Usetech Ltd: Special Commissioners

There has been much comment and discussion about the implications of the recent Bill Hood/Usetech IR35 status case which the Inland Revenue won at the Special Commissioners. Carl Whittaker, from Qdos Consulting, looks at the decision.

The decision in this case has recently been announced and we now have the formal decision of the Special Commissioner Colin Bishopp (CB).

It must first of all be recognised that this is a serious blow for Mr William Hood (WH) the director of Usetech Limited (UL) particularly in view of the fact that the company has ceased to trade largely because of Mr Hood's bad health and the decision will, if not successfully appealed against, result in additional amounts of tax and National Insurance being payable.

Secondly we must examine how the Commissioner arrived at his decision in favour of the Revenue, represented by Graeme Young and assisted by Gerry Parker. He was clearly swayed by the evidence given by the end user clients, ABB Vetco Gray (ABB) and its representatives, Messrs White and Hunter.

Thirdly what evidence prompted the Commissioner to decide in favour of the Revenue?

• ABB could refuse permission for WH to take a day off.
  
• No difference to employees.
  
• WH 'reported to', 'was allocated work', 'did what was necessary,' 'what was required of him' and 'his skills were not unique'.
  
• The agency contractor company contract did not specify the hours of work and in fact WH did work over 50 hours per week, however the agency/end user contract stated that the minimum hours to be worked was 37.5 hours. CB decided that because of this he did not accept WH's view that he could determine the hours worked.
  
• ABB had its own insurance and did not expect UL to have its own public liability insurance. CB decided that the provision for insurance in the agency/contractor company contract was for the benefit of the agency not ABB.
  
• Any substitute would be provided by the agency and not UL. ABB required the services of WH only. CB observed that in his opinion the substitution clause was 'largely illusory'.
  
• Hunter for ABB said that he would not want WH doing significant work for other companies whilst working for ABB. The concurrent work carried out was only for small sums. There were two concurrent contracts for approximately £800 each.
  
• Whilst CB stated that he was to leave out of account ABB's offer of full time employment, the fact that it was made surely had an impact.
  
• Two cases offered in defence were employment law cases, which concentrated on the contractual relationship whilst CB concentrated on the practical working relationship between ABB and WH.
  
• Hunter of ABB referred to contractors as 'sub contract employees'!
  
• It is interesting to note that CB found that there is no significance in the submission of timesheets which the Revenue are currently so keen to review.
  
• In response to the defence's submission on mutuality of obligation quoting Hart J in Synaptek CB preferred to refer to Nethermere (St Neots) Ltd v Taverna and another (1984) IRLR 240 and Market Investigation Ltd v Minister of Social Security (1968) 2 QB 193. These cases give a definition of mutuality that there is an obligation to work on the one hand and to remunerate on the other. This was clearly influenced by the personalising of the obligation.

'Of' service and 'for' services

In summary the evidence given by ABB, the end user, convinced CB that whilst the contractual relationship between ABB and WH was specifically NOT that of employer and employee but that a 'notional contract', i.e. the working practices, between ABB and WH, was one 'of' service (not 'for' services). CB specifically considered control, substitution, provision of equipment, financial risk and the ability to profit by sound management. In all of these issues the Commissioner found for the Revenue. The fact that the agency had conflicting contracts in the matters of hours and also had a provision for professional indemnity insurance for their own benefit should not be ignored.

This case highlights the need to establish precisely the end user's understanding of the working relationship at a very early stage. This is clearly more important than establishing the contractual rights. It will undoubtedly increase the Revenue's resolve to involve and directly contact the end user as their testimony proved crucial in this case.

Last resort

We have long held the view that recourse to the Commissioners should be a last resort and only considered after detailed risk assessment, which should examine in detail the evidence to be given by the end user. A statement from them should be obtained as a matter of course as early as possible and before any decision is made regarding future strategy. Whilst such a result is unfortunate, not least for the taxpayer, it will make future cases more difficult for contractors and their advisors.

However it reinforces our view regarding where efforts should be concentrated and that is clearly on the views of the end users, written statements received from them and whether they are likely to precisely confirm these statements at any Appeal Hearing by the Commissioners of the Inland Revenue.

Carl Whittaker

Qdos Consulting - for freelancers