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22 November 2000
My client runs a business of chauffeur driven car hire for special occasions and he has a fleet of about twelve cars available for this purpose. Most bookings are for evening or weekend events.
The drivers for the cars are selected from a list of individuals who are known to be willing to offer their services if available. However, there is no obligation on one side or the other to offer work or to accept it; in fact some of the drivers have full-time employments so that the times at which they can accept engagements are limited according to their office hours.
The drivers for the cars are selected from a list of individuals who are known to be willing to offer their services if available. However, there is no obligation on one side or the other to offer work or to accept it; in fact some of the drivers have full-time employments so that the times at which they can accept engagements are limited according to their office hours.
My client runs a business of chauffeur driven car hire for special occasions and he has a fleet of about twelve cars available for this purpose. Most bookings are for evening or weekend events.
The drivers for the cars are selected from a list of individuals who are known to be willing to offer their services if available. However, there is no obligation on one side or the other to offer work or to accept it; in fact some of the drivers have full-time employments so that the times at which they can accept engagements are limited according to their office hours.
The drivers receive a fixed rate of pay for each job and to date they have been treated as self-employed subcontractors.
Do readers consider that there is any doubt about the self-employed status of the drivers? Cases such as Hall v Lorimer [1994] STC 23 are encouraging but can be distinguished because here the drivers do not do similar work of this kind for any other person.
(Query T15,714) – Steering Committee.
The status of a worker is determined by considering the contract terms and conditions as agreed between the parties, be they written, oral or implied. One then has to take account of the current case law to identify which factors the courts have said indicate Schedule E or D, bearing in mind that certain factors are judicially considered to be far more important than others.
'Steering Committee' has identified that there is a lack of mutuality of obligations, which is a fundamental factor indicating there is no employer/employee relationship. Arguably it is such a fundamental factor that it falls within the group of factors identified by Lord Justice Peter Gibson in the 1999 Court of Appeal case of Express Echo Publications Group v Tanton. The judge said that if there are any terms which are fundamentally inconsistent with a direct employment relationship, then that will be the end of the matter and the worker will not be an employee. He said that only where there are no such fundamentally 'employment inconsistent' terms is it then necessary to consider all other factors and come to a balanced conclusion. In the Express case the substitution issue was fundamental, but it is suggested a lack of mutuality runs a close second following the early decision in O'Kelly v Trust House Forte [1983] 3 All ER 456 and Carmichael v National Power, House of Lords [1999] Here Lord Irvine said the workers' arguments for employee status 'foundered on the rock of a lack of mutuality'.
Incidentally the Revenue, even in its new Employment Status Manual tries to play down the importance of mutuality but the case law is not on its side.
The mere fact that the drivers have other full-time employment commitments is not strictly relevant. It is the terms of their engagement with 'Steering Committee's' client which are relevant.
Fixed rates of pay is helpful but far from conclusive. If the Revenue has accepted self employed status for several years, then this can help substantially following the case of Brabyn v Barnett [1996] STC 716. Here the Revenue argued that where a person's tax liabilities have been determined in a certain way in the past this would be 'cogent evidence' of the correct status. The court agreed and the Revenue has tried to play down this precedent in recent years.
Hall v Lorimer [1994] STC 23, like all cases, can be distinguished on the facts but it is the legal principles which we need to concentrate on. In BSM 1257 Ltd v Secretary of State [1978], the High Court accepted that driving instructors were self employed despite the fact that BSM provided the cars, as it was commercially sensible and practical to do so. I anticipate the Inspector will suggest that as the drivers do not supply their own cars, this would indicate direct employee status, but again the case law is not on its side.
Consider all the relevant factors and attach the correct level of importance to them. I suggest the pecking order is substitution, lack of mutuality, risk, intention, business organisation and control, then various minor factors. The correct status will generally then be readily apparent. – Accountax.
One firstly assumes from 'Steering Committee's' phraseology that the supposed self-employed status of the subcontractors has never been severely tested by the taxing authorities, otherwise he would not be posing this query now. He is right to be concerned at the prospect of the possible outcome of a pay-as-you-earn compliance audit. If his client were to be found retrospectively liable for pay-as-you-earn and National Insurance contributions on payments to the drivers, the financial consequences could be very adverse indeed.
This is clearly a borderline case which, on the basis of the limited information given, indicates that the drivers might indeed be re-classified as casual-employees who should be on BR codings or similar, unless carefully planned remedial action is taken now.
To protect the client's position, to one of at least damage limitation, I suggest that the full facts are proferred to the local tax office for a decision. If full disclosure of the facts is made and the Revenue decides the drivers are correctly treated as self-employed, then the client has peace of mind. If the Revenue decides on employment status, one can argue each individual point, but at least disclosure will have been made voluntarily and not reluctantly as the result of an investigation. Better still, by raising the point with the Revenue, the practitioner and client can retain control of the situation and present matters in their best possible light, after making a few careful changes as suggested below:
(1) Although the drivers are not bound to accept work offered, it is not they who provide the substitute, it is the client. How about, therefore, arranging a meeting with all the drivers present? They could be made known to each other so that one could suggest another directly as a substitute.
(2) There is no mention of it in the query, but one suspects that the drivers at present have uniforms provided to them by the client. This is very indicative of an employed scenario. Instead, I suggest that the drivers are made responsible for providing and maintaining their own uniforms, albeit en bloc in a coordinated manner. In return for cleaning, maintaining and replacing their uniforms, increase the drivers' payment rate correspondingly.
(3) There is no indication that the drivers actually supply the client with invoices for work done. This needs to be done in every case.
(4) How does the client know for certain that the drivers do not do any other similar work, or that they are not hoping to do so? The fact that they have not pledged any undertaking not to do so is indicative of self-employment. A standard Contract for Services needs to be drafted for all the drivers, making it clear that they are free to tender for other similar work if they so wish.
It is crucial that the Contract for Services is drafted carefully by a suitable legal expert, who should include the pointers (1) to (4) above. This will give the client the strongest possible case with which to confront the Inland Revenue on this issue. Attack is the best form of defence! – Holmewood.
Editorial note. There are merits (and dangers) in 'Holmewood's' suggested approach. I acted in a not dissimilar, but larger case, when the 'main contractor' funded the fees. It took over four years to resolve, and the Revenue only conceded when counsel was briefed to take appeals to the Special Commissioners. The costs were substantial, and this aspect has to be faced and resolved before any precipitate action is taken. The long-term benefits of self employment may make negotiations worthwhile, but the cost needs to be counted. Unless the dispute is the result of a Revenue enquiry, a claim under a fee insurance policy is unlikely to be competent. – J.T.N.
The drivers for the cars are selected from a list of individuals who are known to be willing to offer their services if available. However, there is no obligation on one side or the other to offer work or to accept it; in fact some of the drivers have full-time employments so that the times at which they can accept engagements are limited according to their office hours.
The drivers receive a fixed rate of pay for each job and to date they have been treated as self-employed subcontractors.
Do readers consider that there is any doubt about the self-employed status of the drivers? Cases such as Hall v Lorimer [1994] STC 23 are encouraging but can be distinguished because here the drivers do not do similar work of this kind for any other person.
(Query T15,714) – Steering Committee.
The status of a worker is determined by considering the contract terms and conditions as agreed between the parties, be they written, oral or implied. One then has to take account of the current case law to identify which factors the courts have said indicate Schedule E or D, bearing in mind that certain factors are judicially considered to be far more important than others.
'Steering Committee' has identified that there is a lack of mutuality of obligations, which is a fundamental factor indicating there is no employer/employee relationship. Arguably it is such a fundamental factor that it falls within the group of factors identified by Lord Justice Peter Gibson in the 1999 Court of Appeal case of Express Echo Publications Group v Tanton. The judge said that if there are any terms which are fundamentally inconsistent with a direct employment relationship, then that will be the end of the matter and the worker will not be an employee. He said that only where there are no such fundamentally 'employment inconsistent' terms is it then necessary to consider all other factors and come to a balanced conclusion. In the Express case the substitution issue was fundamental, but it is suggested a lack of mutuality runs a close second following the early decision in O'Kelly v Trust House Forte [1983] 3 All ER 456 and Carmichael v National Power, House of Lords [1999] Here Lord Irvine said the workers' arguments for employee status 'foundered on the rock of a lack of mutuality'.
Incidentally the Revenue, even in its new Employment Status Manual tries to play down the importance of mutuality but the case law is not on its side.
The mere fact that the drivers have other full-time employment commitments is not strictly relevant. It is the terms of their engagement with 'Steering Committee's' client which are relevant.
Fixed rates of pay is helpful but far from conclusive. If the Revenue has accepted self employed status for several years, then this can help substantially following the case of Brabyn v Barnett [1996] STC 716. Here the Revenue argued that where a person's tax liabilities have been determined in a certain way in the past this would be 'cogent evidence' of the correct status. The court agreed and the Revenue has tried to play down this precedent in recent years.
Hall v Lorimer [1994] STC 23, like all cases, can be distinguished on the facts but it is the legal principles which we need to concentrate on. In BSM 1257 Ltd v Secretary of State [1978], the High Court accepted that driving instructors were self employed despite the fact that BSM provided the cars, as it was commercially sensible and practical to do so. I anticipate the Inspector will suggest that as the drivers do not supply their own cars, this would indicate direct employee status, but again the case law is not on its side.
Consider all the relevant factors and attach the correct level of importance to them. I suggest the pecking order is substitution, lack of mutuality, risk, intention, business organisation and control, then various minor factors. The correct status will generally then be readily apparent. – Accountax.
One firstly assumes from 'Steering Committee's' phraseology that the supposed self-employed status of the subcontractors has never been severely tested by the taxing authorities, otherwise he would not be posing this query now. He is right to be concerned at the prospect of the possible outcome of a pay-as-you-earn compliance audit. If his client were to be found retrospectively liable for pay-as-you-earn and National Insurance contributions on payments to the drivers, the financial consequences could be very adverse indeed.
This is clearly a borderline case which, on the basis of the limited information given, indicates that the drivers might indeed be re-classified as casual-employees who should be on BR codings or similar, unless carefully planned remedial action is taken now.
To protect the client's position, to one of at least damage limitation, I suggest that the full facts are proferred to the local tax office for a decision. If full disclosure of the facts is made and the Revenue decides the drivers are correctly treated as self-employed, then the client has peace of mind. If the Revenue decides on employment status, one can argue each individual point, but at least disclosure will have been made voluntarily and not reluctantly as the result of an investigation. Better still, by raising the point with the Revenue, the practitioner and client can retain control of the situation and present matters in their best possible light, after making a few careful changes as suggested below:
(1) Although the drivers are not bound to accept work offered, it is not they who provide the substitute, it is the client. How about, therefore, arranging a meeting with all the drivers present? They could be made known to each other so that one could suggest another directly as a substitute.
(2) There is no mention of it in the query, but one suspects that the drivers at present have uniforms provided to them by the client. This is very indicative of an employed scenario. Instead, I suggest that the drivers are made responsible for providing and maintaining their own uniforms, albeit en bloc in a coordinated manner. In return for cleaning, maintaining and replacing their uniforms, increase the drivers' payment rate correspondingly.
(3) There is no indication that the drivers actually supply the client with invoices for work done. This needs to be done in every case.
(4) How does the client know for certain that the drivers do not do any other similar work, or that they are not hoping to do so? The fact that they have not pledged any undertaking not to do so is indicative of self-employment. A standard Contract for Services needs to be drafted for all the drivers, making it clear that they are free to tender for other similar work if they so wish.
It is crucial that the Contract for Services is drafted carefully by a suitable legal expert, who should include the pointers (1) to (4) above. This will give the client the strongest possible case with which to confront the Inland Revenue on this issue. Attack is the best form of defence! – Holmewood.
Editorial note. There are merits (and dangers) in 'Holmewood's' suggested approach. I acted in a not dissimilar, but larger case, when the 'main contractor' funded the fees. It took over four years to resolve, and the Revenue only conceded when counsel was briefed to take appeals to the Special Commissioners. The costs were substantial, and this aspect has to be faced and resolved before any precipitate action is taken. The long-term benefits of self employment may make negotiations worthwhile, but the cost needs to be counted. Unless the dispute is the result of a Revenue enquiry, a claim under a fee insurance policy is unlikely to be competent. – J.T.N.
