First-tier Tribunal (Tax)

[2010] UKFTT 618 (TC)

TC00860

Appeal number: TC/2009/14088

Appeal against Regulation 80 Determinations for tax and Section 8 Notices for workers – whether workers employed under a contract of service or whether self-employed

FIRST-TIER TRIBUNAL

TAX

                     RED APPLE CLEANING MANAGEMENT LTD    Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

                        TRIBUNAL: MISS J. BLEWITT (TRIBUNAL JUDGE)                                                             Ms E. POLLARD (MEMBER)

Sitting in public at Leeds on 18 November 2010

The Appellant did not appear and was not represented

Mrs N. Newham, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.       Ms Cogan, a Director of the Appellant Company attended the Tribunal venue to deliver a letter from Companies House to the Appellant dated 23 September 2010 which stated that the Appellant Company would dissolve on 28 September 2010. Ms Cogan chose not to stay for the hearing and consequently the Appellant was unrepresented. Mrs Newham for HMRC was present for HMRC. No adjournment was requested by either party nor was the appeal withdrawn. The Tribunal was satisfied that the Directors of the Appellant Company were aware of the hearing and elected to absent themselves. In exercise of its statutory function The Tribunal decided that it was in the interests of justice to proceed with the hearing  and determine the appeal pursuant to Rule 33 of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.

2.       In a Notice of Appeal, undated but received by the Tribunals Service on 26 August 2009 the Appellant appealed against Regulation 80 Income Tax (Pay As You Earn) Regulations 2003 for the following tax years; 2003/2004, 2004/2005, 2005/2006, 2006/2007, 2007/2008 and 2008/2009. The Appellant also appealed against Section 8 Social Security Contributions (Transfer of Functions, Etc) Act 1999 Notices in respect of unnamed workers for the period 6 April 2003 to 5 April 2009 and in respect of Mrs K. Norledge and Mrs S. Stow for the period 6 April 2005 to 5 April 2006.

3.       The grounds of appeal state that the Appellant does not agree with the factors taken into account by HMRC in reaching their conclusion that the workers of the Appellant were employed by the company under a contract of service.

4.       By way of background the Appellant operated as a cleaning management company providing commercial cleaning services and janitorial supplies. The Company website explains that the cleaners recruited by the Appellant pay a service bond for the cleaning contracts and the Appellant takes a percentage of the fees paid by the customer with the remainder being paid to the cleaners. On 20 June 2006 HMRC advised the Appellant by letter that a review of the Company’s Employer’s and Contractors records was to be undertaken. A meeting took place on 9 August 2006 between the Appellant and HMRC, HMRC’s notes of which were provided to the Tribunal. The Appellant had stated at the meeting that it obtained cleaning contracts and then recruited workers to fulfil those contracts. The Appellant stated that the workers paid a service bond for the contract and where they were unable to sell the contract, the work was allocated to cleaners who the Appellant treated as self-employed within the Company.

5.       The issue before this Tribunal was whether those cleaners, treated as self employed by the Appellant, are employees or not.

6.       HMRC referred the Tribunal to a number of factors taken into consideration in reaching their decision and each will be dealt with in turn.

7.       In assessing whether there existed mutuality of obligation, the Tribunal was referred to a number of authorities including Nethermere (St Neots) Ltd v Gardiner ICR 612 and Dragonfly Consultancy Ltd  SpC00655. The principle that there is an obligation for the engager to remunerate the worker as consideration for work done is well known from the case law. In applying the principle to the facts of this case, the Tribunal considered the evidence contained within the bundle of documents before it, together with oral evidence given by Mrs Sheena Stow, a former cleaner for the Appellant. The Tribunal found Mrs Stow to be an honest and credible witness and accepted her evidence that she had considered herself employed by the Appellant. Mrs Stow explained that she answered an advertisement in a local paper seeking “cleaners” at an hourly rate of pay. After a telephone call with Mr Noble, director of the Appellant Company, Mrs Stow was offered work which she accepted. Mrs Stow stated that she was told how much she would be paid weekly for her work and that this was not subject to negotiation but set by the Appellant on the number of hours it was estimated for the work to take. Mrs Stow explained that when she took on additional work and requested a raise in payment, this was considered by the Director Mr Noble but not given. Within the bundle of documents were notes of a meeting between HMRC and Ms Janet Buttrick on 7 May 2008 who had also previously worked for the Appellant. The Tribunal found that the notes of the meeting between HMRC and Ms Buttrick on 7 May 2008 corroborated the account given by Mrs Stow as to how work was offered, accepted and remunerated. The Tribunal also noted that the pay records contained within the bundle, which covered the period July 2005 to July 2006 also created the strong impression of employment in that the same workers were engaged weekly to clean for regular customers and paid a set amount for that work. The Tribunal considered the Notice of Appeal, which stated the Appellant did not agree that “there is the existence of mutuality of contract arising that indicates that a contract of service exists between the workers and the company.” No further information or explanation is given in the Notice of Appeal in support of this contention and as the Appellant had chosen to be absent from the hearing, there was no challenge to HMRC’s assertions and no evidence from the Appellant before the Tribunal upon which it could consider rejecting the submissions of HMRC.

8.       The issue of control was also considered by HMRC. The Tribunal was referred to the case of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance; Minister of Social Security v Greenham Ready Mixed Concrete Ltd and Another; Minister of Social Security v Ready Mixed Concrete (South East) Ltd and Another [1968] 1 All ER 433 and the guidance given therein as to the definition of control as “the power of deciding the thing to be done, the way in which it shall be done, the means to be employed in doing it, the time when and the place where it shall be done”(per McKenna J). It was clear to the Tribunal from Mrs Stow’s oral evidence and the notes of meeting between Ms Buttrick and HMRC on 7 May 2008 that workers for the Appellant exercised little or no control over their work. Mrs Stow described to the Tribunal how she would be told where and when to attend for work and that the quality of her work would regularly be checked by the directors of the Company. The unchallenged evidence of Mrs Stow was accepted by the Tribunal and it could only conclude in the absence of any evidence to the contrary that the degree of control exercised by the Appellant over Mrs Stow was an indication of workers within the Company being employees.

9.       In assessing whether the relationship between workers and the Company was one of employer/employee or self-employed, the Tribunal was referred to the issue of personal service and substitution. The Appellant’s Terms and Conditions document contained within the bundle require a worker to give 2 months notice of leave to ensure that the Company can arrange cover. The evidence of Mrs Stow to the Tribunal was that she had never taken holiday or sick leave but had been asked to cover for others on leave. Mrs Stow explained that this request came from the Appellant Company Director, Ms Cogan and that she was paid by the Appellant directly. The Tribunal accepted this unchallenged evidence and found as a fact that this was a further indication of the employee status of the Appellant’s workers. The Tribunal considered the fact that it is usual within employment for an employer to provide benefits such as sick pay or holiday pay to its employees and the absence of these benefits was noted by the Tribunal. The Tribunal did not accept that the absence of such features could of itself, conclusively show that the workers were self-employed as opposed to employees but was a factor to take into account in looking at the case as a whole.

10.     Financial risk is a relevant consideration in deciding the status of a worker. HMRC submitted that employees usually do not risk their own capital as opposed to workers who are self-employed who would be liable for buying assets, bearing the running costs and paying the overheads of a business. The Appellant had asserted in its meeting with HMRC on 9 August 2006 that its self-employed cleaners were required to provide cleaning materials and equipment. The Tribunal could find no evidence before it to support this contention; to the contrary Mrs Stow confirmed to the Tribunal that she was never required to provide cleaning materials or equipment. The Tribunal accepted Mrs Stow’s evidence that she had on the odd occasion purchased small items but that she had done so to keep the customer happy. Mrs Stow explained that as far as she was aware there was no obligation upon her to provide cleaning materials or equipment, which had been provided by or through the Appellant and that she had understood any purchase made by her would be refunded by the Appellant, although she never did receive payment. The Tribunal accepted Mrs Stow’s evidence that when offered a service bond she declined due to the potential financial risk involved, which did not otherwise exist in her role. The Tribunal found that there was no evidence before it upon which it could conclude that any of the workers incurred financial risk in their roles.

11.     The nature of the Appellant’s business was such that responsibility for finding contracts, agreeing the cleaning specifications and terms of a contract, finding workers to fulfil those contracts and collecting fees rested solely with the Appellant. In order to fulfil a contract the Tribunal found that all control and liabilities had to lie with the Appellant and could not be subcontracted out and that the workers formed part and parcel of the organisation of the Company. There was no evidence before the Tribunal upon which it could find that the workers were independent of the company or running businesses in their own right.

12.    As regards the intention of the parties, the Appellant contended that the workers were self employed. Notes of the meeting between Ms Buttrick and HMRC on 7 May 2008 confirmed that she believed she was employed as opposed to self employed and having had previous experience of running her own company the Tribunal accepted that Ms Buttrick had reached her belief on an informed basis. Similarly Mrs Stow’s evidence to the Tribunal was that she believed herself to be employed. Mrs Stow appeared to the Tribunal to be an intelligent woman who could recognise the difference in her employment status. Mrs Stow was confident that she had answered an advertisement for a cleaner with an hourly rate of pay specified, not a self-employed cleaner who would, in all likelihood have negotiable remuneration rates, and the Tribunal accepted her evidence that the letter exhibited in the bundle from Mr Noble of the Appellant Company to Mrs Stow dated 24 June 2005 which referred to her self-employed status was not a letter she had received. The Tribunal also accepted Mrs Stow’s evidence that the Appellant Company’s Terms and Conditions document dated 24 June 2005 which purported to be signed by Mrs Stow had not in fact been signed by her. This was corroborated by the notes of the meeting on 7 May 2008 in which Ms Buttrick told HMRC that she had not signed nor seen any written contract relating to her work. The Tribunal had no further evidence before it from the Appellant to support its contention and consequently found as a fact that Ms Buttrick and Mrs Stow believed and intended themselves to be employees of the Appellant.

13.    The Tribunal considered each of the factors set out above both individually and taken as a whole. The Tribunal found as a fact that on any view the workers engaged by the Appellant worked under a contract of service. The onus of proof in this case rests with the Appellant and in the absence of any evidence provided by the Company in support of its Appeal or any challenge to the evidence produced by HMRC the appeal is dismissed and the Regulation 80 Income Tax (Pay As You Earn) Regulations 2003 determinations for  2003/2004, 2004/2005, 2005/2006, 2006/2007, 2007/2008 and 2008/2009 and Section 8 Social Security Contributions (Transfer of Functions, Etc) Act 1999 Notices in respect of unnamed workers for the period 6 April 2003 to 5 April 2009 and in respect of Mrs K. Norledge and Mrs S. Stow for the period 6 April 2005 to 5 April 2006 are confirmed.

14.    This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

TRIBUNAL JUDGE

RELEASE DATE: 30 November 2010