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First-tier Tribunal (Tax) |
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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Yetis v Revenue & Customs [2012] UKFTT 753 (TC) (08 December 2012) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2012/TC02410.html Cite as: [2012] UKFTT 753 (TC) |
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[2012] UKFTT 753 (TC)
TC02410
Appeal number: TC/2010/08611
INCOME TAX – contract of employment or contract for services – no written terms – held contract of employment – appeal allowed
FIRST-TIER TRIBUNAL
TAX CHAMBER
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YURDAER YETIS |
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Appellant |
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THE COMMISSIONERS FOR HER MAJESTY’S |
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REVENUE & CUSTOMS |
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First Respondents |
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STYLE SUPERIOR WINDOWS & CONSERVATORIES LIMITED |
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Second Respondent |
TRIBUNAL: |
JUDGE GREG SINFIELD |
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MS SONIA GABLE |
Sitting in public in Cambridge on 1 November 2012
The Appellant appeared in person
Ms Susanne Whitley and Mr Ian Birtles, officers of HM Revenue and Customs, for the First Respondents
Mr Paul Milton of Lovewell Blake LLP for the Second Respondent
© CROWN COPYRIGHT 2012
DECISION
Introduction
Issue and burden of proof
“The starting point is an ordinary appeal before the [Tribunal]. Here, however unacceptable the idea may be to the ordinary member of the public, it has been clear law binding on this court for sixty years that an inspector of taxes has only to raise an assessment to impose on the taxpayer the burden of proving that it is wrong: Haythornthwaite & Sons Ltd v Kelly (Inspector of Taxes) (1927) 11 TC 657.”
Indicators of employment status
“I must now consider what is meant by a contract of service. A contract of service exists if the following three conditions are fulfilled: (i) the servant agrees that in consideration of a wage or other remuneration he will provide his own work and skill in the performance of some service for his master. (ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master. (iii) The other provisions of the contract are consistent with its being a contract of service.”
The factors considered by the courts in subsequent cases are either included in or are developments of MacKenna J’s threefold test. We consider the factors in the following paragraphs before applying them to the facts of this case.
"The servant must be obliged to provide his own work and skill. Freedom to do a job either by one's own hands, or by another's is inconsistent with a contract of service, though a limited or occasional power of delegation may not be ..."
10. The requirement that services must be performed personally has been seen as a characteristic of the employment relationship, and if it is not present the relationship will not be one of employer/employee: see Peter Gibson LJ, giving the only judgement of the Court of Appeal in Express and Echo Publications Ltd v Tanton [1999] ICR 693 at [31]; and the right to send a substitute to perform services, whether or not it is exercised, is inconsistent with employment: see Peter Gibson LJ in Express and Echo at [25].
12. Control. The “control test” is whether the individual was placed under the control and supervision of the person to whom the service was rendered as in a master and servant relationship. In Ready Mixed Concrete, MacKenna J said at page 440:
"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."
“…control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor'. The fundamental question which has to be asked is whether the person who has engaged himself to perform the services in question is performing them as a person in business on his own account. If the answer to that question is 'yes', then the contract is a contract for services. If the answer is 'no', then the contract is a contract of service.”
14. Cooke J said that among the factors relevant here are whether the service provider provides his own equipment or hires his own helpers, what degree of financial risk he takes, what degree of responsibility for investment and management he has, whether and how far he has an opportunity of profiting from sound management in the performance of his task and whether the business he has is already established. In Lee Ting Sang v Chung Chi-Keung [1990] 2 AC 374, which was a Privy Council case, Lord Griffiths endorsed the approach of Cooke J in Market Investigations, saying at 382 that "the matter had never been better put".
"(1) The tribunal should establish what were the terms of the agreement between the parties. That is a question of fact.
(2) The tribunal should then consider whether any of the terms of the contract are inherently inconsistent with the existence of a contract of employment. That is plainly a question of law, and although this court, as indeed the appeal tribunal before us, has no power to interfere with findings of fact (an appeal only lies on a point of law), if there were a term of the contract inherently inconsistent with a contract of employment and that has not been recognised by the tribunal's chairman, that would be a point of law on which this court, like the appeal tribunal before us, would be entitled to interfere with the conclusion of the chairman.
(3) If there are no such inherently inconsistent terms the tribunal should determine whether the contract is a contract of service or a contract for services, having regard to all the terms. That is a mixed question of law and fact."
16. The mere fact that the parties have provided in an agreement that their status is either as an employee or as an independent contractor is not determinative As Henderson J said in Dragonfly Consultancy Ltd v The Commissioners for Her Majesty's Revenue & Customs [2008] EWHC 2013 (Ch), [2008] STC 3030 at [53]:
"… statements by the parties disavowing any intention to create a relationship of employment cannot prevail over the true legal effect of the agreement between them. It is true that in a borderline case a statement of the parties' intention may be taken into account and may help to tip the balance one way or the other: see Ready Mixed Concrete at 513B and Massey v Crown Life Insurance Co [1978] 1 WLR 676 (CA). In the majority of cases, however, such statements will be of little, if any, assistance in characterising the relationship between the parties."
18. Integration. Finally, we mention a factor discussed in some of the cases, namely the extent to which the worker is integrated into the employer, if it is a corporate body, or the employer's business where the employer is an individual or partnership. Lord Denning in Stevenson, Jordan and Harrison Ltd v MacDonald and Evans [1952] 1 TLR 101 considered that whether the individual is "part and parcel" of the organisation or is employed as part of the business and whose work is done as an integral part of the business was a relevant factor. Although clearly not conclusive, it seems to us that a person who is not integrated into a business is unlikely to be an employee.
Evidence and facts
Approach to the issue
34. In Hall v Lorimer [1992] STC 599 Mummery J said at page 612:
"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 the checklist 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 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."
35. Mummery J's comments were approved on appeal by Nolan LJ, see [1994] STC 23 at 29, who said:
"Mr Goldsmith invited us to adopt the same approach as that of Lord Griffiths in applying the test or indicia set out by Cooke J [in Market Investigations]. That is an invitation which I view with some reserve. In cases of this sort there is no single path to a correct decision. An approach which suits the facts and arguments of one case may be unhelpful in another."
"It is in my judgment, quite impossible in the field where a very large number of factors have to be weighed to gain any real assistance by looking at the facts of another case and comparing them one by one to see what facts are in common, what are different and what particular weight is given by another tribunal to the common facts. The facts as a whole must be looked at, and what may be compelling in one case in the light of all the facts may not be compelling in the context of another case."
Discussion
(1) Personal service/right to engage substitutes. The evidence was that Mr Yetis was not allowed to provide a replacement if he was unable to carry out the work himself and could not engage a helper, even if he paid for the helper out of his own money. This indicates that he was an employee rather than self-employed.
(2) Mutuality of obligation. This means that not only must the employee be under an obligation to carry out the work but the employer must be obliged to provide work if available. In this case, the nature of the work means that Style only had to provide the opportunity for Mr Yetis to generate leads. In reality, all that Style was required to do was provide a stand, with some promotional literature, and a place to put it. Style provided this at the Homebase store in Cambridge and, later, the Rookery Shopping Centre in Newmarket. We do not regard this factor as a particularly strong indicator of Mr Yetis's employment status as Style provided the same facilities for use by the self-employed salesmen if Mr Yetis were not able to attend.
(3) Control/whether in business on own account. The issue of control must be assessed in the light of the nature of the work done. It is clear from Mr Pitt's evidence that Mr Yetis's work was carried out by him without supervision but that Style decided where the stand would be and, therefore, where Mr Yetis would work. Whether Mr Yetis was in business on his own account seems to us to be more relevant to the facts of this case. While it might be said that Mr Yetis had an opportunity to profit by generating more leads, we consider that Mr Yetis was never at any risk of making a financial loss. As we have found, he always received £200 per week (apart from three weeks when he was on holiday in 2007) even when he had not generated any leads. Another factor in determining whether a person is in business on his own account is financial responsibility. Mr Yetis did not provide his own equipment and was not responsible for any investment (the costs of the stand etc were borne by Style). We consider that the evidence indicates that Mr Yetis was not in business on his own account.
(4) Intention of parties/integration. In the absence of a written agreement, the intention of the parties can only be inferred from the surrounding circumstances. The arrangements for the payment of remuneration do not determine a person's employment status but we consider that they can indicate how the parties view their relationship. Mr Yetis was paid £200 per week every week which was unlike the salesmen and more like the employees who were paid a regular salary. Unlike the employees, however, Mr Yetis did not receive any payslips or P60s and was not paid when he went away on holiday (apart possibly from one week, which we do not regard as conclusive). Another pointer to how the parties view their relationship is the hours spent in the workplace. Mr Pitt said that Mr Yetis usually worked five days a week. Mr Yetis said that, from March 2009 when he started to work on commission only, he only manned the stand when he wanted to do so which was not all the time. We accept the submission of HMRC that payment of a regular weekly amount does not necessarily indicate an employer/employee relationship. HMRC gave the example of such payments in the construction industry. Our view is that there is a difference between regular payments in the nature of stage payments, as in the construction industry example, and the payments in this case. It seems to us that the payments were a basic amount to enable Mr Yetis to live but which he could enhance by earning commission on leads that he generated. Our view is that the payment arrangements for Mr Yetis were much closer, though not identical, to those of Style's employees then to the commission only remuneration for the salesmen. Our view is that the regular weekly minimum payment indicates that the Style and Mr Yetis regarded Mr Yetis as an employee.
Costs
"(b) where the person is not a party, make provision for the person's necessary expenses of attendance to be paid and state who is to pay them."
The witness summons stated that Mr Yetis would pay Mr Pitt's necessary expenses of attending the hearing. At the hearing, Mr Yetis submitted that he should not be required to pay Mr Pitt's expenses because, as a result of the Tribunal's direction that Style should be a respondent, Mr Pitt was a party to the proceedings. We rejected that submission on the ground that Mr Pitt was summoned to give evidence as an individual and he was not a party to the appeal. Style was a party to the appeal, as Second Respondent but, even though he was a director of Style, Mr Pitt was not a party.
41. At the hearing, Mr Yetis also indicated that he wished to apply for his costs to be paid by HMRC. This appeal had not been allocated to the complex category. We indicated to Mr Yetis that, under Rule 10(1) of the FTT Rules, costs can only be awarded, in cases other than complex category cases, if the Tribunal considers that a party or their representative has acted unreasonably in bringing, defending or conducting the proceedings.
42. In G Wilson (Glaziers) Ltd v HMRC [2012] UKFTT 387 (TC), the successful appellant sought costs on the grounds that HMRC had acted unreasonably in imposing default surcharges which were the subject of the appeal. The Tribunal held that, as HMRC cannot bring appeal proceedings, it followed that it is only HMRC's conduct after commencement of the appeal, ie after the notice of appeal was served, that is relevant to the question of whether they have behaved unreasonably. We agree with the Tribunal in G Wilson (Glaziers). Accordingly, we can only award costs in this case if we consider that HMRC have acted unreasonably in defending or conducting the appeal after it was brought by Mr Yetis. Even if we consider that HMRC has behaved unreasonably, the award of any costs is subject to the discretion of the Tribunal (see section 29 of the Tribunals, Courts and Enforcement Act 2007).
Decision
Rights of appeal
46. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with the Tribunal’s 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.
GREG SINFIELD
TRIBUNAL JUDGE
RELEASE DATE: 8 December 2012