[2012] UKFTT 193 (TC)
TC01888
Appeal number:
TC/2010/05545 & TC/2010/09336
Whether
1st Appellant was employed or self-employed in carrying out
refurbishment of 2nd Appellant’s medical clinic – whether 2nd
Appellant was employer of 1st Appellant or not – 1st
Appellant’s appeal dismissed – 2nd Appellant not found to be
employer
FIRST-TIER TRIBUNAL
TAX
MR.
T. COFFEY T/A COFFEY BUILDERS Appellant 1
DR M. SELVARAJAN Appellant 2
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
J. BLEWITT (JUDGE)
D.
ROBERTSON (MEMBER)
Sitting in public at Manchester on 14 October 2011
Mr. S. Mokhtassi of Sterlin
Partners LLP, for the first Appellant, Mr Coffey T/A Coffey Builders
Mr A. Smith for the second
Appellant, Dr Selvarajan
Mr I. Birtles, instructed by
the General Counsel and Solicitor to HM Revenue and Customs, for the
Respondents
© CROWN COPYRIGHT
2011
DECISION
Background
1. In
order to fully understand the nature of the appeals before the Tribunal, it is,
in our view, necessary to set out a brief summary of the undisputed background
to this case.
2. Mr
Coffey was, for many years, a partner in Coffey Builders until his retirement
due to ill health. Coffey Builders had a business address of Brownstones
Cottages, Old Colliers Row, Smithhills Deane, Bolton.
3. Dr
Selvarajan is a GP who practices from Deane Clinic, Horsefield Street, Bolton (“the clinic”).
4. In
2003 plans were submitted and approved for the refurbishment of Deane Clinic.
It was agreed by all parties that Dr Selvarajan had made contact with Mr Coffey
as a result of Mr Coffey’s daughter, a medical representative, having visited
the clinic during the course of her business and providing her father’s details
to Dr Selvarajan.
5. During
the period of the tax years 2003/2004 and 2005/2006 Mr Coffey had been involved
in the refurbishment of the clinic.
6. On
13 January 2006, HMRC opened an enquiry into the accounts and returns of Coffey
Builders, covering the tax years from 1998/1999 to 2005/2006 inclusive. HMRC
maintain that additional amounts of tax are due for each of the years covered
by the enquiry.
7. HMRC
has also issued calculations under Section 8 of the Social Security (Transfer
of Functions etc) Act 1999 for the years 2003/2004 and 2005/2006 to Dr
Selvarajan. In respect of NIC Primary and Secondary contributions, HMRC
calculated the amounts as nil but issued a decision notice in order that Dr
Selvarajan could lodge his appeal.
8. The
basis of the assessments raised by HMRC against Mr Coffey and NIC decision
notice against Dr Selvarajan, in respect of the tax years 2003/2004 and
2005/2006, relies on the status of the working relationship between Mr Coffey
and Dr Selvarajan.
9. HMRC’s
case is that Mr Coffey’s engagement on the building work carried out at the
clinic did not amount to his employment as an employee of Dr Selvarajan and
that the work undertaken by Mr Coffey should have been included in the
partnership returns of Coffey Builders.
10. Mr Coffey
maintains that he was employed by Dr Selvarajan and should be regarded as an
employee.
11. Dr Selvarajan’s
case is that Mr Coffey was engaged on a commercial transaction basis and that
not only was he not an employee of Dr Selvarajan but furthermore, that the
employment status of Mr Coffey is irrelevant.
The Appeal
12. We clarified
with HMRC and the first Appellant that although assessments have been issued by
HMRC to Mr Coffey and figures were contained within the documentation provided
to us, the sole issue for us to determine related to the status of the
relationship between Mr Coffey and Dr Selvarajan. We were informed that no
Closure Notice has yet been issued in respect of the enquiry and consequently
all parties agreed that the amount of the assessments raised against Mr Coffey
were not the subject of this appeal. We were invited by Mr Mokhtassi for the
first Appellant to conclude that Mr Coffey was an employee of Dr Selvarajan.
13. As regards the
second Appellant, HMRC issued a Section 8 assessment of “nil” in respect of
Primary and Secondary NIC on the basis that HMRC agreed that Dr Selvarajan had
not been the employer of Mr Coffey/Coffey Builders. As a result, the sum of the
assessment is perhaps not a major concern for the second Appellant, and it was
confirmed to us that the principal issue for us to determine was the status of
the relationship between the first and second Appellants; namely whether the
first Appellant was an employee of Dr Selvarajan or not. Both HMRC and the
second Appellant invited us to conclude that Dr Selvarajan was not an employer
and consequently the assessment raised against him should be set aside.
The Parties
14. Mr Coffey
attended the hearing despite his ill health and was represented by Mr Mokhtassi
of Sterling Partners LLP. Mrs Coffey also attended in support of her husband
and Ms Long, Mr Coffey’s accountant of Accountancy Plus, attended and gave
evidence.
15. Dr Selvarajan
was represented by his accountant, Mr Smith. It had been agreed between the
second Appellant and HMRC that although Dr Selvarajan had the benefit of
representation, HMRC would present the case and the Tribunal were invited to
treat Dr Selvarajan as adopting the submissions of HMRC. Dr Selvarajan gave
evidence to the Tribunal which was relied upon by both the second Appellant and
HMRC.
16. We were content
to adopt this course of action which seemed to us to be a pragmatic and
time-efficient way in which to deal with the case.
Evidence and Submissions
The First Appellant
17. Mr Mokhtassi, on
behalf of Mr Coffey, began the proceedings. In opening Mr Mokhtassi helpfully
set out the basis upon which the first Appellant appealed. In summary, Mr
Mokhtassi submitted that the intention of Mr Coffey was an important
consideration; in 2003 Mr Coffey had retired and instructed his accountant, Ms
Long, to de-register the business from VAT. Mr Mokhtassi explained that Mr
Coffey may have carried out the “odd job” after retirement, which would have
been declared to HMRC as “other income”.
18. Mr Mokhtassi
explained that Mr Coffey met Dr Selvarajan who asked him to build a surgery and
supervise the refurbishment but that, due to his ill health, Mr Coffey was
reluctant to take on this work. We were told that Mr Coffey became a registered
patient of Dr Selvarajan as a result of promises by the Doctor that he would
look after Mr Coffey and, it was submitted, the latter went on to manipulate
and abuse this position of power.
19. Mr Mokhtassi
submitted that there were two distinct issues for us to consider:
(i)
Mr Coffey as a builder; and
(ii)
Employment/self-employment
20. No issue was
taken with the case law relied upon by HMRC which, it was submitted, makes
clear the factors to take into account is determining whether a person is
employed or self-employed.
21. In essence, Mr
Mokhtassi submitted that Mr Coffey acted as no more than a supervisor. It was
highlighted that no building contract existed which, Mr Mokhtassi submitted was
an indication that Mr Coffey was not working in a self-employed capacity. It
was accepted that Mr Coffey had a greater knowledge of building work than Dr
Selvarajan, but we were invited to conclude that such knowledge does not
necessarily indicate self-employment.
22. Mr Mokhtassi
invited us to consider the following issues;
(a)
Mutuality of obligations;
It was submitted that the minimum obligation for a
contract of service was satisfied by Mr Coffey agreeing to manage the project
in exchange for a weekly salary.
(b)
Contracts;
A written contract would be expected where the services
of a self-employed builder were acquired, setting out what is required and a
quote; as no such contract existed, we were invited to find that it is more
likely that Mr Coffey was paid as an employed manager on a weekly basis with Dr
Selvarajan taking the role of principal contractor himself.
(c)
Control;
Mr Mokhtassi explained that Mr Coffey was employed as an
expert in his field to advise the principal contractor (i.e. Dr Selvarajan) and
manage the project during set hours each day.
(d)
Rights of substitution/personal service;
It was the first Appellant’s case that there was no right
of substitution and Mr Coffey was not permitted to engage helpers.
(e)
Provision of own equipment;
It was submitted that all tools/equipment was provided by
Dr Selvarajan, who also ordered and paid for the materials and employed the
builders.
(f)
Financial risk/opportunity to profit;
It was submitted that there was no financial risk to Mr
Coffey, who did not buy assets for the job, bore no running costs and incurred
no overheads. A public liability insurance document was contained within the
documentary evidence which, it was submitted, had been taken out by Dr
Selvarajan as principal contractor.
Mr Coffey was paid a weekly salary of £500 and consequently
there was no further opportunity to profit.
(g)
Part and parcel of organisation;
Mr Coffey was not outside the fold of employees
(h)
Employee type benefits;
It was said that Mr Coffey was paid while on holiday,
which would not be the case if he had been self-employed
(i)
Mutual intention ;
It was the intention of both parties from the outset that
Mr Coffey would be employed to manage and advise on the project. It was also
agreed that a net salary of £500 per week would be paid to Mr Coffey and that
Dr Selvarajan would take responsibility for PAYE deductions and payment to
HMRC.
In addition to the oral submissions made by Mr Mokhtassi,
we were also assisted by a bundle of written submissions which expanded upon
the issues summarised above.
23. Mr Coffey gave
evidence to the Tribunal in which he confirmed that the submissions made by Mr
Mokhtassi were correct. In addition to the letters written by Mr Coffey to Mr
Mokhtassi dated 25 August 2011 and 5 October 2011 which were contained within
the bundles provided to us and to which we had regard, Mr Coffey provided the
following information; he was told by Dr Selvarajan that his role would be to
oversee the project without any further responsibility and that Dr Selvarajan’s
accountant “the best in Bolton” would deal with the tax issues. Mr Coffey
stated that Dr Selvarajan promised to look after his health, but did not sign a
form required for a disabled driver’s badge despite repeated requests by Mr
Coffey. We were told by Mr Coffey that he had visited Dr Selvarajan’s mother in
hospital when she was ill and assisted by shopping at Sainsbury’s for him then
picking up his children from school.
24. Mr Coffey
explained that when the project was completed, Dr Selvarajan was off work for a
number of weeks which had resulted in Mr Coffey visiting his house where Dr
Selvarajan was completing his VAT returns. Mr Coffey stated that Dr Selvarajan
had put the name of his decorator down as Chief of Health and Safety on a
Health and Safety document, which he asked Mr Coffey to sign before it was
completed. Mr Coffey agreed he had signed the form without checking it and that
he was named on the form as the “partner with responsibility for health and
safety,” “planning supervisor” and “principal contractor.”
25. Mr Coffey
alleged that although Dr Selvarajan was a GP, he knew a great deal about
building work and was able to explain to Mr Coffey exactly what he wanted from
the refurbishment.
26. Mr Coffey stated
that during the period of the refurbishment, he had carried out work for
friends and relatives of Dr Selvarajan.
27. In cross
examination, Mr Coffey confirmed that he had worked within the construction
industry in the UK since approximately 1970/1971 when he had moved to the UK from Canada.
28. Mr Coffey agreed
that he had signed a document in the capacity of principal contractor but
stated that he had just signed any documents given to him by Mr Selvarajan.
When asked about a public liability insurance document dated 22 February 2005,
Mr Coffey agreed that the policy was held in his name but stated that Dr
Selvarajan had transferred his onto Mr Coffey whose insurance was running out.
29. Ms Long also
gave evidence in support of Mr Coffey’s case. We had the benefit of a written
statement dated 4 September 2011 which set out the difficulties encountered by
Mr Coffey in the tax year 2003/2004 as a result of delays in receiving monies
due for work completed for the Council. Ms Long confirmed that due to ill
health, Mr Coffey decided to retire and consequently the company was
de-registered from VAT.
30. As regards the
subject matter of this appeal, namely Mr Coffey’s relationship with Dr Selvarajan,
Ms Long confirmed that Dr Selvarajan had purchased a bathroom for both his
house and the clinic during summer 2004 and that he had made enquiries with Ms
Long as to how much her accountancy services would cost for his self build VAT
claim. Ms Long confirmed that ultimately Dr Selvarajan did not engage her to
assist with any VAT claim.
31. Ms Long
explained that her understanding was that Coffey Builders were not employed by
Dr Selvarajan, but rather that Mr Coffey was personally employed.
32. In oral
evidence, Ms Long outlined her concerns for the Appellant’s mental state at the
time of the refurbishment. Ms Long explained that she had, in the past,
completed the Mr Coffey’s self-assessment return in which there were no figures
included under the heading “employment” as all amounts were included under
“self-employment.” Ms Long stated that, as far as she was aware, Mr Coffey did
not employ anyone, but had sub-contractors working for him. Ms Long confirmed
that she had no involvement in Mr Coffey’s engagement with Dr Selvarajan but
believed the two men had been friends.
The Second Appellant and HMRC
33. By way of
opening, HMRC submitted that the issue before the Tribunal is that of the
status of the building contractor, Mr Coffey, and his relationship with Dr
Selvarajan. For the avoidance of doubt, we observe again that HMRC and Dr
Selvarajan shared the position that the relationship was one of a commercial
transaction by engaging a building contractor however we did not attach any
additional weight to Dr Selvarajan’s evidence as a result and were careful to
reach our own decision as to the evidence of both Appellants.
34. HMRC observed
that Dr Selvarajan is a GP who has never had any connection with the
construction industry and consequently the assessment raised against the doctor
is “nil” in order to reflect this view of HMRC.
35. Dr Selvarajan
was called to give evidence. He confirmed that he had been a medical
practitioner for 20 years and a GP in Bolton for 11 years. Dr Selvarajan
confirmed that his witness statement dated 18 February 2011 was true and accurate
and this stood as his evidence in chief. In summary, the witness statement of
Dr Selvarajan confirmed that work on the clinic began in September 2003 and was
finished in the early part of 2006.
36. Dr Selvarajan
confirmed in his written statement that no written contract was drawn up at the
commencement of the refurbishment but stated that all the labourers who worked
on the project were found by Mr Coffey, with the exception of a plumber who was
interviewed by Mr Coffey before being accepted to work on the project.
37. Dr Selvarajan’s
written statement set out that he did not know the full names of the workers
engaged by Mr Coffey, nor was he aware of their home addresses, rates of
payment or qualifications. Each week, Mr Coffey would provide Dr Selvarajan with
amounts to be paid, which he, Dr Selvarajan, would then withdraw in cash as
requested and given to Mr Coffey.
38. Dr Selvarajan
confirmed that Mr Coffey arranged in advance of his holiday that Dr Selvarajan
would make the payments on his behalf during that period. It was also confirmed
that Mr Coffey, during the period of refurbishment, had carried out other
building work, including work at Dr Selvarajan’s home, his sister’s home and at
the home of Mr Patel, a friend of Dr Selvarajan.
39. Mr Coffey
ordered materials on accounts opened by Dr Selvarajan at local builders’
merchants, and the accounts were settled by Dr Selvarajan. On occasion, bills
for goods ordered by Mr Coffey which were apparently unrelated to the clinic
refurbishment arrived which were not paid by Dr Selvarajan.
40. During the
project, Mr Coffey as Coffey Builders signed a document as responsible for
health and safety, in addition to various liability insurance documents. Dr
Selvarajan initially extended his overdraft to pay for the refurbishment, but
subsequently this was switched to a mortgage at which point the bank insisted a
Builders Contract be drawn up. This was done and signed by Mr Coffey as the
contractor.
41. Dr Selvarajan
concluded his written statement by confirming that it was always his intention
that Mr Coffey be an independent contractor who was in charge of the project
and at no time was he considered to be an employee. Dr Selvarajan denied that
he gave any instruction or direction to the work carried out by Mr Coffey or
the labourers recruited by him.
42. In
cross-examination Dr Selvarajan clarified that the parties had only signed a
contract when the bank, quantity surveyor and surveyor became involved and this
had taken place at a meeting at which all of the above, including Mr Coffey had
been present. Prior to that, Dr Selvarajan stated that he believed a verbal
contract had been in place and that there had been no written contract as he
had no previous experience of building work. Dr Selvarajan denied that he had
abused the patient/doctor relationship with Mr Coffey, stating that Mr Coffey
joined the practice voluntarily.
43. Dr Selvarajan
agreed that he had paid for Mr Coffey’s public liability insurance as Mr Coffey
had asked him to pay it. When asked whether Mr Coffey only had responsibility
for overseeing the project, Dr Selvarajan disagreed, stating that Mr Coffey had
been responsible for all aspects of the project including dismissing workers.
44. It was agreed by
Dr Selvarajan that there had been a good relationship between the two men and
that Mr Coffey had, on one occasion, helped his wife with the shopping as his
mother was ill and his wife did not drive.
45. As regards the
payments made to Mr Coffey, Dr Selvarajan stated that initially Mr Coffey had
asked for £750, but this was reduced to £500 as Dr Selvarajan had believed £750
to be too much. In respect of payment of labourers, Dr Selvarajan confirmed
that he provided the amounts requested by Mr Coffey.
46. At the request
of Mr Mokhtassi for the first Appellant, HMRC called HMRC Officer Mr Mistry as
a witness. It is right to note at this point that HMRC did not rely on Mr
Mistry as a witness as his involvement with the case was that of case officer.
However as a result of HMRC’s reliance on minutes of a meeting on 12 February
2008 (at which Mr Coffey’s previous representative was present) contained
within the bundles provided to us, and Mr Mokhtassi’s concerns as to when the
notes were provided to him, we, the Tribunal, took the view that it was fair to
all parties to allow Mr Mokhtassi to raise the issue and Mr Mistry to respond.
47. Mr Mistry
confirmed that he had provided Mr Mokhtassi with all minutes of meetings
involving the first Appellant during a visit to Mr Mokhtassi’s office on 18
November 2008. Mr Mistry agreed that the usual practice of HMRC had not been
followed and that the notes had only been formally sent to Mr Mokhtassi
following his request by letter dated 9 September 2010. There was no challenge
by Mr Mokhtassi to the fact that the notes had been typed up from
contemporaneous hand-written notes, or to the fact that a copy of the typed
notes had been provided at the meeting with HMRC and Mr Mokhtassi on 18
November 2008.
48. We observe at
this point that a number of meeting notes were included within the documents
provided to us;
(a)
12 February 2008: Mr Hilton (John Goulding & Co) representative at
that time of Mr Coffey and Mr Mistry
(b)
21 May 2008: Mr Smith (Barlow Andrews) representing Dr Selvarajan, Dr
Selvarajan and Mr Mistry;
(c)
30 May 2008: Ms Long (Accountancy Plus) representing Mr Coffey, Mr
Coffey, Mrs Ferera (Mr Coffey’s daughter) and Mr Mistry;
(d)
28 July 2008: Mr Mistry and Mrs Periera (on behalf of Mr Coffey)
49. We considered
all of the notes carefully. We noted that much of the evidence given by Mr
Coffey and Dr Selvarajan mirrored the accounts given by either the first and
second Appellant and/or their agents to HMRC at the relevant meetings. We were
careful not to attach too much weight to this evidence as there were notes of
meetings at which Mr Coffey had not been present and it appeared to us that the
HMRC officer, Mr Mistry, was simply making initial enquiries and offering a
provisional view of HMRC which, as he rightly noted at the meeting of 12
February 2008, required further information and consideration. We noted that
allegations relating to matters which are not the subject of this appeal were
included in the notes; we disregarded any such comments and they did not form
part of our decision.
50. HMRC drew our
attention to the following documents exhibited within the bundles provided to
us:
(a)
A signed undertaking addressed to Dr Selvarajan dated 23 March 2005 and
signed by Mr Coffey as Contractor in which Mr Coffey assumed “the
responsibility for making good defects during the 3 month period from Practical
Completion of ALL the works...to extend to all works carried out by me – acting
in the capacity of Principal Contractor...”
(b)
“Coffey Builders Health and Safety Plan for the Deane Clinic
Development, Bolton” including a declaration acknowledging responsibility for
the production and implementation of the policy on health and safety signed by
Mr Coffey as “Partner with responsibility for Health and Safety” and dated 1
March 2004. The document contains details of Dr Selvarajan under the heading
“client” and details of Mr Coffey under the headings “Planning Supervisor” and
“Principal Contractor.” Mr Coffey’s name also appears under the title
“Contractors.” The document contains a signature “by or on behalf of the
organisation” which is difficult to read, but which Dr Selvarajan told the
Tribunal was his signature, although this was disputed by Mr Coffey who
believed it belonged to a cleaner at the clinic. The document is also signed by
Mr Coffey as “Planning Supervisor” and “Principal Contractor on behalf of the
organisation” and dated 13 October 2003.
(c)
A handwritten entry on a diary (the diary date was 3 July 2003) dated 25
February (the year is illegible) which contained a list of names and amounts,
for example “Brian 400” and “Tiler £455.”
(d)
An Insurance Policy from Allianz Cornhill, effective from 11 November
2004 in the name of Mr T Coffey containing the “Business Description” as
“Builders.”
(e)
Certificate of Employers’ Liability Insurance from Allianz Cornhill effective
from 11 November 2004 until 11 November 2005. The policyholder is named as Mr T
Coffey. A covering letter addressed to Mr Coffey dated 25 February 2005
enclosing the Policy and Certificate was also included in the documentation
provided to us.
51. It is right to
say that in respect of Mr Coffey’s Insurance, a document was drawn to our
attention by Mr Mokhtassi which was addressed to Mr Coffey from W.G. Hancock
& Co Insurance and dated 9 July 2007. The letter confirmed (as stated by Dr
Selvarajan in evidence) that “the renewal premium...for payment on the 11th
November 2004 was paid to us on the 26th November 2004 by Dr
Selvarajan, by cheque.”
52. In summary, HMRC
submitted that, having regard to the relevant factors which are indicative of
self-employment, the first Appellant falls squarely within that description and
that Dr Selvarajan was not, at any time, Mr Coffey’s employer.
Legislation and Case Law
53. Prior to the
hearing, the issue as to whether the first Appellant fell within the
Construction Industry Scheme was at point. This was not pursued at the hearing
and all parties agreed that CIS was not an issue for this Tribunal to be
concerned with. The written submissions on behalf of the first Appellant
explained that their case was that Mr Coffey was a supervisor, not a building
contractor; hence CIS regulations are not relevant and should be discounted.
HMRC submitted that the business run by Dr Selvarajan was in no way appropriate
to, or connected with the Construction Industry Scheme and that Dr Selvarajan
cannot be considered as operating or registered as a Contractor. Consequently, HMRC
submitted, Dr Selvarajan failed to satisfy the conditions required in order to
consider the employment status of the workforce. HMRC argued that if Dr
Selvarajan was found to be operating within the Construction Industry Scheme,
then it would follow that any private householder engaging a builder to carry
out conservatory construction work would also have to be deemed to be operating
under the same relevant tax deduction scheme at source, which must be
incorrect.
54. HMRC, fairly in
our view, went on to consider whether any aspect of this case could fall within
the classification of “Deemed Contractors” by virtue of Sections 57 – 77
Finance Act 2004, although this was not an argument put forward or relied upon
by the first Appellant. Section 59 (1) (b) to (k) does not apply on the basis
that the sub-sections cover Government Departments, Public Bodies or Local
Authorities. Section 59 (1) (l) can only be applicable to “a person carrying on
a business at any time if his average annual expenditure on construction
operations exceeds one million pounds per annum.” On the basis that there was
no evidence as to whether Dr Selvarajan expended through his business in excess
of one million pounds per annum upon construction operations or that the
construction work could be classed as anything more than a “one-off”
occurrence, HMRC concluded that the legislation did not apply.
55. We were referred
by HMRC to a number of cases; we will not address those which dealt with the
issue of burden/standard of proof as there was no dispute between the parties
on this point.
56. We also bore in
mind the cases of:
(a)
Castle Construction (Chesterfield) Ltd v HMRC SC
3207/2007;
(b)
J & C Littlewood T/A JL Window & Door Services (1),
Mark Molloy (2) v HMRC Spc 00733;
(c)
Mersey Docks and Harbour Board v Coggins & Griffiths (Liverpool) Limited & Another FN65 [1945] KB 309;
(d)
Bamford, Bamford, Snowden, Lamb, Ward v Persimmon Homes NW Ltd
UKEAT/0049/04/DM
Discussion
57. We considered
all of the evidence, both written and oral, carefully. As a general matter, the
case authorities suggest that various guidelines can be helpful in determining
whether an engagement is a contract of employment or a contract for services.
The guidelines established by case law include the well-known threefold test
set out by MacKenna J in Ready Mixed Concrete (South East) Limited v
Minister of Pensions and National Insurance [1968] 2 QB 497, the
“mutuality of obligation” test” (relied upon by the 1st Appellant
but not cited so we say for the sake of completeness Usetech Ltd v Young
(HMIT) [2004] 1671), whether a “right of substitution” existed
and the intentions of the parties.
58. In Ready
Mixed Concrete (South East) Ltd Mackenna J provided a helpful starting
point in considering whether a contract of service exists:
“That a contract of service
existed if
(a) the servant agreed in
consideration of a wage or other remuneration to provide his own work and skill
in the performance of some service for his master,
(b) the servant agreed
expressly or impliedly that, in performance of the service he would be subject
to the control of the other party sufficiently to make him the master, and
(c) the other provisions of
the contract were consistent with its being a contract of service;
but that an obligation to
do work subject to the other party's control was not invariably a sufficient
condition of a contract of service, and if the provisions of the contract as a
whole were inconsistent with the contract being a contract of service, it was
some other kind of contract and the person doing the work was not a servant);
that where express
provision was not made for one party to have the right of control, the question
where it resided was to be answered by implication;
and that since the common
law test of the power of control for determining whether the relationship of
master and servant existed was not restricted to the power of control over the
manner of performing service but was wide enough
to take account of investment and loss in determining whether a business was
carried on by a person for himself or for another it was relevant to consider
who owned the assets or bore the financial risk”
59. It is important
to note however, that the authorities make clear that a mechanistic approach to
such tests should not be adopted. Nolan LJ in Hall v Lorimer
(66TC349 )said:
“I agree with the views expressed by Mummery J in the
present case at p.944 D of the report where he says:
'In order to decide whether a person carries on
business on his own account it is necessary to consider many different aspects
of that person's work activity. This is not a mechanical exercise of running through items on a
check-list to see whether they are present in, or absent from, a given
situation. The object of the exercise is to paint a picture from the
accumulation of detail. The overall effect can only be appreciated by standing
back from the detailed picture which has been painted, by viewing it from a
distance and by making an informed, considered, qualitative appreciation of the
whole. It is a matter of evaluation of the overall effect of the detail, which
is not necessarily the same as the sum total of the individual details. Not all
details are of equal weight or importance in any given situation. The details
may also vary in importance from one situation to another.””
We therefore considered this case on its own facts and we
observe that although some of the factors mentioned above can be determinative
of the nature of a relationship between parties, the same factors may be of
little or no assistance in other cases. Our approach, therefore, was to
evaluate the relevance of the various factors relied upon by the parties and
look at the overall picture.
60. We will begin
with the evidence of Ms Long, which was brief. We found Ms Long to be a
credible witness but considered her evidence to be of limited assistance. It
was clear to us that Ms Long’s relationship with Mr Coffey was both business
and personal, which was why she was able to provide a positive character
reference in addition to information about the accounts she had prepared on his
behalf. That said, it was clear from Ms Long’s evidence that she had not
discussed with Mr Coffey the nature of his business relationship with Dr
Selvarajan or the status of any such relationship. We took the view that this
was regrettable, as Ms Long was clearly knowledgeable about taxpayers’
obligations and may have provided assistance to Mr Coffey which would have
prevented this situation arising. We concluded that Ms Long’s evidence did not
assist us in determining whether Mr Coffey was employed or self-employed in his
role at the clinic, although the evidence confirmed Mr Coffey’s significant
number of years experience as a self-employed builder.
61. We went on to
consider each of the factors relied upon by the first Appellant. We agreed that
the case authorities make clear that control can be an important feature in determining
this type of issue and we had regard to the test put forward by MacKenna J in
the Ready Mixed Concrete case:
“Control includes a part of deciding the thing to be
done, the way in which it shall be done, the means to be employed in doing it,
the time when, and the place when it shall be done. All these aspects of
control must be considered in deciding whether the right exists in a sufficient
degree to make one party the master and the other his servant. The right need
not be unrestricted.”
62. The evidence by
Mr Coffey and Dr Selvarajan conflicted; Mr Coffey maintained that he did no
more than oversee the project and had no responsibilities, such as
hiring/firing labourers or setting work hours. Dr Selvarajan stated that work
hours and wages were set by Mr Coffey, who also found and managed the
workforce. On balance, we preferred the evidence of Dr Selvarajan; we found him
to be a more credible witness than Mr Coffey and we accepted his evidence that
as a GP, he simply did not have the relevant knowledge or experience to control
such aspects of the project as finding labourers or fixing their rate of pay.
We found that Mr Coffey did have such experience, and we found it wholly
unlikely that his role would be so limited as to effectively have little or no
regard to his knowledge of the building industry. We found as a fact that Dr
Selvarajan had not directed Mr Coffey in his task, nor was Mr Coffey subject to
appraisal or monitoring by Dr Selvarajan. Consequently we found as a fact that
Mr Coffey had far more control over the building project than he accepted.
63. We observed that
while the refurbishment project was in progress, Mr Coffey, on his own
evidence, undertook separate building jobs. We inferred from this evidence that
Mr Coffey was able to dictate his hours and days of work in order to allow him
to do so. We also inferred that, despite his ill health and intended
retirement, Mr Coffey was still willing and able to undertake work as a builder.
We found as a fact that this supported our view that Mr Coffey was engaged by
Dr Selvarajan as far more than an “advisor” or to “oversee” the project and
that this was one of “one-off jobs” referred to by Mr Mokhtassi as further work
undertaken after retirement. We found that the inferences we drew did not point
to Mr Coffey being employed by Dr Selvarajan, but rather that he continued to
work on the same basis he always had; self-employed.
64. We found that
the documents signed by Mr Coffey reinforced our view that his role carried
with it significant responsibilities and control. We rejected the submission of
Mr Mokhtassi that the documents should be discounted on the basis of Mr
Coffey’s explanation that he had simply signed documents without checking them,
prior to their completion and after the work had commenced. In the absence of
any written agreement between the parties at the start of the project, we found
that the documents, albeit signed after the commencement, were relevant to our
considerations and provided an indication as to the intentions/standpoint of
the parties. We noted that the titles under which Mr Coffey had signed his name
(such as “principal contractor” and “planning supervisor”) were pre-printed and
there could, therefore, have been little doubt in Mr Coffey’s mind as to what
he was signing. Taken together with his knowledge of the building industry, we
found that that Mr Coffey’s role went beyond that of “overseeing” the project
and our findings on the issue of control indicated that Mr Coffey was
self-employed.
65. HMRC relied upon
the handwritten note contained on a diary page as evidence of invoice
documentation provided by Mr Coffey to Dr Selvarajan. The assertion that this
document was written by Mr Coffey was not challenged by the first Appellant and
we therefore accepted this as fact. We rejected the first Appellant’s
submission that this list of employees to be paid adds weight to Mr Coffey’s
argument that he was an employee; we found as a fact that the evidence
indicated that Mr Coffey dictated and controlled the workers’ payments. In the
absence of any explanation from Mr Coffey as to why an employee would write or
present such a document to an employer, we were satisfied that this was further
evidence that Mr Coffey, rather than Dr Selvarajan, had a significant degree of
control over the project.
66. We observe at
this point that such indications of self-employment are not necessarily
decisive of the issue, and we considered the analogy put forward by Mr
Mokhtassi of a businessman with no IT expertise has employed an IT manager to
run the IT department, the latter would not be classed as self-employed. We
took the view that each case must be decided on its own facts and there may be
circumstances in which the IT manager may be deemed to have significant control
in his work, equally the IT manager may be part and parcel of the company, with
set working days and a contract of employment. Having evaluated the indicators
present in this case and balanced against them the overall picture inferred
from the evidence, we found as a fact that, although not decisive, the degree
of control pointed to Mr Coffey being self-employed.
67. As no written
contract existed between the parties at the start of the project, we were
invited to consider the intentions of the parties and it was submitted on
behalf of the first Appellant that the initial intention on both sides had been
for Mr Coffey to be employed. This assertion was not supported by the second
Appellant who maintained that the Appellant had been engaged in a business
transaction as a building contractor and that there had been no agreement that
Mr Coffey would be an employee. We preferred the evidence of Dr Selvarajan
which we found more convincing than that of Mr Coffey and which, in our view, was
supported by the signed documents referred to at paragraph 59 above. Having
found as a fact that Mr Coffey had significant knowledge and experience in the
building industry, we did not find his evidence that he intended to be an
employee credible and in the absence of any credible explanation as to why Mr
Coffey would suddenly change his lifetime’s nature of trading, without further
enquiry, we rejected his submission that both parties had commenced the project
on an employer/employee basis.
68. We noted that
the minutes of meeting dated 12 February 2008 between Mr Mistry and Mr Hilton
(representing Mr Coffey) referred to a meeting on 27 October 2006 at which Mr
Coffey and Mr Mistry were present. The notes were not provided to us but
reference was made to Mr Coffey’s initial assertion that he had only provided
free advice to Dr Selvarajan. The minutes of 12 February 2008 subsequently
refer to this assertion being retracted by Mr Coffey at a further meeting with
HMRC on 23 February 2007 (again, the notes of which were not provided to us)
when disclosure was made by Mr Coffey of the £500 weekly payment he had
received. As we indicated earlier in this decision, we were careful not to
attach too much weight to the notes (particularly where they referred to minutes
not provided within the bundles) but we observe that the content therein was
not challenged by Mr Mokhtassi or Mr Coffey and we therefore reinforced our
finding that Mr Coffey’s evidence lacked credibility.
69. We considered
the issue of financial risk, although again we observe that the authorities
have made clear that this factor is not necessarily determinative of the issue.
It was submitted by the first Appellant that the lack of any financial risk to
him was an indication that he was employed. We do not accept this submission.
Mr Coffey had signed a document dated 23 March 2005 undertaking responsibility
to make good defects during the 3 month period from practical completion of all
of the works. Had there been any defects (about which there was no evidence) we
found that this document would have assisted the second Appellant in
establishing Mr Coffey’s liability in any claim that arose. In addition, we
noted that the Public and Employers Liability Insurance in respect of Mr
Coffey’s work as a builder covered part of the period of the project for
himself and up to 8 workers. We found as a fact that these documents indicated
a significant degree of responsibility, financial risk and management for the
project by Mr Coffey, which supported our earlier findings that the indications
pointed toward his self-employment.
70. We bore in mind
that there had been a fixed sum of money paid to Mr Coffey on a weekly basis,
including while he was on holiday. In the absence of any written agreement
between the parties, we were not satisfied that this could be described as an
“employee’s wage/benefit” or that it indicated anything more than the
informality of the arrangement between the parties. We noted that within the
documents provided to us, there was reference to periods where the payment
differed. None of the parties explored this matter in evidence and consequently
we do not find that this issue is indicative of employment or self-employment.
71. The first
Appellant relied on mutuality of obligation in support of his case; namely that
for a fee of £500 Mr Coffey delivered a service by which he oversaw the
project. We did not find that this point assisted either party; having found
that Mr Coffey’s role went beyond that of “overseeing” the project, we
concluded that the payment agreement between the parties could have equally
applied to Mr Coffey in a number of capacities, whether under a contract of
service or a contract for service. In our view, this test was of limited
assistance in determining the issue before us.
72. It was submitted
on behalf of Mr Coffey that Dr Selvarajan had provided the tools and equipment
for the project, thus indicating his employment. Dr Selvarajan’s evidence to
the Tribunal was that the pair would go to buy the materials or tools together,
paid for by Dr Selvarajan but under the guidance (and often the trade account)
of Mr Coffey. There was reference to skip hire in the documents provided to us,
and by way of example, we would not necessarily expect a builder to own and use
his own skip, but rather hire one and invoice the client. We found as a fact
that this factor was of limited assistance in reaching our decision.
73. It was submitted
by Mr Mokhtassi that Mr Coffey should be viewed as “part and parcel” of the
organisation. We found such an assertion to be misconceived. Dr Selvarajan ran
a GP practice and we could not see how, on any view, Mr Coffey could be deemed
as an integral, or even ancillary, part of the practice. All of the evidence
indicated that the refurbishment project was a temporary “one-off” development
and therefore we rejected the assertion that a construction project had any
part to play in the running of the main organisation as a medical clinic. We
found as a fact that this was indicative of the self-employed nature of Mr
Coffey’s work.
74. We were invited
to consider the issue of right of substitution, which was not disputed by HMRC
in their letter to the first Appellant’s representatives dated 19 October 2009
as being an indicator of employment. Given that there was no dispute, we did
not consider this issue any further and accepted the position as agreed between
the parties.
75. We clarified
with Mr Mokhtassi whether the allegation of bias by HMRC or prejudice against
the first Appellant by Mr Mistry were to be relied upon in support of the first
Appellant’s case and we were informed that they were not. We did not,
therefore, consider these issues in reaching our decision.
76. We considered
the issue of the Construction Industry Scheme and agreed with the parties that
it was not relevant to our determination as to whether Mr Coffey was employed
by Dr Selvarajan. It was asserted by the first Appellant that Dr Selvarajan is
not precluded as a GP from carrying out a self-build project and consequently
PAYE or CIS schemes may apply. There was no evidential support for the
assertion that Dr Selvarajan had treated the project as a self-build scheme, and
the issue was not put to Dr Selvarajan; consequently we could not be satisfied
that this had been the case and therefore we did not go on to consider whether
PAYE or CIS schemes could have applied. We observe that if we had been invited
to give further consideration to the applicability of the CIS (putting aside
the issue of a self-build project) we would have accepted HMRC’s submission
that to apply such a scheme to the present situation would be analogous to
finding that the scheme was equally applicable to a private homeowner who
engaged a builder to construct an extension or conservatory, which, in our
view, would be a flawed approach. However, as the parties invited us to put the
issue to one side for the purposes of this appeal, we say no more.
77. We were faced
with two opposing arguments which cannot be reconciled. We had some reservations
about the fact that Dr Selvarajan, on the face of it an intelligent and
professional man, would enter into business without the safeguard of a written
contract. We rejected the submission urged upon us by Mr Mokhtassi that Dr
Selvarajan had “lulled” Mr Coffey into such a situation, although we did agree
it was perhaps unwise that the relationship had comprised of doctor/patient,
friend and engagement in refurbishing the clinic. We balanced our reservations
against the evidence of Mr Coffey, a man with significant experience in the
building industry who was aware of his tax obligations as a self-employed
builder. We queried why Mr Coffey undertook and carried out a project without
speaking to his accountant, particularly if, as suggested by Mr Coffey, the
work was to be under employment as opposed to his usual self-employed business.
We considered carefully the documents signed by Mr Coffey and we rejected the
submission that they should be discounted. We observed that there would have
been no need for Mr Coffey to renew his Employer’s Liability Insurance (albeit
paid by Dr Selvarajan) if he was to have no responsibilities as an employee. To
the contrary, it seemed to us that Mr Coffey would only have had cause to renew
the insurance to safeguard against any potential liability as a result of
undertaking the work.
78. In balancing the
evidence of the two Appellants in this case, we found as a fact that Mr Coffey,
the experienced builder, had a significant degree of control over the project.
We did not accept that Dr Selvarajan, who continued to work as a GP throughout
the project, had either the time or knowledge to dictate how, when or with
which labourers the project should be carried out; indeed had he had such
knowledge and experience, the role of Mr Coffey would have been redundant.
Whatever the description given to Mr Coffey’s role, be it builder, principal
contractor or project manager, we found that it could not be said, on any view,
that he was an employee of the GP practice or Dr Selvarajan.
79. Having
considered the tests and wider issues set down by case law, we found as a fact
that the relationship between Mr Coffey and Dr Selvarajan was not one of master
and servant and that the features of the relationship indicated that Mr Coffey
was self-employed.
Decision
80. We dismiss the
appeal of Mr Coffey T/A Coffey Builders having concluded that Mr Coffey was
self-employed throughout the period of engagement with Dr Selvarajan. With the
agreement of HMRC and the first Appellant, we do not make any determination in
respect of the amendments to the assessments raised against Coffey Builders.
81. We confirm in
respect of Dr Selvarajan’s appeal that we find that Mr Coffey was acting in his
capacity as a self-employed partner of Coffey Builders and that Dr Selvarajan
was not Mr Coffey’s employer.
82. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. The parties
are referred to “Guidance to accompany a Decision from the First-tier Tribunal
(Tax Chamber)” which accompanies and forms part of this decision notice.
TRIBUNAL JUDGE
RELEASE DATE: 4 November 2011
