The case revolved around an employment status dispute under the Construction Industry Scheme (CIS) whereby sub-contractors have to register their employment status for tax and NI purposes.

JL Windows and Doors, owned by Mr and Mrs Littlewood, maintained that the individuals who worked for their firm were independent contractors and not employees. One of the workers, Mark Molloy, also appealed against the decision that he was an employed earner in respect of such work. The dispute concerned both income tax and National Insurance Contributions.

In the late 1970s Mr Littlewood took over the business following the retirement of the previous owner. He took on a couple of sub-contractors on a self-employed basis. As the business grew, he took on more workers dependent on the amount of work he had. This ranged between about 10-20 sub-contractors at any time. Mr Littlewood would check whether the worker held a CIS card and was registered as self-employed. He would then deduct tax at 18 per cent.

A 'charge hand' or 'fixer' would price the job and source the workers, agreeing rates with them, but the payment system involved making payments to the individuals rather than through the charge hands. Payment were made only if the workers turned up for work, and Mr Littlewood exercised little control over the hours or how to do the job other than ensuring it was 'on programme'. If the job took longer than expected and the price to the customer had not been revised, there would be no extra payment.

Arguments
Dave Smith, Accountax, represented the company. He argued that mutual obligations were absent and the 'irreducible minimum' had not been met. He also contested that there was no requirement for 'personal service' and that there was 'insufficient control' by Mr Littlewood over the workers.

He submitted that whether the 'in business on own account' approach was used, or the more fundamental test of identifying the pre-requisites of a contract of service, in either case the workers could not on a balance of probabilities be said to be employees of Mr and Mrs Littlewood under a contract of service.

HMRC argued that the three basic requirements for employment were satisfied, namely mutuality of obligation, an element of control and that the provisions of the contract are consistent with its being a contract of service.

He argued that the evidence gathered by the HMRC officers was better than the accounts presented by the workers.

Decisions
On the issue of mutuality of obligations, Special Commissioner, John Clark, ruled: "For the reasons set out above, I do not regard it as necessary in relation to an individual engagement to show that there is an obligation to provide work and an obligation to perform it. I consider that there was mutuality of obligation in each of the individual assignments undertaken by each of the workers. The worker agreed to carry out the work, and JL Windows agreed to pay the worker for that work.... The possibility of termination without notice does not affect the question whether there was mutuality of obligations..... This must be the case whether the termination is made by the person engaging the worker, or by the worker. As I have indicated, this finding that there was mutuality of obligations within each assignment is not enough to determine the nature of the contract."

On personal service, it was accepted that the issue of substitution had not been discussed, but there were examples when the workers would use their own helpers. Mr Clark said: "I find the evidence by no means conclusive in determining the extent to which helpers were paid direct by JL Windows, as opposed to being paid by the worker whom the relevant helper had assisted. To some extent the question is linked to the separate questions of the basis on which the workers were paid, and of whether the workers could be said to be in business on their own account...... However, on the evidence the use of helpers can only be described as occasional. I do not see this as a significant factor in determining the nature of the contracts between the workers and JL Windows, in the light of McKenna J's reference to 'a limited or occasional power of delegation'".

On control, the overall conclusion was that JL Windows did not exercise control over the workers.

Mr Clark concluded: "Although there was mutuality of obligation in the separate contracts, JL Windows did not exercise a sufficient degree of control over the workers to make itself master. This is sufficient to decide that the workers were not employed under contracts of service, and therefore to upheld JL Windows' appeal against the Notices and Determinations, and Mr Molloy's appeal against the Notice of Decision. I do not find the other provisions of the contracts consistent with their being contracts of service. I find that the workers were in business on their own account, albeit in a modest way. I do not consider that the charge hands or the workers were part of JL Windows' organisation. Both the appeals are allowed."

Full decision is available here here (Bailii).

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Susie Hughes
The Editor © Hardhatter 2009