Payroll
...they should adopt the approach taken by McKenna J in the Ready Mixed Concrete case, which is still considered to be the ‘go to’ case for examining mutuality of obligation.
employment, and therefore within IR35 ● for this ground to be examined, reliance was placed on two cases: Ready Mixed Concrete (1967) and Kickabout (2020). The need to establish a ‘sufficient framework of control’ and that the individual is ‘subject to the other’s control in a sufficient degree to make that other master’. The judges found both conditions to exist and dismissed the first ground for these reasons. 2. Mutuality of Obligation The appellants claimed the FTT was incorrect to determine that there was sufficient presence of mutuality of obligation in the hypothetical contract to formulate a contract of employment between the parties. They stated that the position was rather, that Nationwide was not obliged to provide further work to Mr Lee – even if he has completed the work set out in the contract before its anticipated termination date. Neither was Mr Lee obliged to continue beyond the completion of the proscribed work regardless of the end date. In examining the work undertaken by the FTT, the UT judges concluded that they should adopt the approach taken by McKenna J in the Ready Mixed Concrete case, which is still considered to be the ‘go to’ case for examining mutuality of obligation. They considered that the establishment of mutuality has two strands to it. The first was that a form of contract must exist between the parties, and second, that contract must contain sufficient elements of control and personal service to represent a contract of service. Furthermore, the ‘irreducible minimum’ of mutuality is that there must be an obligation on one party to offer work, and for the other party to carry it out as part of a ‘wage/work bargain’ as described by in Cotswold Developments by Langstaff J. This long-established factor was noted by the UT to have arisen in the recent case of PGMOL where it was set out that … ‘it is insufficient to constitute an employment contract if the only obligation on the employer is to pay for work if and when it is actually done’ – in other words, the employer should provide the work initially to enable the employee to carry it out and be paid for it. Consequently, the judges found that in this case, mutuality had in fact existed in each of the hypothetical contracts and as such, the second ground was dismissed.
3. Substitution The appellants claimed the FTT had erred in its reasoning when concluding that, whilst the hypothetical contract would have been likely to contain a substitution clause, that clause would be likely to be classified as ‘almost hypothetical’. The appellants claimed there was no basis evidence for applying this reasoning. The main outcome for employment tax practitioners to note in terms of the substitution point is that the judge held up Pimlico Plumbers to be the leading authority on substitution – in that case, it was held that merely being in possession of a contractual right of substitution is not enough to determine the status of the worker – substitution actually has to happen – and the correct way to test this is to examine how dominant the personal service clause is in practice. In this case, the evidence showed that …’it would not be viable for Lee to substitute himself for the work as the substitute would not be able to get through security, they would not have a laptop nor knowledge of the work. The reality was that it was not going to happen’. Using the Supreme Court’s approach to substitution in Pimlico Plumbers as the yardstick enabled the UT to conclude that providing personal service was a key feature of the contract between Northern Light and
Nationwide – rendering Mr Lee within IR35 and dismissing the third ground. Note that this approach on substitution clauses contrasts sharply with the recent case decision in June 2021 by the Court of Appeal in the Deliveroo employment case, where on that occasion, the judiciary decided that it was sufficient to have a substitution clause in the contract even though it was rarely, if ever, utilised – and in that case, the Deliveroo riders were deemed to be self- employed due to this factor. 4. ’Part and parcel’ of the organisation The appellants claimed the FTT had not demonstrated a robust case for determining that Mr Lee fell to be ‘part and parcel’ of Nationwide. This fourth ground relating to the ‘part and parcel’ element was deemed to be too wide- ranging and to contain irrelevancies and was refused admission – which meant that the judges refused to consider it at all. Outcome of the UT decision The UT agreed that the FTT had not erred in law and its decision was sound. It is not clear whether HMRC will rely on the judiciary’s reasoning on the mutuality of obligation point in future – as it differs slightly from the currently published interpretation of the Ready Mixed Concrete definition – HMRC currently believes that mutuality of obligation is present in any contract, which is contrary to what McKenna J set out in his summing up of that case, but is consistent with Langstaff J’s comments in the Cotswold Developments Construction Ltd v Williams [2006] IRLR 181 Employment Appeal Tribunal case. Seeing the light? Whilst this decision appears sensible due to the approach taken in terms of the tax and employment law cases chosen as referral points, it highlights the perennial difficulties in employment status decision- making for employers and tax advisers who are seeking to reach a sensible and robust conclusion outside of the courts. n
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| Professional in Payroll, Pensions and Reward |
Issue 75 | November 2021
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