Spc00618

IR 35 – business and data analysis contractor working on a series of three-month contracts for a five-year computer project –whether would be an employee if engaged directly by the client – yes – appeal dismissed 

THE SPECIAL COMMISSIONERS

ISLAND CONSULTANTS LIMITED	Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMS	Respondents

Special Commissioner: 	DR JOHN F. AVERY JONES CBE

Sitting in public in London on 28 June 2007

David Smith LLB FTII, Accountax Consulting Limited, for the Appellant

Peter Death, HMRC Appeals Unit North West and Midlands, for the Respondents

© CROWN COPYRIGHT 2007

DECISION

1.	This is an appeal by Island Consultants Limited against a Notice of Decision dated 20 August 2004 for National Insurance Contributions in respect of the period 6 April 2000 to 5 April 2003 and Notices of Regulation 80 Determinations to PAYE dated 20 August 2004 in respect of the three tax years 2000-01 to 2002-03.  It concerns what is popularly known as the IR35 legislation.  The Appellant was represented by Mr David Smith, and the Revenue by Mr Peter Death.
2.	The appeal concerns the work performed by Mr Ian Hough as director and shareholder of the Appellant which contracted with Spring Limited, an IT agency, which contracted with Severn Trent Systems Limited (“STS”) (only for periods until October 2001, after which STS did not form part of the chain of contracts) which contracted with the ultimate client, Severn Trent Water Limited (“STW”) in connection with a project for a new computerised billing system known as Target.  The issue is whether if Mr Hough had contracted with STW he would have been an employee of STW.  There is also an issue about whether STS or STW (as stated in the documents under appeal) is the client for the purposes of the legislation.
Facts
3.	I heard evidence from Mr Hough, and the Revenue called as witnesses Mr Robert Carson, then project manager of the Target project of STW, and Mr Anthony Sargent, then the person responsible for engaging contractors for capital projects of STW.  I find the following facts:
(1)	STW, a regulated water company, had a project changing their billing system, the new one called Target.  This was a five year project running from the year 2000 involving 3m customers and annual billing of over £100m.  It was therefore a large and sensitive project involving data conversion to the new system, replacement of the interfaces to a standard software system (CIS-OV), operational performance of the system, the impact on business processes, system testing and support, training of 1,200 staff in its use, business process changes, and communications to all key parties.  Mr Carson managed the entire project.  It required management of a mixture of internal staff who would be seconded to work on the project, people from an external software company, and external consultants.  The Appellant was one of the external consultants who provided expertise that was not available in-house.  STS was a fellow subsidiary of STW that provided software to STW and engaged external IT consultants for STW.
(2)	Mr Carson would identify the need for an external contractor, and would prepare a description setting out the skills and experience required.  This would be sent to the agencies that were on STW’s (or STS’s) preferred list of suppliers, which included Spring, who would put forward candidates who would be interviewed by Mr Carson.  STW preferred to have a staff level to cover their base requirements and would use external contractors for peaks of demand for staff even where these lasted for several years, as with the Target project.
(3)	The chosen contractor, here the Appellant, would be engaged by contract between STW (or before October 2001, STS) and Spring on a standard form.  A sample contract dated 4 April 2001 between STW and Spring relating to the period 9 April 2001 to 5 October 2001 provided for Spring to provide consultancy services which would be provided by its employee (“the Executive”).  In fact, the intention of the parties was that Spring would provide the services of other contractors like the Appellant and not its employees.  (If STW took over engaging contractors in October 2001 one would expect the party to this contract to be STS but it is STW; in the assignment summary of the Spring-Appellant contract (see paragraph 3(6) below) for the same period names STS as the client.  I cannot explain this discrepancy and it is possible that the latter is wrong and the change in fact took place in April 2001, which would tie in with the statement in paragraph 3(7) below, in which case other references to STW taking over in October 2001 should be to April 2001, but the date is not material to this decision.)  A later standard form contract applying from 1 January 2003 provides for Spring to supply IT contractor services through a contractor, which gives effect to the intentions of the parties.  The standard form contract includes the following provisions:
(a)	On control:
“[Spring’s] method and timing of work is its own but [Spring] shall and shall procure that the Executive shall:
(i) comply with all reasonable requests of [STW] for information and statements as to progress as the case may require
(ii) co-operate with any of [STW’s] personnel concerned with or other company appointed in connection with the project and 
(iii) comply with all health and safety requirements and/or policies of [STW].
(b)	Neither Spring nor the Executive were entitled to benefits such as holiday entitlement or sick pay.  
(c)	Either party could terminate the contract on 4 weeks’ notice or immediately for cause.  In addition Spring may terminate the contract forthwith without notice if STW requested Mr Hough to be removed.
(d)	The contract stated that except as expressly provided in the agreement STW had no obligation to use or continue to use the services of Spring.
(4)	There was no copy of the Appendix to that contract setting out the details of the particular engagement but a later one relating to 2 January 2004 to 31 March 2004, which I find is likely to have been in similar form to earlier ones, specifies Mr Hough’s name; the project’s name and phase; Mr Carson is named as project manager; the period of employment is stated; Spring is named as the consultant company; the daily rate is specified; a special condition states that incidental expenses are paid only when specifically authorised by STW; reasons for recruitment are given (“as internal support is not currently available, STW require an external consultant to work on Target Phase 3”); and the previous purchase orders for this contractor are set out.
(5)	There were a continuous succession of contracts for three-month periods (or in two cases six-month periods), comprising a total of eleven or twelve separate contracts (there were copies of 10 contracts up to 31 December 2002 in the documents and a reference to the existence of subsequent contracts for periods up to 31 December 2003).  Contracts were often renewed at the last minute by Mr Carson approaching Mr Hough.  Mr Hough hoped that the contracts would be renewed but did not necessarily expect this.  Mr Carson would have been upset if the Appellant had not renewed the contracts and would have applied moral pressure to encourage it to do so, while recognising that they had no legal liability to do so.  Outside the period under appeal Mr Hough worked for STW from February 1998 at least until 2006.
(6)	Spring would in turn contract with the Appellant on the following terms:  
(a)	The contract names the Client: STS until the contract ending 27 October 2001, thereafter STW.  
(b)	Mr Hough is named as the individual who will provide the services.  It states that the Appellant may propose a replacement for the individual but any such replacement shall only take place provided the Client [STW (or as the case may be STS)] is satisfied that the proposed replacement has the necessary qualifications, skills and experience and is suitable to perform services for the Client.  
(c)	The services are described as “Business Analyst/Data Analyst role.”
(d)	Time sheets to be provided within 10 days of the end of a month with payment due within the month.
(e)	Spring has the right to terminate on 14 days notice for a contract between 8 and 26 weeks duration.  
(f)	The following is included under the heading Special Conditions:
“The Services Period is to be agreed with the Manager.  The Contractor [the Appellant] will provide services at Aqua House Central Birmingham and other Client Midland sites if required.  The Contractor will provide services for 4 days per week (32 hours per week) but his manager can request he works a fifth day if the project dictates.”
(7)	For the period up to October 2001 while STS was in the chain of contracts there was an agreement between STW and STS for STW to pay for STS’s work on an arm’s length basis as required by STW’s water industry regulator.  I did not see any copy of this.  It was the regulator’s insistence of a more formal relationship between the two companies from April 2001 that led to STW taking over engagement of contractors in place of STS in October 2001 (or it may be April 2001, see paragraph 3(3) above).
(8)	Finally in the chain of contracts, there was no written contract between the Appellant and Mr Hough.
(9)	 Mr Hough is an expert in business and data analysis using information technology.  Business analysis involves analysing the client’s business processes including testing technology from the business perspective by talking to users and identifying and documenting their requirements; data analysis involves analysing the client’s data to gain insight into the data used in the business and the data structures required to support the business.
(10)	Mr Hough’s areas of work on the project at the relevant time were in phase 1 of the project the design of the conversion of the data, including analysis of the data to be converted, definition of the software requirement, and liaison with the software provider and testing of the conversion software.  He wrote the terms of reference and the report into the way audit data would be moved to the new system, and implemented the audit.  In phase 2 he was responsible for the design of the conversion of data requiring the merger of data from two old billing systems.  He was then responsible for the planning and implementation of the conversion.
(11)	In spite of the contractual provision for a four-day week, Mr Hough generally worked five days a week, occasionally six and even seven days during conversion weekends.  His hours varied from 5 to 12 hours a day.  He worked at the project location except that sometimes he would write a report at home by agreement with Mr Carson.  Conversion work had to be done outside normal hours so as not to interfere with normal computer use, usually from 8pm to 10pm and sometimes at weekends.  Mr Hough would coordinate this work from his home.
(12)	Mr Hough was free to decide the times he attended, the number of hours worked in a day, when he took time off, and when he took breaks during the day.  As a matter of courtesy he would agree absences with Mr Carson.  Such absences included holidays of normally two weeks at a time taken at less busy periods to fit in with the project.
(13)	Mr Hough was expected to correct errors at his own expense.  Mr Carson was not aware of this occurring.  Mr Hough said that it did occur during conversion when sometimes files would fail to convert properly.
(14)	Mr Hough did not manage other people in the STW organisation.
(15)	STW provided Mr Hough with a desk at the premises and a laptop for mobile working from other sites, including a dial-in from his home.  On three or four occasions he used the Appellant’s computer and scanner for this purpose.
(16)	Mr Hough had an identity badge showing him as “contractor.”  He was able to use the canteen and park his car in the STW multi-storey car park.  Unlike STW’s employees the Appellant did not receive any increase in the rate of payment between April 2002 and January 2006.  The Appellant did not receive any holiday pay, sick pay or pension in respect of Mr Hough.  Unlike employees Mr Hough did not have a formal annual appraisal.  He was in regular contact with Mr Carson.  They worked in the same building and would have a formal meeting once a week together with other informal contacts. 
(17)	There were targets for the number of customers converted by certain times and Mr Hough would report to Mr Carson about progress.  Mr Carson did not have IT expertise but could judge the Appellant’s work by the progress compared with the targets and by whether the new billing system produced correct bills when tested.  
(18)	The Appellant billed Spring monthly accompanied by a time sheet on Spring’s form specifying the number of days (or half-days) worked by Mr Hough.  For three months’ invoices the Appellant’s VAT registration number was not included on the invoice and STW did not pay the VAT.  It took about six months to resolve the problem and a further month to receive interest on the late payment.
(19)	Mr Hough personally performed all the duties during the period under appeal.  In February 2003 he met Mr Carson one evening and both signed a document headed “confirmation of arrangements between contractor and client.”  This is a form presumably provided by the Appellant’s then advisers containing various alternatives for deleting those that do not apply.  The document includes:
“5.  The contractor [the Appellant] has the right/ does not have the right to send a substitute to carry our the services specified in the contract in the place of Ian Hough [Mr Hough’s name is added in manuscript]
6.  The contractor has the right/ does not have the right to subcontract the services to another party.
…
8.  If the contractor has the right to subcontract the services and/or to send a substitute, the client [STW] agrees that he will accept that substitute or subcontractor if the latter has the skills to carry out the services specified in the contract…”.
In 2005 Mr Carson signed a statement presumably at the Revenue’s request, containing the following:
“If Mr Hough were unable to fulfil personally the contractual obligations of [the Appellant] [STW] would be prepared to consider a suitable replacement worker who was recommended and provided by [the Appellant].  This would be subject to [STW] being satisfied that the replacement had the necessary skills and experience to complete the contract.”
(20)	The 2005 document sets out the true understanding of Mr Carson, and the 2003 document does not.  The 2005 document is also in accordance with the agreement between STW (or STS) and Spring.  It also represents the obvious commercial reality that STW has an important and sensitive project and they contracted with the Appellant for Mr Hough’s services on the basis of his special skills.  Another person would find it difficult to pick up the project in the middle and it might take a couple of months to do so unless Mr Hough were directing him.
(21)	Mr Hough did not work for any other clients during the period under appeal.
Legislation
4.	Regulation 6(1) of the Social Security Contributions (Intermediaries) Regulations 2000 provides:
“These Regulations apply where—
(a) an individual (“the worker”) personally performs, or is under an obligation personally to perform, services for the purposes of a business carried on by another person (“the client”),
(b) the performance of those services by the worker is carried out, not under a contract directly between the client and the worker, but under arrangements involving an intermediary, and 
(c) the circumstances are such that, had the arrangements taken the form of a contract between the worker and the client, the worker would be regarded for the purposes of Parts I to V of the Contributions and Benefits Act [the Social Security Contributions and Benefits Act 1992] as employed in employed earner’s employment by the client.”
“Intermediary” is defined in Regulation 5 and it is common ground that the Appellant is an intermediary for this purpose.
5.	Similar provisions applying for PAYE purposes are contained in Schedule 12 to the Finance Act 2000:
“1—(1) This Schedule applies where—
(a) an individual (“the worker”) personally performs, or is under an obligation personally to perform, services for the purposes of a business carried on by another person (“the client”),
(b) the services are provided not under a contract directly between the client and the worker but under arrangements involving a third party (“the intermediary”), and
(c) the circumstances are such that, if the services were provided under a contract directly between the client and the worker, the worker would be regarded for income tax purposes as an employee of the client.”
Contentions of the parties
6.	Mr Smith for the Appellant contends:
(1)	The notices were bad for the period up to October 2001 in not naming STS as the client since the contract was with STS.
(2)	The hypothetical contract between Mr Hough and STW would lack the irreducible minimum requirement for an employment contract as set out by MacKenna J in Ready Mixed Concrete (South East) v Minister of Pensions and National Insurance [1968] 2 QB 497, 515 and approved by the House of Lords in Carmichael v National Power plc [1999] 4 All ER 897:
“A contract of service exists if these three conditions are fulfilled.  (i) The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master.  (ii) He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master.  (iii) The other provisions of the contract are consistent with its being a contract of service.” 
Here control and mutuality of obligations are absent.  
(3)	On control the contractual provision quoted in paragraph 3(3)(a) above shows a lack of contractual control.  In practice Mr Hough was not under STW’s (or STS’s) control in relation to where, when and how he worked.
(4)	Mutuality of obligations must exist throughout the entire period under appeal, relying on Synaptek Ltd v Young [2003] STC 543 at [25] where counsel for the Inspector “accepted that if, taking the period of the notional contract as a whole, EDS was under no obligation to provide work, the necessary element of mutuality was indeed lacking for that period” Mutuality of obligation includes continuing the promises to provide and pay for work throughout the contract.  The STW-Spring contract expressly stated that there was no obligation to continue to use Spring.
(5)	The Appellant had a right in its 2003 agreement with Mr Carson to send a substitute for Mr Hough.
(6)	The Appellant had business risk as demonstrated by the problem with obtaining payment of VAT.  Mr Hough had to put right defects in his own time.
(7)	The terms were not similar to other employees.  Mr Hough was identified on his badge as a contractor.  There was no intention that an employment relationship existed.  While he did not provide any equipment his office at home had the normal equipment found for someone doing some work at home.
7.	Mr Death for the Revenue contends:
(1)	 The notices correctly showed STW as the client as it was STW’s project.  STS was a supplier of some of the components for the project.
(2)	The control test is of little relevance to an expert such as Mr Hough; see Morren v Swinton and Pendlebury Borough Council [1965] 2 All ER 349, 351 per Lord Parker CJ with whom the others concurred:
The cases have over and over again stressed the importance of the factor of control, but that it is not the determining test is quite clear.  In Cassidy v Minister of Health, Somervell LJ referred to this matter, and instanced, as did Denning LJ in the later case of Stevenson, Jordan & Harrison v McDonald & Evans, that clearly superintendence and control cannot be the decisive test when one is dealing with a professional man, or a man of some particular skill and experience.  Instances of that have been given in the form of the master of a ship, an engine driver, a professional architect or, as in this case, a consulting engineer.  In such cases there can be no question of the employer telling him how to do work; therefore, the absence of control and direction in that sense can be of little, if any, use as a test.”
(3)	There was sufficient control over where and when Mr Hough worked for him to be an employee under the notional contracts.  He was expected to attend during normal office hours and agree absence in advance.
(4)	In Synaptek the statement that there had to be mutuality of obligations throughout the period of separate contracts was a concession by the Revenue which is not repeated here.  It is sufficient that within each separate contract there was an obligation to provide work and payment, see Cornwall County Council v Prater [2006] EWCA Civ 102 in which a teacher was engaged to teach a particular pupil at the pupil’s home under a succession of separate contracts relating to different pupils.  Longmore LJ said:
“[43]…There was a mutuality of obligation in each engagement namely that the County Council would pay Ms Prater for the work which she, in turn, agreed to do by way of giving tuition to the pupil for whom the Council wanted her to provide tuition.  That to my mind is sufficient ‘mutuality of obligation’ to render the contract a contract of employment if other appropriate indications of such an employment contract are present.”
Here there was clearly mutuality of obligation within each contract.
(5)	So far as the other factors are concerned, the financial risk demonstrated by the late payment of VAT was a minor one.  In general the risk of non-payment was no greater than that of STW’s employees.  While payment by a daily rate is more common for self-employment, here the factor is more neutral as the client sets the rate.  Mr Hough was paid a daily rate normally for a five-day week like an employee.  He could not increase his remuneration by working harder; by working more than the contractual four-day week he was similar to an employee working paid overtime.  He had no overheads and stood no risk of making a loss.  Provision of equipment was a neutral factor in a case like this.  While a series of short engagements may point to self-employment, here Mr Hough is not similar to a businessman offering his services in the market.  A notice period is more consistent with employment; self-employment normally ends when the work is completed.  The lack of employee-type benefits is not surprising in a contract between companies.  Mr Hough was integrated into the STW organisation, although shown as a contractor.  Mutual intention cannot apply to a hypothetical contract but the actual intention was for self-employment.  Weighing up all these factors points towards employment.
Reasons for the decision
8.	Mr Smith put forward a preliminary argument that the notices were bad in naming STW as the client throughout, rather than naming STS until October 2001.  Mr Death contended that STS was merely another link in the chain to STW which was the real end-user since the Target project was in relation to STW’s billing system and STS was merely the supplier of software and contractors to STW on an arm’s length basis.  I agree with Mr Death’s analysis. For the legislation to apply the services must be performed “for the purposes of a business carried on by another person (‘the client’).”  Here in the period before October 2001 the services were performed directly for STS which is named as the client in the Spring-Appellant contract but, as the Appellant knew, were performed ultimately for the benefit of STW under contractual arrangements between STW and STS.  In my view it is correct for STW to be named as the client because the services were for the purposes of STW’s business being an STW project.  In my view the notices were valid.
9.	Having found the facts of the actual relationship between the parties I have to apply the statutory hypothesis that Mr Hough worked for STW and ask whether he would be an employee.  Collapsing the actual contractual arrangement leaves the following contract terms including how they were in fact operated:
(1)	A series of 3 (or in two cases 6) months contracts without any obligation on either party to continue, but which are in fact continued continuously for the three year period under appeal (and for periods before and after).
(2)	Services performed at STW’s premises at Aqua House, Birmingham or other Midland sites of STW (or STS) if required.  Mr Carson did agree to his doing some work from home.
(3)	Four days per week but Mr Carson can request that he works a fifth day if the project dictates.  I understand “request” to be short of “require” but if the project did so dictate Mr Hough might find it morally difficult to refuse, at least if he wanted the contract to be renewed.  If fact he always agreed.
(4)	Payment monthly within the following month on the basis of days worked (in practice measured in half days) on presentation of time sheets within 10 days of the end of the month.
(5)	Mr Hough was free to decide the times he attended, the number of hours worked in a day, when he took time off, and when he took breaks during the day.  As a matter of courtesy he would agree absences with Mr Carson.  Such absences included holidays of normally two weeks at a time taken at less busy periods to fit in with the project.
(6)	Mr Hough was required to perform the services himself but if he were unable to fulfil personally his contractual obligations STW (or STS) would be prepared to consider a suitable replacement worker who was recommended by Mr Hough.  This would be subject to STW (or STS) being satisfied that the replacement had the necessary skills and experience to complete the contract.  No proposal for a substitute was ever made.
(7)	Mr Hough would have to:
(i) comply with all reasonable requests of STW for information and statements as to progress as the case may require
(ii) co-operate with any of STW’s personnel concerned with or other company appointed in connection with the project and 
(iii) comply with all health and safety requirements and/or policies of STW.
(8)	No normal employee benefits such as holiday pay, sick pay or pension.
(9)	STW (or STS) may terminate the contract on 4 weeks notice.  Since the provision of the Spring-Appellant contract, under which Spring may terminate that contract immediately if STW requests Mr Hough to be removed, is not replicated in the STW-Spring contract it cannot form part of the hypothetical contract.
10.	On whether such a contract contains the irreducible minimum for an employment contract, I find that so far as control is concerned, not much control is expected for an expert like Mr Hough as stated in the quotation above from Lord Parker’s judgment in Morren v Swinton and Pendlebury Borough Council.  There must still be some control and there was some control over where he worked; he could be asked to work at other Midland sites of STW (or STS), and working at home required Mr Carson’s agreement.  There was some control over when the work was performed were as performing conversion work on the computer outside hours of normal computer use.  Mr Hough would have to comply with all reasonable requests of STW for information and statements as to progress, which is rather less than one would expect for an employee, and would have to cooperate with other personnel working on the project.  There was something just short of contractual control over the number of days per week worked but if the project dictated that more than a four-day week was required Mr Hough did in fact agree to it.  I consider that the totality of these amounted to sufficient control, though rather less than one would expect for a normal employee.
11.	On mutuality of obligation, there was no obligation to renew the contract after each three (or six) period.  This factor may be relevant to determine whether someone is employed during breaks in work, as in Carmichael v National Power [1999] 1 WLR 2042, where it was not in issue that they guides were employed while working.  As in Cornwall County Council v Prater it is sufficient that within each contractual period there was an obligation on STW to provide work and pay the agreed rate; the contrary decision in Synaptek depends on a concession made by the Revenue in that case.  There was such an obligation for 4 days work a week, or more days if worked at their request, subject to the possibility of STW terminating the contract on four weeks notice. The reality was that this was a five-year project and there was plenty of work requiring Mr Hough’s continuing services.  STW was obliged to and did provide and pay for work during each separate contract period.
12.	So far as the right of substitution is concerned there was none.  The most that STW agreed to was that they would consider a request.  In practice this would require considerable scrutiny by STW.  I think that the Appellant by asking Mr Carson to sign the 2003 “confirmation of arrangements between contractor and client” may have misled itself into thinking that there was a right of substitution in stronger terms than in the Spring-Appellant contract, and in spite of there being no such terms in the STW- (or STS)-Spring contract.  Such a provision would not have made any commercial sense and Mr Carson signed the confirmation of arrangements trusting Mr Hough.
13.	Accordingly I conclude that the hypothetical contract would have the necessary irreducible minimum to constitute an employment contract.
14.	Although the argument at the hearing concentrated on the above factors, the parties’ skeletons dealt with the need to stand back and look at the arrangements as a whole as in Hall v Lorimer (1994) 66 TC 349.  The following factors have been identified in the authorities as relevant, and there is no need for me to cite authority for each well-known factor; my conclusions on each are as follows:
(1)	In business on own account.  Mr Hough could earn more by working more than four days a week but this depended on the project dictating it.  In practice the project did normally dictate it and so he would effectively have a 5 day a week job in the hypothetical contract. He did not work for other clients or offer his services elsewhere and could not increase his remuneration above the daily rate, which was set by STW.  He had virtually no overheads and there was no possibility of making a loss.
(2)	Payment terms.  Payment within the following month after submitting time sheets within 10 days of the end of the month involves a longer period of risk than for normal employees.
(3)	Financial risk.  Within each contract the only risk was of non-payment during the period before payment but all employees take some risk of non-payment although with some statutory protection (which would be deemed to apply to the hypothetical contract if it is an employment contract).  While defective work had to be put right in his own time, payment was calculated on days of varying length and any corrections were made within that flexibility.  There was a delay in paying VAT on one occasion but this was caused by the Appellant not putting the VAT registration number on its invoices.
(4)	Provision of equipment.  This is not a factor that is relevant to this type of work as he was working on STW’s mainframe computer and was provided with a laptop.  On rare occasions (only three or four occasions in the three year period) he used the Appellant’s computer and scanner while working at home.
(5)	Length and number of engagements, and exclusivity.  Here there was an expectation, but no legal obligation, that the contracts would be renewed.  Both parties knew that this was a five-year project requiring Mr Hough’s services as they were not available in-house.  A series of short engagements is a slight pointer towards self-employment.  Mr Hough did not work for anyone else in the period under appeal.
(6)	Provision of benefits.  He did not receive any of the fringe benefits received by normal employees.  I assume that since he was satisfied with the rate of payment, including the fact that it was not increased during several years, it must have made up for the loss of benefits.
(7)	Rights of termination.  Termination on four weeks’ notice is more usual for employment than self-employment.
(8)	Intention of the parties.  It is not possible for the parties to have any intention over a hypothetical contract.  The actual contracts were necessarily not employment contracts.
(9)	Part and parcel of the organisation.  Mr Hough had a desk and computer terminal and had the same car-parking facilities and access to the canteen as normal employees, although his badge named him as a contractor (as he was).  He was working on a particular project rather than as part of STW’s organisation, although other employees were seconded to work on the project alone.  He was no in charge of other staff.
15.	Standing back and considering the position as a whole, the factors predominantly point towards employment, although a somewhat unusual one.  The only factors pointing away from employment are the longer payment terms than normal for an employee, which is not important; and the intention of the parties, which is not directed to the hypothetical situation.  Although the number of separate contracts would normally point away from employment, and there was a risk of the contracts not being renewed, while the project needed his services and he was satisfactorily performing his duties, this was not a real commercial risk, and it is inherent in IR35 that one must consider the contracts separately because one starts with the actual contracts.
16.	Accordingly I conclude that Mr Hough would be an employee of STW under the hypothetical contract and dismiss the appeal.
17.	By way of postscript I should like to thank the two STW witnesses for their witness statements and for attending when this as an additional burden which is of no benefit to them.  I have commented in the past about there being either no or inadequate information from the client.  In this case I had the fullest information which was most helpful to me.

JOHN F. AVERY JONES

SPECIAL COMMISSIONER
RELEASE DATE: 5 July 2007

SC 3213/06

Authorities referred to in skeletons and not referred to in the decision:
Bank voor Handel en Scheepvart v The Administrator of Hungarian Property [1954] 2 WLR 867
Market Investigations Ltd v Minister of Social Security [1968] 2 QB 173
Global Plant Ltd v Secretary of State for Health and Social Security [1971] 3 All ER 386
Massey v Crown Life Insurance  [1978] 2 All ER 576
Nethermere (St Neots) Ltd v Gardiner [1984] IRLR 240
Barnet v Brabyn [1966] STC 716
McManus v Griffiths (1997) 70 TC 218
Express & Echo Publications Ltd v Tanton [1999] IRLR 367
Montgomery v Johnson Underwood [2001] EWCA Civ 318
Stuncroft v Havelock (2001) EAT/1017/00
Propertycare v Gower [2003] UKEAT/054703
Usetech Ltd v Young [2004] STC 1671
Tilbury consulting Ltd c Gittins [2004] STC (SCD) 72
FS Consulting Ltd v McCaul [2002] STC (SCD) 138
Lime IT Ltd v Justin [2003] STC (SCD) 15
Ansell Computer Services v Richardson [2004] STC (SCD) 472
Mal Scaffolding v HMRC [2006] STC (SCD) 253
Parade Park Hotel v HMRC [2007] UKSC spc00599