中正法律英语翻译网收集和整理：Case No:CH/2004/APP/0271 Neutral Citation Number:[2004]EWHC2248(Ch)IN THE HIGH COURT OF JUSTICECHANCERY DIVISIONDate:Friday,8th October2004 Before:THE HONOURABLE MR JUSTICE PARK---------------------Between:Usetech Limited Appellant-and-Graeme Young(HM Inspector of Taxes)------------------------------------------Simon Devonshire(instructed by Nelsons)for the AppellantAkash Nawbatt(instructed by the Solicitor of Inland Revenue)for the Respondent---------------------Approved JudgmentI direct that pursuant to CPR PD39A para6.1no official shorthand note shall be taken of this Judgment and thatcopies of this version as handed down may be treated as authentic..............................Mr Justice ParkMr Justice Park:Abbreviations,dramatis personae,etc1.These are as follows.ABB ABB Vetco Gray(UK)Limited,the‘end user’of the services of MrHood;a company which provided a range of equipment to the oil andgas industry.Mr Devonshire Simon Devonshire,counsel for Usetech.EAT Employment Appeal Tribunal.Hood,Mr William Hood,specialist in a software system used by ABB,calledPro-Engineer;shareholder in and director of Usetech.IR35The reference number of an Inland Revenue Press Release of2000,which led to the enactment of the legislative provisions which are inpoint in this case.Nawbatt,Mr Akash Nawbatt,counsel for the Inspector of Taxes,the respondent tothis appeal.NES NES International Limited,a company described as an agencycompany which provided technical recruitment services.NICs National Insurance ContributionsUsetech Usetech Limited,the appellant on this appeal;‘one man company’owned by Mr Hood,which provided his services to end users.Overview2.3.This is a tax and NICs appeal by the taxpayer,Usetech,against a decision of a Special Commissioner,Mr Colin Bishopp,dated12March2004.The decision determined a question of principle concerning the liability to tax and NICs of Usetech and its principal shareholder and director,Mr etech was a ‘one man company’whose business consisted of making the services of Mr Hood available to third party users.By transactions entered into in May2000Mr Hood’s services were made available to ABB,and he worked in the business of ABB for about17months from1June2000.The transactions involved not only Mr Hood,Usetech and ABB,but also,in a manner which I will describe later,another company, NES.Mr Hood had no beneficial interest in NES.The question of principle is whether the transactions attracted the operation of provisions introduced,both for tax and for NICs,in2000and commonlyreferred to as the IR35legislation.IR35was the reference number of an Inland Revenue Press Release which had foreshadowed the legislation.4.If the IR35legislation applied its effect would be to treat payments received by Usetech for the provisionby it of Mr Hood’s services(the payments being received,not from ABB directly,but from NES)as if they had been personal income of Mr Hood from an employment with ABB.For income tax they would be treated as emoluments taxable under Schedule E,rather than as receipts of Usetech’s trade which would be taken into account in computing its profits liable to corporation tax.For NICs they would be treated in a similar way as employment income of Mr Hood.The liabilities both to income tax and to NICs would fall to be met by Usetech,not by Mr Hood.Thus it is Usetech which is the appellant taxpayer.5.The Inland Revenue issued formal decisions that the IR35provisions applied,and Usetech appealed tothe Special Commissioners.In form there were two decisions and two appeals,one for tax and one for NICs,but they turned on two sets of almost identical legislation and stood or fell together.The appeals were heard by Mr Bishopp on22January2004,and by a reserved decision dated12March2004he dismissed the appeals,thus affirming the decisions which the Inland Revenue had etech now appeals to me.It is clear that an appeal can only succeed if the decision was wrong in law.There is no appeal on a question of fact:see s.56A(1)and(4)of the Taxes Management Act1970.6.Mr Devonshire,who appears for Usetech,has helpfully limited his submissions to two specific respectsin which he says that the Special Commissioner erred in law.I will describe them fully later in this judgment.The first respect involves an argument that the IR35legislation cannot apply because of a contractual provision between Usetech and NES(not between Usetech and ABB or between NES and ABB),which Mr Devonshire submits must be taken into account,entitling Usetech to provide the services of a substitute in place of Mr Hood.I will refer to this as the right of substitution argument.The second respect in which Mr Devonshire says that the Special Commissioner erred involves an argument that ABB was not obliged to provide work for Mr Hood to do(although in fact it did do so).Therefore,it is argued that,even after applying the hypotheses required by the IR35provisions,there was insufficient mutuality of obligation for an employer/employee relationship to exist,with the result that the provisions did not apply.I will refer to this as the want of mutuality argument.7.I have considered Mr Devonshire’s arguments carefully,but my conclusion is that I cannot accept eitherof them.The issues are too complex for me to encapsulate the essence of my reasoning in this overview at the beginning of my judgment.I shall explain it as the judgment progresses.The result is that I respectfully agree with the decision of the Special Commissioner.Therefore I shall dismiss the appeal.The IR35legislation8.9.For income tax and corporation tax(income tax so far as concerns Mr Hood and corporation tax so faras concerns Usetech)the legislation is contained in section60of and Schedule12to the Finance Act 2000.The critical provisions are those which identify the cases to which Schedule12applies.If the Schedule applies there is not,if I understand correctly,any dispute as the consequences.The dispute is whether it applies at all.The case revolves around provisions in paragraph1of the Schedule.I will now set out the relevant parts of the paragraph,interpolating in italicised square brackets the actual identities in this case of the parties referred to in general terms in the paragraph.1(1)This Schedule applies where–(a)an individual(‘the worker’)[Mr Hood]personallyperforms,or is under an obligation personally to perform,services for the purposes of a business carried on byanother person(‘the client’)[ABB],(b)the services are provided not under a contract directlybetween the client[ABB]and the worker[Mr Hood]butunder arrangements involving a third party(‘theintermediary’)[Usetech],and(c)the circumstances are such that,if the services wereprovided under a contract directly between the client[ABB]and the worker[Mr Hood],the worker would be regardedfor income tax purposes as an employee of the client[ABB].(2),(3)…(4)The circumstances referred to in sub-paragraph(1)(c)include the terms on which the services are provided,having regardto the terms of the contracts forming part of the arrangements underwhich the services are provided.10.11.In the quotation of sub-paragraph(1)(b)above I have identified‘the intermediary’in this case as beingUsetech.As I will explain later,on the facts NES might also be regarded as an intermediary in the general sense of the word,but it is clear from paragraph3of Schedule12,which I need not set out verbatim,that only Usetech counts as an intermediary for the purposes of paragraph1.However,the ‘arrangements involving…the intermediary’(referred to in sub-paragraph(1)(b))may involve other persons as well as the intermediary.If they do the respects in which the other persons are also involved may affect the application or non-application of paragraph1.In the present case this could be relevant to the participation of NES in the entire transaction:NES was neither‘the worker’nor‘the client’nor‘the intermediary’,but it was involved in the arrangements in which‘the intermediary’(Usetech)was involved,so its part in those arrangements falls to be taken into account as well as Usetech’s part in them.12.A more general point of construction is worth spelling out at this stage.The conditions of sub-paragraphs(a)and(b)involve an analysis of the actual facts and legal relationships,but when that analysis showsthat those two sub-paragraphs are satisfied sub-paragraph(c)involves an exercise of constructing a hypothetical contract which did not in fact exist,and then enquiring what the consequences would have been if it had existed.There may be room in some cases for dispute about what the hypothetical contract would contain,and in the present case there is.The dispute arises in connection with the right of substitution argument which is advanced by Mr Devonshire on behalf of Usetech.I will explain how precisely the issue arises at a later stage in this judgment.13.The comparable provisions for NICs are contained in regulation6of the Social Security Contributions(Intermediaries)Regulations2000.They are not quite identical to the provisions in the Finance Act2000, but they are similar in all relevant respects.For completeness I will set out the specific wording.6(1)These Regulations apply where–(a)an individual(the worker)[Mr Hood]personally performs,or isunder an obligation personally to perform,services for the purposesof a business carried on by another person(the client)[ABB],(b)the performance of those services by the worker[Mr Hood]iscarried out,not under a contract directly between the worker[MrHood]and the client[ABB],but under arrangements involving anintermediary[Usetech],and(c)the circumstances are such that,had the arrangements taken theform of a contract between the worker[Mr Hood]and the client[ABB]the worker[Mr Hood]would be regarded for the purposes ofParts I to V of the Contributions and Benefits Act as employed inemployed earner’s employment by the client[ABB].As in the Finance Act2000there is a provision(regulation5)under which‘the intermediary’is,so far as this case is concerned,Usetech(and not NES).However,the same point applies in that,to the extent that NES was involved in the arrangements,its participation may have to be taken into account in determining whether regulation6applies notwithstanding that it was none of the parties(‘the worker’,‘the client’,or‘the intermediary’)specifically identified in the regulation.Curiously regulation6does not contain a provision like paragraph1(4)of Schedule12to the Finance Act2000,expanding on what is covered by‘the circumstances’referred to in sub-paragraph(c)of regulation6(1).However,no-one has suggested to me,nor do I consider,that that or the other minor differences between the two statutory provisions affects this case or opens a possibility of the case being decided one way for NICs and another way for income tax and corporation tax.The facts14.15.Mr Hood has now retired but at the time when this case arose he worked in connection with theproduction of design drawings of oil wells,rigs and similar equipment.He was a specialist in the use ofa software product called Pro-Engineer,which produced3-D models of such equipment.He started tooperate through his one man company,Usetech,in May1996.There was no evidence before the Special Commissioner about his arrangements before then,so the Commissioner inevitably decided the case on the basis of the Usetech arrangements alone,uninfluenced by what Mr Hood’s tax and national insurance status may have been in earlier years.etech had several engagements for the provision of Mr Hood’s services to‘end users’over its tradinglife from1996to May2003(when Mr Hood was obliged to retire by reason of ill health).Some of the engagements were pursuant to direct contracts between Usetech and the end users,but engagements with ABB were not,since,as I explain in more detail in the next paragraph,NES was interposed between Usetech and ABB(the end user).There were three different periods when Mr Hood was working in the business of ABB at its premises in Aberdeen.The present case is specifically about the period of17 months beginning in June2000.(In fact the Special Commissioner was only strictly concerned with the period from1June2000to31March2001,but I assume that that was for some procedural reason to do with tax years or companies’accounting periods or something of that nature.The Commissioner’s decision would undoubtedly govern the whole period of the engagement for Mr Hood to work in the business of ABB.)17.ABB is a United Kingdom subsidiary of a world-wide group which provides a range of equipment to theoil and gas industry.It has a core staff of750to850permanent employees,but it supplements them when demand requires by taking on what its Human Resources Manager described as‘sub-contract employees’.This was done by means of companies described as‘agencies’,of which NES was one.There was no evidence from NES,but on its letter heading it describes itself as‘Europe’s largest technical recruitment agency’.As will appear,NES sometimes acted contractually as a principal rather than as an agent in the strict legal sense.18.The way in which Mr Hood was engaged to work in the business of ABB,which I assume was typical ofhow ABB and NES operated,was as follows.Management within ABB identified that ABB had a need for another specialist in Pro-Engineer,but did not wish to have another permanent employee recruited.The Human Resources manager contacted agencies,including NES.NES knew about Mr Hood,and contacted him,or more strictly contacted his personal company,Usetech.Mr Hood was obviouslywilling to go and work in Aberdeen in ABB’s business,because the matter proceeded.If ABB had not already known Mr Hood it would have required to interview him first,and had in fact done so for the earlier occasion when he had been provided to it through NES.However,since it already knew him it did not require an interview on this occasion.Two contracts were entered into,one between Usetech and NES and one between NES and ABB.Each contract appears to have been made on22May2000,to commence on1June2000,although the documents which were before the Special Commissioner are a little confusing about this.The system of having two contracts is quite common(or so I understand),and contracts of these kinds are sometimes referred to as‘the lower level contract’and‘the upper level contract’.However,I will refer to them in this judgment as‘the Usetech/NES contract’(the lower level) and‘the NES/ABB contract’(the upper level).There must also have been a contractual relationship(at the lowest level)between Mr Hood and Usetech,but it appears that there was no written contract of service.At least no such written contract was produced in evidence.19.As regards the Usetech/NES contract(the lower level contract)there appear to have been two contractualdocuments:a one page letter of offer by NES signed by way of acceptance by Mr Hood on behalf of Usetech,and a longer set of‘Terms and Conditions’in standard form.A complication here is that the documents before the Special Commissioner appear to have included three versions of the first document and three of the second.This may have had something to do with variations in the anticipated duration of the engagement,but there are aspects of the duplication or triplication of documents which puzzle me.However,I do not think that they are fundamental to the issues in the case.20.The first of the three offer letters is dated22May2000.It is from NES and is addressed to Usetech at MrHood’s home address.It includes the following:‘We are pleased to offer you a contract to supply contract staff in a position as Pro-Engineer Designer in accordance with the following:NAME(S)OF CONTRACT STAFF:WILLIAM HOOD.CLIENT:ABB VECTO GRAY.’21.Certain brief other details follow,covering such matters as the hourly rate of payment,thecommencement date,and the notice period.Mr Hood signed to indicate acceptance.For completeness I mention that the other two offer letters have slightly different periods of service,do not mention Mr Hood personally and are not signed by him by way of acceptance.I do not follow what their relevance to the appeal is or what their function was,and I have concentrated on the letter dated22May2000.22.I turn to the longer form document,the standard form headed‘Terms and Conditions for the supply ofservices to NES International Ltd(performed by a limited company sub-contractor’.23.There are three versions of this document in the documents which were before the SpecialCommissioner and which are now before me.None of them mentions Usetech(or any other specific sub-contractor for that matter),and none of them is signed by or on behalf of either NES or Usetech(or any other person).The evidential status of the three documents in the bundle is not clear to me,but I will assume that at least one of them was supplied by NES to Usetech(in common,I assume,with all other subcontractor companies which had similar relationships with NES),and that it did in general regulate the contractual relationship between the two companies.The Special Commissioner said,and I agree, that although the three versions of the Terms and Conditions are not quite identical,the differences between them do not appear to be material to this case.24.The Terms and Conditions are quite long documents.They are in no sense tailor-made for the particularrelationship being entered into between Mr Hood,Usetech,NES and ABB.They are standard form documents plainly intended to be used by NES across the spread of arrangements which it makes with companies like Usetech to enable the services of employees of such companies to be provided to outside clients like ABB.It would be disproportionate for me to set out one of the documents in this judgment or to attempt a full summary of it.In the broadest of terms it provides for‘the sub-contractor’(in this case Usetech)to agree with NES that it will provide‘the Services’to the reasonable satisfaction of‘the client’, that is the end user,being ABB in this case.The agreement which the sub-contractor has,however,is between it and NES,not between it and the end user.‘The Services’(which Usetech agreed with NES to provide to the reasonable satisfaction of ABB)are defined as‘the work or project identified in the contract letter and/or notified to the sub-contractor by the Client’.25.I assume that the contract letter referred to is the letter of22May2000(or possibly all three letters)bywhich NES offered the engagement to Usetech and Usetech accepted it.On that basis it appears that(in so far as the matter is affected by the22May2000letter,which was the only document which appears to have signed on behalf of Usetech by way of acceptance)‘the Services’were the services of Mr Hood as Pro-Engineer Designer.26.The Terms and Conditions cover a range of matters which I need not describe in this judgment.Theyinclude matters such as payments of fees(to be made to Usetech by NES,not by ABB),use of motor vehicles,trade secrets,and non-competition by the sub-contractor with the end user(NES’s‘client’).There is,however,one provision which I should set out in full,since it provides the basis for Mr Devonshire’s right of substitution argument.The final clause is headed‘General’,and contains a number of different provisions.One of them reads as follows:The Sub-Contractor shall be entitled to substitute the named Personnel for analternative,with the prior written consent of the Company–such consent notto be withheld if the proposed replacement has the appropriate skills,qualifications and abilities in the reasonable opinion of the Client.I specifically point out that‘the Company’,which can give prior written consent to a substitution,is NES,and is not‘the Client’:in this case it is not ABB.Further,the only parties to this agreement are the sub-contractor(Usetech in this case)and NES.The client(e.g.ABB)is not a party.I will examine the argument which Mr Devonshire bases on this provision at a later stage in this judgment.27.28.So much for the contractual relationship between Usetech and NES.There was also a contractualrelationship between NES and ABB.I should state at the outset that Usetech and Mr Hood did not know the detailed content of that relationship.If they thought about the matter they must obviously and correctly have assumed that there would be a contract of some sort between NES and ABB,that it would provide for NES in some way to cause Usetech to provide the services of Mr Hood to ABB,and that ABB would make payments to NES for the services.But I doubt that Usetech and Mr Hood would have known or assumed anything more detailed about the NES/ABB contractual relationship.29.There was indeed an NES/ABB contract(an upper level contract),and it was placed before the SpecialCommissioner.I understand that the copy of it was obtained from ABB.It takes the form of a letter agreement,signed on behalf of both parties,dated22May2000,which was also the date of the offer letter made by NES to Usetech and signed by way of acceptance by Mr Hood.The letter which constitutes the NES/ABB contract is from NES to ABB.It is headed:‘Sub-Contractor–Usetech Ltd.Contract Staff–Mr William Hood.’It begins:‘We confirm that the above Contract Staff supplied by the above sub-contractor will be available to commence work on30th May2000to perform the services of Pro-Engineer Designer.’30.A number of other detailed matters were covered,including the hourly rate payable by ABB to NESfor the services(a little higher,as one would expect,than the hourly rate payable onward by NES to Usetech),a seven days notice period,and a minimum number of weekly hours(37.5hours).Two pages of detailed Terms and Conditions are attached,but they do not appear to me to add anything relevant (except for condition3.2,to which I refer in paragraph63below).31.There is nothing in the NES/ABB contract about the provision of a substitute for Mr Hood,and in myview that contract is solely one for the provision of his services,not one for the provision of the services of him or a substitute who is reasonably acceptable to ABB.32.Moving on from the contracts as such,there are some other factual points which might have a bearing onthe right of substitution argument and which I ought therefore to mention.The question of a substitute for Mr Hood never arose.For the17months of the engagement which began on30May(or1June)2000 the services were provided entirely by Mr Hood himself.Mr Hood did,however,say in his witness statement that there were other Pro-Engineer specialists whom he knew and whom he could have sent.I should also quote the following findings from paragraph25of the Special Commissioner’s decision.[T]he reality…is that ABB required Mr Hood’s services.It was notcontracting,indirectly,with[Usetech]for the supply of a person competent inPro-Engineer;it required Mr Hood.It would not have accepted a substitute,ifMr Hood had sent one,without interview and certainly not on the basis thatMr Hood or the substitute might attend as[Usetech]elected from day to day.Mr Hunter’s evidence,which I accept,can lead to no other conclusion thanthat the arrangement was personal to Mr Hood.I do not go so far as to saythat the right to substitute was a sham–Mr Hunter agreed that,if Mr Hoodhad become unavailable and suggested someone to continue in his place,thatsuggestion would be given some weight–but Mr Hood and[Usetech]couldnot dictate,at will,who would perform the work:it had to be Mr Hood.In myview,the‘right’of substitution was largely illusory.33.34.So far as the right of substitution argument is concerned I do not think that there are any other specificaspects of the facts which I need to describe.However Mr Devonshire also advances the want of mutuality argument,and there are some other factual points which I ought to mention,since they could be of some relevance to that argument.The Special Commissioner,having heard evidence from Mr Hood and from two witnesses from ABB,found that any temporary member of staff(like Mr Hood)was treated,on a day to day basis,in a manner barely distinguishable from an employee.One of the ABB witnesses said that as a general rule temporary staff were expected to work50hours a week,and Mr Hood did so.Mr Hood’s own evidence was that he typically worked for58hours per week.He also said that,if there was no work for him to do,he could be sent home.He could recall at least three or four occasions when the computer crashed and he was sent home without payment.The Special Commissioner recorded this aspect of Mr Hood’s evidence,but did not make a specific finding of his own on it.I confess that I have some reservations about it,and I will return to this later when I discuss the want of mutuality argument.Commissioner’’s decisionThe Special Commissioner35.36.In a careful and comprehensive reserved decision the Special Commissioner,Mr Bishopp,set out thestatutory provisions and reviewed the facts.He noted that the IR35provisions(both for tax and for NICs) require a notional contract between Mr Hood and ABB to be assumed,and that the critical question was whether that contract would have been a contract of employment.He considered a number of factors which might bear on the question,and in the course of doing so he quoted a well-known passage from the judgment of McKenna J in Ready Mixed Concrete(South East)Ltd v Minister of Pensions and National Insurance[1968]2QB497at515:A contract of service exists if these three conditions are fulfilled:(i)Theservant agrees that,in consideration of a wage or other remuneration,he willprovide his own work and skill in the performance of some service for hismaster.(ii)He agrees,expressly or impliedly,that in the performance of thatservice he will be subject to the other’s control to a sufficient degree to makethat other master.(iii)The other provisions of the contract are consistent withits being a contract of service.The Special Commissioner considered condition(iii)first,and concluded that there was nothing in the notional contract which was‘incompatible with the relationship between them[ABB and Mr Hood]of employer and employee’(paragraph24of the decision).It was at this point that he considered the issue of substitution,doing so in the terms which I quoted in paragraph23above and concluding that in his view‘the right of substitution was largely illusory’.(As will appear later I would put the matter rather differently,but I would not change the‘bottom line’conclusion that the provision for substitution in the Usetech/NES contract does not lead to a decision in favour of Usetech.)37.38.Moving on,the Special Commissioner compared Mr Hood with normal employees of ABB who hadsimilar skills to his own,and saw little outward difference.I quote a few extracts from paragraph27of the decision:Mr Hood was expected to undertake the work allocated to him by ABB and todo so in accordance with its directions and at times of its choosing.…In that,too,he was in materially the same position as an employee.…[O]verall itseems to me that there is no difference between the measure of controlexercised over his work by ABB and that it would have exercised over anemployee of his status.39.40.The Special Commissioner considered that,in so far as there was a requirement for mutuality ofobligation to exist for a relationship to be a contract of employment,the requirement was in any event satisfied by the obligation on the one hand to work and on the other to remunerate.(In my view there may be rather more to be said on this point,but as I will explain I do not disagree with the Commissioner’s conclusion.)41.The Commissioner also considered whether Mr Hood or Usetech could realistically be seen to have beenin business on their own account,and was of the opinion that they could not.For that and the other reasons which I have summarised and which he examined more fully he decided:‘The conclusion must be that the notional contract between ABB and Mr Hood was one of service.I can find no factor in the case which is inconsistent with that conclusion.’The appeal to this court42.In the overview at the beginning of this judgment I observed that Mr Devonshire has limited the groundsof appeal to two issues,which I am calling the right of substitution argument and the want of mutuality argument.Points about the right of substitution and points about the alleged want of mutuality were made on behalf of Usetech before the Special Commissioner,but,as it seems to me,they were made not so much as self-contained arguments either of which would be sufficient entirely by itself to conclude the appeal in favour of Usetech,but rather as items in a comprehensive view of the interconnecting relationships between Mr Hood,Usetech,NES and ABB.I think that the Special Commissioner perceived the main case advanced on behalf of Usetech as being one which looked at all aspects of the case together and in the round.Those aspects included the provision in the Usetech/NES contract about substitution and also what was contended to be a want of mutuality between Usetech and ABB.But they also included points made about the degree of control exercised by ABB over the work done by Mr Hood, about alleged differences in practice between Mr Hood’s position in the operations of ABB and the positions of full time employees,about other activities altogether carried on by Mr Hood through Usetech,and so on.。
