Tribunal tackles 'control' in false self-employment

A recent tax tribunal case has shed some light on how the control test in the new ‘false self-employment’ legislation, which took effect from April 2014, may be interpreted by the courts.

The case concerned security guards who were supplied by a business to guard construction sites. As HM Revenue & Customs believed the guards were not employees of the business, it argued that the agencies tax legislation applied.

The question at the heart of the case, therefore, was whether there was Supervision, Direction or Control (SDC), as to the manner in which the services were provided.

Due to the case falling under the rules pre-dating April 2014, it was essential for HMRC to prove there was SDC, or the right of SDC, which the guards’ supplier said there wasn’t.

In particular, the business argued that “client companies would have no involvement with how the licensed and specialist security guards performed their function”.

Given that HMRC had no supporting evidence, the tribunal found in favour of the business and, in doing so, issued some guidance on SDC.

The tribunal said that the “most obvious situation in which the ‘control’ requirement will not be satisfied is where the particular service being rendered is one that is extraneous to the basic activity of the client.”

In terms of applying this guidance in practical terms, the tribunal pointed to the example of a construction company bringing in a specialist provider to service its mechanical equipment.

It follows that because the construction company itself does not employ its own staff to service the equipment, workers hired in to do the specific servicing, which is outside the range of the company’s normal activity, would not be subject to SDC. 

Recruitment lawyer Adrian Marlowe says such guidance provides a “useful indicator” of how HMRC and tribunals may approach the issue of ‘control’ under the agencies tax legislation.

But “it also highlights the flaws in the test itself in that each case will turn on the specific facts,” he said. “Since the default position from April 2014 is that there is control by someone, thus bringing the legislation into play, it is for agencies to show that this is not the case.

“Those that can show the hirer engages the workers for a specific task that the hirer could not normally perform itself will take some solace from this”.

However the Association of Recruitment Consultancies, chaired by Mr Marlowe, reminded that most cases of agency supply work do not relate to a specific project in which expertise is relied upon, thus the legislation will apply.

The ARC pointed out that some believe this to be unfair, particularly on those workers that otherwise are self-employed and who invest in their own business services.

The group’s chairman reflected: “It seems very difficult for genuinely self-employed workers now to find work by supply through agencies, representing discrimination against self-employed workers, with a negative effect on flexibility of the workforce.

“We have raised this and other issues relating to this legislation with the Exchequer two months ago and are currently awaiting a reply.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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