidence from the client".

On behalf of the appellant, Theresa Naylor of Accountax, argued that there was real commercial risk for the appellant if the summons was issued. She argued that the client had already written twice to the Revenue so his evidence was there in writing. The Appellant was not challenging this evidence and oral evidence would only duplicate it. This differed from Lime IT, where there had not been any evidence from the client, written or otherwise.

Decision

Dr Brice in her decision referred to the Revenue's booklet "What is an IR35 Appeal" which referred to the need for oral evidence and how to get it from the client. She said she had to weigh the interests of justice with the commercial risk to Mr Tilbury. She concluded that the interest of justice was the overriding objective and that normally an application for a witness summons would be granted. In particular because Mr Tilbury would be giving evidence on the relationship on behalf of the appellant about the notional contract with Ford it was desirable for the other party to the notional contract to give it as well. On the point that Mr Baker had already given evidence in documentary form she concluded that it was not inevitable that his oral evidence would duplicate this and it might be clarified or expanded upon.

While accepting there was some commercial risk to Mr Tilbury she thought the interests of justice were best served by granting the application for Mr Baker to be served with a witness summons to appear before the appeal hearing when a date was fixed.

Conclusion

It is not surprising that the application was granted as it is usual for those seeking to summons a witness to get their wish. However it is a little surprising that the Revenue felt so strongly that Mr Baker should be present. As he will be their witness they will not be able to cross examine him, and as Accountax made clear in their arguments, they had no wish to challenge any of the evidence that Mr Baker gave in writing. We will have to await the Special Commissioner's hearing to see what difference if any having Mr Baker there in person will make.