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Markel Tax

01 Aug 2016


HMRC’s updated guidance on the application of the Supervision Direction and Control (SDC) rules were released on 6 April 2016.  This is intended cover the application of SDC for the agency legislation (S44 ITEPA 2003) and the new employment intermediaries’ travel and subsistence measures of s339A ITEPA 2003.  It is noticeable that this new guidance does not follow the legislation, existing case law or even the original guidance published when the agency legislation was first released.
The guidance takes the form of new material to be included within the Employment Status Manual (ESM).  It consists of guidance on the meaning of personally providing services and the nature and application of SDC.

Personally Providing Service

HMRC’s revised guidance makes it clear that this does not require a named individual to be supplied.  In HMRC’s view the key issue is that an individual does some work.  This is acceptable as a starting point but the guidance starts to depart from reality with the examples given.  Example 3 for Nick the decorator under ESM2036a, demonstrates this.  In that example an interior design company has a contract to design, fit and decorate a kitchen for a customer.
The example goes on to say that “As part of that contract the design company agrees to supply the cabinets, worktops, appliances and to provide a fitter and decorator”.  Nick does the work and so in HMRC’s simplistic view is personally providing services.  Hence as Nick isn’t contracting directly with the customer HMRC consider s44 to be applicable!  HMRC have chosen an ambiguous description of what is being provided by the interior design company and then base the opinion on the very precise wording in the example.  
This would catch each and every subcontractor providing services as part of a larger contract and wasn’t the intention of the legislation.  What this simplistic view doesn’t take into account is whose service is Nick providing?  As a subcontractor he is providing services to the interior design company to allow them to fulfill their obligation to the customer.  The service being provided to the client is that of the Interior design company.  
Where the guidance falls down is in not providing sufficient detail of the nature of the contract between the interior design company and its customer, which I suspect is deliberate.   This simplistic view is repeated in further examples.

Supervision Direction or Control (SDC)    

The first point of note in the guidance is that HMRC don’t consider signed waivers and generic statements as satisfactory evidence of a lack of SDC or a right to SDC.
Secondly, although the guidance makes clear that SDC applies in respect of the manner in which the individual provides the services, the examples go far beyond SDC in respect of how the service is provided.  HMRC’s excuse for this is that the meaning of SDC hasn’t been tested before the courts.  They then go on to divorce SDC tests from existing case law on control as applied in employment status and IR35 tests.
HMRC define supervision as “the action or process of watching or overseeing what a person does or how something is to be done”.   They also consider that it includes a “right to check the work that the worker is doing to make sure it meets a required standard”.  This is far too wide a definition and in our opinion should not include “the process of watching” as that is a passive activity while supervision suggests a more active role.
Direction is considered to entail “making a worker do their work in a certain way by providing them with instructions, guidance, or advice as to how the work must be done”.  Again this is linked to “how” the work is done.  HMRC’s guidance goes on to state that “Someone providing direction will often co-ordinate how the work is done as it’s being undertaken”.  This goes beyond “how” into what where and when.
Last but not least HMRC define Control as “telling or instructing a worker about how they do the work” and includes, in HMRC’s opinion, “having the power to move the person from one job to another”.  This latter definition is clearly covering what, where and when to do the work but doesn’t automatically include how to do the work.  The guidance also states that agency workers who provide services in an industry where the work is “governed by regulations or some other statutory framework or standards, will be subject to the right of SDC”.  This in HMRC’s view will apply to health care workers such as doctors, nurses, social care workers such as social workers and social work assistants, teachers and teaching assistants.
With definitions like these it is hardly surprising that the examples provided go far beyond the intent of the legislation.  The important point is that HMRC’s opinion is not the law and as such this guidance is only an indication as to how they would like to have the law interpreted.  We should be able to rely on any decisions that consider the application of SDC even if these are in respect of the old version of agency rules.  
Until this guidance is tested before the courts it remains HMRC’s opinion and no more.  It has no binding force and is only of use in informing us as to the position HMRC are likely to take in any enquiry into travel and subsistence for umbrella workers.
Tagged HMRC
Next article in series

01 Jun 2016

Consultation: IR35 in Public Sector

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