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Markel Tax

25 Apr 2018

Latest IR35 tribunal decision

MDCM Ltd, represented by its director, Mr Daniels, provided services to Structure Tone Limited (“STL”) via Solutions Recruitment Limited (“Solutions”), STL being a construction company that specialised in the fit-out and refurbishment of buildings in London. MDCM’s business is providing construction management services including night shift management, to construction companies.

MDCM provided services to STL for two projects over a nine month period. The work was required to be undertaken during set hours. As night shift manager, Mr Daniels reported to the project manager who, at the start of the shift, gave Mr Daniels a list of instructions on matters which needed to be completed during the shift.

If the list of tasks was complete before the end of the shift, Mr Daniels was free to leave site early. In addition, Mr Daniels was required to manage the site, making sure that the correct workers were present and ensuring the work was being done and being done safely. He was STL’s representative on site, wearing clothing bearing the company’s logo so he was identifiable to other contractors.

MDCM was paid a day rate for the services and was responsible for Mr Daniels’ travel and subsistence; the day rate was £310 and expenses were in the region of £100 per day.

There was no entitlement to any notice period. In fact, the engagement was terminated by STL without notice, and after this date no further work was undertaken.

The contract between MDCM and Solutions was considered. However, the upper contract between STL and Solutions was not provided.

HMRC argued that control is the most important factor in this case. HMRC pointed out that STL controlled the time Mr Daniels worked as he was required to work during shift patterns; Mr Daniels argued that this was not the case, this is simply the way all building sites are run.

HMRC argued that STL controlled how Mr Daniels completed the work because he was required to report to the project manager – and that this project manager exercised control over Mr Daniels because he gave him a list of instructions, as well as the fact that Mr Daniels had to manage the site.

Mr Daniels argued that the only control which was exercised was that which necessarily came with the operation of a large-scale construction site i.e. the structure of the programme and timeline for the execution of the construction activities. His supervisor only visited the site once a week. What was to be carried out was dictated by the stage reached in the programme. During the day Mr Daniels could organise the work as he saw fit.

The Tribunal agreed that STL directed what Mr Daniels had to do during the shift. However, they also agreed with Mr Daniels that this was no more than telling him what work needed to be undertaken by the contractors he supervised. Furthermore, the Tribunal felt that there was no evidence that STL controlled how Mr Daniels carried out the work. Although Mr Daniels was supervised, the project manager only visited once a week, and when on shift, Mr Daniels was left to his own devices.

In conclusion, it was accepted by both parties that there was no right of substitution so the Tribunal concluded that there was a requirement for personal service, and there was mutuality of obligations between Mr Daniels and STL.

However, the Tribunal disagreed with HMRC’s arguments on control, deciding that Mr Daniels was subject to no more control on the site than over an independent contractor and could refuse work on another site.

In addition, the day rate basis of payment to include expenses, lack of notice period for termination, and lack of employee benefits were all inconsistent with employment. The appeal was allowed and the engagement deemed outside of the IR35 legislation.

This case reinforces that the fundamental aspect of the control test is the “how” and not the what, where and when (as HMRC often argue). With HMRC’s renewed confidence in taking such cases to Tribunal, this decision provides a strong reminder to HMRC that they need to re-examine their position in respect of the fundamental arguments.
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