HMRC’s simplistic view of control was highlighted in the recent FTT case involving Jensal Software Ltd (JSL) where HMRC’s view of control was found to be far too rigid and simplistic. The Judge found in favour of JSL with a more considered approach to control. So how much control needs to exist for a contractor to be considered a disguised employee under the IR35 legislation?
When considering the level of control over the provision of services, it is necessary to consider how, what, where, and when the services are provided. Additionally, it is crucial to consider the right of control.
Although an end client may not actually exercise any control, if it has the right to exercise control over the work at any time, then HMRC will argue that control over the work exists.
“What we are concerned with is the right to control what the worker has to do, where it has to be done, when it has to be done and how it has to be done. It is the right to exert control that is significant; not whether that right is exercised” – HMRC’s ESM0516.
In the recent Tribunal hearing of Jensal Software Ltd referred to above, similarities were made with the Special Commissioners case ofFirst Word Software Ltd v HMRC. In the case of FWS, it was said that when considering whether the contractor was subject to a “sufficient degree” of control by the end client Reuters, it was determined that Mr Atkins (the contractor) was engaged for his specific expertise and for a very specific project, and the way in which the work was undertaken was left for him to determine.
The ‘what’ element of control can be trickier to navigate because the end client will of course tell a contractor what work they require completing, however it might be that the contractor will be able to determine what to do in order to achieve the client’s requirements.
Jensal Software Ltd had always maintained that they determined what needed to be completed when such work should be done. However, because JSL where subject to meetings and discussions and had to report on progress, HMRC claimed that this constituted control over JSL.
JSL did not work set hours because the work often varied according to the time scales set. This was despite the contract indicating the working hours to be 37.5 per week.
With regards to the location of working, HMRC claimed that JSL had no control over this matter and that they had to work at a site dictated by DWP. In fact, the nature of the work often dictated where the services needed to be carried out.
Neither the location nor hours of working however are likely to be determining factors in isolation.
The Tribunal was concluded in favour of JSL with the Judge considering that any instructions issued by DWP were few and far between, and that JSL were able to determine what was required and how it should deliver the work.
The DWP witnesses who gave evidence at the Tribunal made very clear distinctions between the level of control and supervision employees would be subject to compared to employees.
Although JSL was subject to certain checks and requests, the Judge concluded that:
“The level of control exercised did not go beyond that which was usual for an independent contractor. In balancing all of the factors I conclude that Mr Wells was not subject to the degree of control which would be necessary to constitute a contract of employment.”
Sound familiar? The Ready Mixed Concrete case of 1968, which remains to this day to be crucial case law, stated that:
“The worker has to be subject to a right of control. If there is no right of control of any kind then you will not have a contract of service.”