A contractor in the construction industry has successfully appealed HMRC’s belief that the Intermediaries Legislation applied to his contract after a First-tier Tribunal (“FTT”) concluded that he would not be considered an employee of the end client, Structure Tone Limited (“STL”), if his limited company were removed and there was a direct contract between Mr Daniels and STL.


HMRC issued determinations under Regulation 80 of the Pay As You Earn Regulations 2003 for years 2012-13 and 2013-14 and decisions under Section 8 of the Social Security Contributions (Transfer of Functions) Act 1999 for the period 6 April 2012 to 5 April 2014. The Assessments were issued because HMRC believed that the Intermediaries Legislation (‘IR35’), applied and that Mr Daniels should be regarded as an employee of STL. Mr Daniels appealed the assessments.

Mr Daniels and his wife are the directors and employees of MDCM and the business provided construction management services to construction businesses. Mr Daniels also offered night shift management which involved being responsible for the construction site, works done by subcontractors, co-ordination of suppliers, safety issues and overall supervision of the sites.

STL contacted an independent introductory company, Solutions Recruitment Limited (“Solutions”), and advised them that they required a night shift manager for a construction project. Solutions provided Mr Daniels on 26 October 2012. In April or May 2013, STL offered Mr Daniels further work on another construction project which he accepted, and he continued to work for STL until 19 July 2013.

Key Factors

The question in MDCM’s appeal was whether the conditions in section 49 of Chapter 8 Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”) were met, i.e. should Mr Daniels be regarded as an employee of STL and be paid subject to PAYE?

The Tribunal heard both parties’ considerations of several key factors to help determine whether Mr Daniels should be regarded as an employee of STL for the purposes of Chapter 8.

  1. Control
  2. Personal services and mutuality of obligation
  3. Financial risk
  4. Provision of equipment
  5. Right to terminate the contract
  6. Length of engagement
  7. Employee benefits
  8. Part and parcel of the organisation
  9. Basis of payment
  10. Mutual intention

HMRC stated that control by STL is the most important factor.

HMRC stated that Mr Daniels was required to work during the shift patterns demonstrating that he was subject to control. However, Mr Daniels disputed this, explaining that this was not control, it was merely how all construction sites operated.

HMRC contended that Mr Daniels was controlled because he was required to complete a list of jobs that was given to him by a project manager Mr Hawes. The Tribunal however agreed with Mr Daniels that this only demonstrated that he was given initial instruction. The Tribunal found that STL did not exercise any more control over Mr Daniels on site than they would have over an independent contractor.

The Findings

The Tribunal concluded that;

  1. Mr Daniels is not controlled any more than any other contractor and could refuse work offer by STL on another site
  2. There was a contract for personal services as Mr Daniels could not provide a substitute to STL (even though MDCM’s contract with Solutions stated that he could provide a substitute)
  3. Mr Daniels was paid a flat rate of £310 a day and had to pay his own travel, hotel and other expenses
  4. Mr Daniels took no other financial risks
  5. There was no requirement on either party to give notice to terminate the contract or any entitlement to severance pay or pay in lieu – the contract was terminated on 19 July 2013 with no notice
  6. STL provided safety equipment to Mr Daniels
  7. Mr Daniels was not integrated into the STL business

For the reasons set out above, the Tribunal did not accept HMRC’s arguments about control but did agree that there were some elements of the relationship between STL and Mr Daniels which indicate that of an employment relationship. However, the nature of the payment arrangements, the lack of notice period and the absence of entitlement to employee benefits, were inconsistent with employment. The Tribunal concluded that Mr Daniels was not treated as an employee and the contract between STL and MDCM should not be treated as one of employment and so, the appeal was allowed.

Aspire Comment

This is the second significant ruling in regard to IR35 in a couple of months. Earlier this year we saw a BBC presenter lose their appeal against HMRC which resulted in the presenter being ordered to pay over £400,000 in unpaid tax and NI, however now we have also seen the FTT reject HMRC’s arguments in Mr Daniels’ case.

It is also a significant ruling in relation to the question of control. It is refreshing to see that the FTT has looked at the particular circumstances of this case in relation to control, as opposed to adopting a broad approach that HMRC consider appropriate when applying legislation which refers to control.

The contradicting rulings that we have seen in recent months make it clear that the IR35 rules are just too complex to apply with any certainty that the correct decision has been made.

Minden U.K. Limited use Aspire Business Partnership LLP. This firm provide Minden U.K. Ltd with practical and commercially sound advice in relation to all aspects of compliance, business strategy and conflict resolution. Original article can be found on Aspire’s website: http://www.aspirepartnership.co.uk/News/3114/contractor-successfully-appeals-hmrc-ir35-ruling