Employment status update July 2021

A round up of recent developments in employment status, including two new tribunal decisions affecting workers.

Check Employment Status for Tax (CEST) tool

HMRC has released the usage data for its CEST tool to 31 May 2021.

The tool has been used 1,018,250 times with nearly 500,000 rulings being outside IR35.

However, 210,000 were undetermined, which equates to 21%.

It will be interesting to see if there will be any updates to the CEST tool in the future. 

Good Work Plan 

As part of the Good Work Plan, there has been a recent consultation which considered the case for a new single labour market enforcement body to be created.

Originally this was envisaged to tackle modern slavery, enforce minimum wage and protect agency workers. However, the Department for Business, Energy and Industrial Strategy (BEIS) has now said that the body would also regulate umbrella companies.

It is still not clear on how any enforcement would work in practice.

We will have a separate article on this in due course. 

Recent cases

There have been two recent wins for HMRC and these are summarised below.

(1) Phillips v HMRC (2021) – employment v self-employment case
In most cases, HMRC will consider certain case law in deciding if someone is employed or self-employed.

The main case is Ready Mixed Concrete and this considers there main tests:
1.    Agreement for personal service
2.    Control test (used to be definitive test) – “sufficient element”
3.    Inconsistent factors with you being an employee

HMRC (bearing in mind it is normally arguing that someone is an employee) will normally consider personal service and control and will ignore the other factors as being irrelevant. 

In this case, HMRC argued for a self-employed decision, and you can see very different reasoning in how it handled this case. 

As a quick background, Mr Phillips was a specialist in medical insurance and was recruited by City & General (C&G) to help market a new product that had been developed. Mr Phillips was paid on a commission only basis (not a determinative factor).

He was not registered with the FSA (so no legal authority to buy in this field) and he was not separately insured. He was given a credit card by C&G, a laptop and printer and business cards describing him as Sales Director.

HMRC focussed its attention on the other factors in this case and included consideration of the intentions of the parties (which are normally considered as irrelevant). HMRC also focussed on what happened in practice rather than considering the legal right of control. 

The Tribunal felt that Mr Phillips did not provide sufficient proof to be regarded as an employee and so they ruled that he was self-employed.

This is an interesting case purely for the difference in the way that this was argued by HMRC. 

(2) Northern Light Solutions Limited – IR35
Northern Light Solutions Limited (NLSL) is a recent Upper Tribunal IR35 case that was won by HMRC.

In this case, NLSL is the personal service company (PSC) of Robert Lee. The case considered the arrangements under which Mr Lee supplied services to Nationwide Building Society (NBS). He also worked for Lloyds Bank and the contracts taken were generally for a period of weeks and occasionally months.

There was no obligation to be offered further work and no obligation for Mr Lee to accept any future contracts. 

This case shows HMRC’s approach where there are multiple contracts as it will often separate the contracts and raise an enquiry (or not) on these separately. The advantage to HMRC of doing this is it is not illustrating that the worker is working on multiple contracts at the same time (and highlighting that these workers may be in business on their own account) at the point it goes to a Tribunal. 

In this case, Mr Lee had a right to appoint a substitute, but NBS would need to accept any substitution. In this case, the Upper Tribunal accepted that the substitution clause was a genuine right, but decided that it was too limited to actually be effective.

The Upper Tribunal then considered whether there was a dominant feature in this contract (this was taken from a previous employment tribunal case known as Pimlico Plumbers). This approach was unusual and may now allow HMRC to consider whether there are “dominant features” in other cases. 

The case also considered mutuality of obligations. Mr Lee put forward an argument that there was no obligation at the end of each contract. However, the Upper Tribunal said that this was irrelevant in this case as there was mutuality of obligations in the contracts themselves.

They also dismissed the argument that there was no mutuality of obligations on the basis that Mr Lee was only engaged to work on a project by project basis. This was dismissed on the basis that this does not impact the level of control that a client may have over a worker. 

Mutuality of obligations may have been more relevant in painting a picture that Mr Lee was in business on his own case. This is because working short term contracts with no obligation to be offered future work would indicate that there is no long term security in the arrangements.

However, in this case, the taxpayer did not request permission to argue on this point when they appealed to the Upper Tribunal.

Although it was raised in their skeleton argument, HMRC objected to this and the Upper Tribunal allowed this objection. Therefore there was no consideration of whether the taxpayer was in business on his own account.

This highlights the need to ensure that the right grounds are included in any permission to appeal. 

If you have any questions regarding any of the above, please contact your normal Bishop Fleming contact or a member of the Employer Solutions team. 

Further information

For more information on employer issues check out our Employer Solutions Knowledge Hub.