S, D or C history lesson

[jamesbrown]

There's been some discussion recently about the reformulation of the control test as being "subject to, or to the right of, supervision, direction or control", and whether this is a recent sleight of hand. I was pretty certain that it wasn't, so I had a look back through the legislation. Surprisingly, this exact formulation goes back a very long way. The earliest occurrence I could find is in s38 of the Finance (No. 2) Act 1975, linked here.

From p.28 in the above link:

38.-(1) Subject to the provisions of this section, where-
(a) an individual (in this section called " the worker ")
renders or is under an obligation to render personal
services to another person (in this section called " the
client ") and is subject to, or to the right of, supervision,
direction or control as to the manner in which
he renders those services ; and
(b) the worker is supplied to the client by or through a PART III
third person (in this section called " the agency "), and
renders or is under an obligation to render those
services under the terms of a contract between the
worker and the agency (in this section called " the
relevant contract ") ; and
(c) remuneration receivable under or in consequence of that
contract would not, apart from this section, be charge.
able to income tax under Schedule E,

then, for all the purposes of the Income Tax Acts, the services
which the worker renders or is under an obligation to render to
the client under that contract shall be treated as if they were
the duties of an office or employment held by the worker, and
all remuneration receivable under or in consequence of that
contract shall be treated as emoluments of that office or employment
and shall be assessable to income tax under Schedule E
accordingly.

Back to the future

[TykeMerc]

It does look remarkably similar, good find.

I wonder why that section fell from use in the intervening years and if it was unsuitable then why it seems to be a "good idea" now.

[malvolio]

Still a case of sloppy drafting perhaps. The definition should be taken from the case law set by the earlier RMC case

[jamesbrown]

It does look remarkably similar, good find.

I wonder why that section fell from use in the intervening years and if it was unsuitable then why it seems to be a "good idea" now.

One interesting thing is that it didn't. It has been used in various contexts for many years. I found the same reference in the Income and Corporation Taxes Act 1988 and, more recently, in the Finance Act 2003:

8B(d) he is subject to (or to the right of) supervision, direction or control by the company as to the manner in which those services are provided

[LisaContractorUmbrella]

Good find JamesBrown So, basically, we'll just go back to the way things used to be before contractors were invented

[fidot]

Still requires personal service

The quoted clause says sd or c in addition to personal service so it still isn't sd or c in isolation.

[jamesbrown]

The quoted clause says sd or c in addition to personal service so it still isn't sd or c in isolation.

That much is clear. As we all know, IR35 isn't currently formulated as "control" only (or indeed one element of control, which is the focus of SDC). Nevertheless, this particular formulation of SDC isn't a recent permutation, and has been used many times before, particularly in the context of agencies (which is probably why it re-appeared again in the recent agency legislation). As far as I can tell, there are some close parallels between what happened with sole traders being effectively prevented from working via agencies, which resulted in a shift towards limited companies, and the current situation that might arise with SDC being decided by clients/agencies, namely that it may be possible to continue operating outside IR35, in principle, but it will be difficult in practice. Remember, in the distance past, when it was possible to operate as a sole trader via an agency (I mean in practice, it still is in principle), it was possible to circumvent SDC as an employment test, because the contract was with the agency, not the end client, and the agency has little control in terms of SDC. This was first addressed in 1975 (see above) by requiring the application of Schedule E, rather than Schedule D, treatment in an agency arrangement. I think there are some close parallels now.

The shift to SDC is interesting, because this was presumably considered insufficiently powerful at some point in the past. It doesn't surprise me. For any professional person, it is difficult to demonstrate the sufficient degree of SDC set down by RMC, and this is well-established in case law (sometimes wrongly understood as control being an unimportant test). In other words, the SDC element is not being re-introduced as a tightening in itself (at least for most of us that are professionals in our field), but as a vehicle to simplify (in their view) the application of a status test by engagers/agencies, which will indirectly result in a tightening, in much the same way that sole traders can no longer operate via agencies in practice.