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Cite as: [2011] UKFTT 172 (TC)

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Mitchell & Anor v Revenue & Customs [2011] UKFTT 172 (TC) (15 March 2011)
INCOME TAX/CORPORATION TAX
Employment income

[2011] UKFTT 172 (TC)

TC01041

Appeal number: TC/2010/01564

Employment income -- whether surgeon assisting consultant cardiac surgeon during operations was an employee or self-employed -- appeal allowed

FIRST-TIER TRIBUNAL

TAX

IAN MITCHELL FRCS Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

- and -

DR PRABHAKER BHIMAGUNTA Third Party

TRIBUNAL: JUDGE GUY BRANNAN

MARYVONNE HANDS

Sitting in public at Byron House, Nottingham on 11 January 2011

The Appellant appeared in person

Mrs K Walker for the Respondents

DECISION

Introduction

1. Mr Mitchell is a consultant cardiac surgeon. He appeals against a decision and determinations for the purposes of, respectively, national insurance contributions ("NICs") and PAYE that Dr Bhimagunta -- who assists Mr Mitchell in operations on Mr Mitchell's private patients -- is Mr Mitchell's employee (or employed earner for NIC purposes).

2. The decision and determinations under appeal are as follows. The decision notice for NIC purposes was made under section 8 Social Security Contributions (Transfer of Functions, Etc) Act 1999 and was issued on 21 August 2009 for the period 6 April 2005 to 5 April 2007 for £828.00.

3. As regards PAYE, determinations were made under Regulation 80 of the Income Tax (Pay As You Earn) Regulations 2003 and issued on 21 August 2009 as follows:

2005 – 2006 £1800.00

2006 – 2007 £600.00

4. The issues under appeal affect the tax position of Dr Bhimagunta and he has, therefore, been joined as a third party to this appeal.

5. We heard evidence from Mr Mitchell and Dr Bhimagunta. In addition, HMRC produced a bundle of documents which included, inter-alia, correspondence and notes of meetings.

Legislation

6. As regards NICs, Section 2 (1) Social Security Contributions and Benefits Act 1992 defines the phrases "employed earner" and "self-employed earner" as follows:

" Categories of earners

(1) In this Part of this Act and Parts II to V below—

(a) “employed earner” means a person who is gainfully employed in Great Britain either under a contract of service, or in an office (including elective office) with general earnings; and

(b) “self-employed earner” means a person who is gainfully employed in Great Britain otherwise than in employed earner's employment (whether or not he is also employed in such employment)."

7. Sections 6 and 7 of the same Act set up the circumstances in which Class 1 NICs are to be paid and who is liable to pay them. Paragraph 3 of Schedule 1 makes the employer liable to pay the primary (employee's) contribution and sets up the circumstances in which you can recover the contribution from the employee, as follows:

"(1) Where earnings are paid to an employed earner and in respect of that payment liability arises for primary and secondary Class 1 contributions, the secondary contributor shall (except in prescribed circumstances), as well as being liable for any secondary contribution of his own, be liable in the first instance to pay also the earner's primary contribution or a prescribed part of the earner's primary contribution, on behalf of and to the exclusion of the earner; and for the purposes of this Act and the Administration Act contributions paid by the secondary contributor on behalf of the earner shall be taken to be contributions paid by the earner.

(2) . . .

(3) A secondary contributor shall be entitled, subject to and in accordance with regulations, to recover from an earner the amount of any primary Class 1 contribution paid or to be paid by him on behalf of the earner; and, subject to sub-paragraphs (3A) to (5) below but notwithstanding any other provision in any enactment], regulations under this sub-paragraph shall provide for recovery to be made by deduction from the earner's earnings, and for it not to be made in any other way."

8. Section 8 Social Security Contributions (Transfer of Functions, Etc) Act 1999 provides:

"Decisions by officers of Board

(1) Subject to the provisions of this Part, it shall be for an officer of the Board—

(a) to decide whether for the purposes of Parts I to V of the Social Security Contributions and Benefits Act 1992 a person is or was an earner and, if so, the category of earners in which he is or was to be included,

(b) ….

(c) to decide whether a person is or was liable to pay contributions of any particular class and, if so, the amount that he is or was liable to pay,"

9. Regulation 10 of the Social Security (Decisions and Appeals) Regulations 1999 SI 1999/1027 places the onus of proof on an appellant in respect of a decision and made under section 8 above.

10. As regards PAYE, section 684 Income Tax (Earnings and Pensions) Act 2003 ("ITEPA") requires HMRC to make regulations in respect of PAYE. The Income Tax (Pay As You Earn) Regulations 2003 SI 2003/2682 ("the PAYE Regulations") require an employer to deduct an account for PAYE when making payments of employment income to an employee. Regulation 80 of the PAYE Regulations provides:

Determination of unpaid tax and appeal against determination

(1) This regulation applies if it appears to [HMRC] that there may be tax payable for a tax year under regulation 68 by an employer which has neither been—

(a) paid to [HMRC], nor

(b) certified by [HMRC] under regulation 76, 77, 78 or 79.

(2) [HMRC] may determine the amount of that tax to the best of their judgment, and serve notice of their determination on the employer.

(3) A determination under this regulation must not include tax in respect of which a direction under regulation 72(5) has been made; and directions under that regulation do not apply to tax determined under this regulation.

(4) A determination under this regulation may—

(a) cover the tax payable by the employer under regulation 68 for any one or more tax periods in a tax year, and

(b) extend to the whole of that tax, or to such part of it as is payable in respect of—

(i) a class or classes of employees specified in the notice of determination (without naming the individual employees), or

(ii) one or more named employees specified in the notice.

(5) A determination under this regulation is subject to Parts 4, 5 . . .and 6 of TMA (assessment, appeals, collection and recovery) as if—

(a) the determination were an assessment, and

(b) the amount of tax determined were income tax charged on the employer,

and those Parts of that Act apply accordingly with any necessary modifications.

(6) . . .

[references to "HMRC" were added in 2008 and have been included for ease of reference]

11. Section 50 (6) Taxes Management Act 1970 places the onus of proof on an appellant in respect of a determination made under Regulation 80 of the PAYE Regulations.

The facts

12. We find the following facts.

13. Mr Mitchell is a Fellow of the Royal College of Surgeons. He is a cardiac surgeon and is employed by a National Health Service Trust ("NHS") in Nottingham. As well as his NHS practice, Mr Mitchell also has a private practice. Where surgery is required by Mr Mitchell's private patients he performs operations at two available hospitals in Nottingham, principally at the Park Hospital (and very occasionally at the City Hospital).

14. Patients come to Mr Mitchell either by being referred by cardiologists or by a patient being seen by Mr Mitchell in his NHS clinic and that patient then indicating that they would prefer to have the operation performed privately.

15. Once it was agreed with the patient that an operation should be undertaken privately, Mr Mitchell would set about making the necessary arrangements. He would liaise with the Park Hospital and would book an operating theatre for a convenient day. The date was dependent on the availability of the patient, Mr Mitchell and, most importantly, the operating theatre itself. Mr Mitchell explained that because cardiac surgery on private patients was not a regular occurrence (he contrasted this with orthopaedic surgery where an orthopaedic surgeon would often have a "block booking" for an operating theatre) theatre availability was often the main factor in determining the date of operation. Mr Mitchell indicated that the City Hospital did not always seem to like making itself available for private operations and, therefore, he usually would contact the Park Hospital.

16. Mr Mitchell would then put together the medical team for the operation. Mr Mitchell would usually ask Dr Bhimagunta to assist him.

17. Dr Bhimagunta (until 2010) was employed as a registrar by the same NHS Trust as Mr Mitchell. He worked closely with Mr Mitchell in his NHS practice and assisted Mr Mitchell on cardiac operations performed within the NHS. Mr Mitchell had been working with Dr Bhimagunta since 2005. At some time in 2010 Dr Bhimagunta commenced a different role within the NHS and since that time Mr Mitchell has used another assistant in his private operations.

18. In addition to Dr Bhimagunta, Mr Mitchell would arrange for an anaesthetist, with whom he had worked before, to assist in the operation. The anaesthetist would bill the patient (or more often the insurance company) directly.

19. Mr Mitchell would also arrange the services of a perfusionist or possibly two perfusionists to assist with the operation. A perfusionist is a highly skilled operator of the machine that artificially circulates the patient's blood during the operation. Usually, the patient's heart is stopped during the operation and the perfusionist ensures a continuation of the blood supply. The perfusionist would be supplied and paid by the Park Hospital.

20. The nursing staff were provided and paid by the Park Hospital.

21. It was clear from the evidence that Mr Mitchell took great care in assembling his surgical team. For reasons explained in greater detail below, he made sure that the team was made up of individuals with whom he had worked before and with whose work he felt comfortable.

22. The surgical instruments and necessary equipment (including stitches and prosthetic valves) were also provided by the Park Hospital. Mr Mitchell and Dr Bhimagunta provided no equipment of their own apart from their surgical goggles and, as Mr Mitchell put it, their hands.

23. The patient (in practice, more usually, the patient's insurance company) would receive three bills for the operation: one from Mr Mitchell, one from the anaesthetist and one from the Park Hospital.

24. There was usually no written contract between the patient and Mr Mitchell (or indeed with any other member of the medical team), although the patient would be asked to sign a consent form.

25. The arrangement between Dr Mitchell and Dr Bhimagunta was that Mr Mitchell agreed to pay Dr Bhimagunta a fixed fee for each operation. The fee was usually approximately £120 – 150, regardless of the length or complexity of the operation. The fee would be paid by Mr Mitchell when he was paid by the patient or the patient’s insurance company. Mr Mitchell was paid by insurance companies according to fixed scale fees which were determined by the nature of the operation and took no account how long any operation actually took. Mr Mitchell had never failed to pay Dr Bhimagunta. There were, however, occasions (e.g. when the operation was cancelled, sometimes on the day of the operation itself e.g. because the patient had developed an infection) when Dr Bhimagunta would not be paid, even though he had turned up at the hospital.

26. Dr Bhimagunta was not involved in the post-operative care of Mr Mitchell's patients. There were occasions, however, where further surgical attention was required (e.g. where the patient was bleeding heavily after an operation). Dr Bhimagunta would, although he had no obligation to do so, assist Mr Mitchell in a further surgical procedure in theatre in these cases, when Mr Mitchell considered it would be unsafe for him to carry out the procedure without assistance. Dr Bhimagunta would not receive any further payment for this further surgical procedure.

27. In arranging the operation, Mr Mitchell would, as indicated, ask Dr Bhimagunta if he was available. If he was not available (e.g. when he was on holiday) Mr Mitchell would either ask another doctor to assist or, occasionally, rearrange the date of the operation. Mr Mitchell made it clear that he would not accept a substitute nominated by Dr Bhimagunta unless it was a registrar whom he knew well. Dr Bhimagunta accepted that he had never put forward a substitute.

28. Mr Mitchell preferred to operate with Dr Bhimagunta. They knew each other well and worked closely together in the NHS. Mr Mitchell liked his particular method of working, with which Mr Mitchell was comfortable. Mr Mitchell likened his role in an operation, in relation to the other members of the medical team, to that of a conductor of an orchestra. He had overall responsibility for the operation and to ensure that each member of the team was doing their allotted task at the necessary time. He had overall control of the operation, where necessary telling members of the medical team when to do things and what drugs to use. Subject to that, he allowed each highly skilled member of the team to get on with their specific tasks. It was necessary to have one person in overall control in the operating theatre but he considered he had the same degree of control over the anesthetist, the perfusionist, and the scrub nurses as he did over Dr Bhimagunta.

29. One of the reasons why Mr Mitchell liked to have Dr Bhimagunta as his assistant was because they operated together so frequently so that Dr Bhimagunta knew exactly what needed to be done without having to be asked and each new the other's working methods. Mr Mitchell said that sometimes operations, which could last several hours, would pass in almost complete silence as each highly skilled and specialised member of the medical team went about their specific duties with very little need of guidance or instruction from him.

30. Sometimes, Mr Mitchell would ask Dr Bhimagunta to perform a specific task, such as the removal of a vein in the patient's leg, but Dr Bhimagunta would carry out the task without Mr Mitchell's further involvement. In any event, Mr Mitchell would usually be fully engaged -- literally having his hands full, as he put it, inside the patient's chest -- in performing the necessary surgical procedures on the patient's heart.

31. Dr Bhimagunta agreed that he and Mr Mitchell knew each other well. When an operation was to be performed, after scrubbing up, Mr Mitchell would concentrate on the patient's chest and Dr Bhimagunta would, for example, remove a vein. Each member of the team would know what they were doing. Usually before an operation the members of the team would discuss what needed to be done. This would depend on the type of operation be undertaken. For example, if a valve replacement was being performed, Dr Bhimagunta would know exactly what needed to be done in his role as an assistant. Mr Mitchell did not need to give him instructions (for example, he would not need to say "retract this"). There were often many steps in an operation -- the procedures could be very complex -- but Mr Mitchell would always do them the same way.

32. Mr Mitchell valued Dr Bhimagunta’s skill, experience and their close, almost intuitive, working relationship. He was strongly of the opinion (which we accept), in the circumstances of cardiac surgery, that such a relationship was very much in the interests of the patient and the patient's safety. Mr Mitchell noted that 2-3 % of patients who underwent major cardiac surgery would die. In his view, patient safety was paramount. That was why he preferred to operate with Dr Bhimagunta. It would have been possible, as he put it, to assemble a random team consisting of anesthetists, perfusionists and an assistant surgeon whom he did not know but he considered this would be unsafe for the patient.

33. Dr Bhimagunta was free to work on private operations with other consultants. In practice, because he was not popular with other consultants, he was used for private work only by Mr Mitchell.

34. Dr Bhimagunta maintained his own Medical Defense Union insurance, which was necessary for him to operate in the private sector. It desirable, but was not necessary, for him to carry this insurance as regards as NHS work.

35. The number of private operations performed by Mr Mitchell varied greatly. Mr Mitchell estimated that he performed approximately 20 private operations each year (although we note that in 2005/2006 and in 2006/2007 Mr Mitchell paid Dr Bhimagunta £4500 and £1500 respectively); although more recently he had performed significantly fewer private operations. The frequency of the operations was very sporadic. Sometimes, he could perform a number of operations within a few weeks and then perform no private operations for several months.

36. A contract was entered into between Mr Mitchell and Dr Bhimagunta on 1 February 2005. It is headed "Self-Employed Contract for Services". The contract, so far as is material, provides as follows:

"The Sub Contractor [Dr Bhimagunta] is in business on his/her own account as an independent surgical assistant and has skills and abilities that can offer services which may be of use to the Contractor [Mr Mitchell] from time to time.

The Contractor and the Sub Contractor agree and intends where the Sub Contractor agrees to provide services to the Contractor he/she will do so in accordance with the Operative Provisions of the Contract for Service.

CONTRACT FOR SERVICES

1. This Contract for Services shall commence on 1 February 2005.

2. The Sub Contractor agrees to provide surgical assistant Services to the Contractor (the "Works").

3. The Sub Contractor agrees to provide the Services in a professional and workmanlike manner at all times.

4. The Sub Contractor shall assist the Contractor by making all reasonable attempts to work within an agreed deadline and will observe Health and Safety regulations as appropriate.

5. The Sub Contractor May at his/her discretion may send a substitute or delegate to perform the Works. Where this occurs, the Contractor shall have no contractual or financial relationship with the substitute or delegate.

6. The Contractor and the Sub Contractor shall verbally agree a fixed fee per item of service, payable on completion of each separate task.

7. The Contractor and Sub Contractor agree and intend that the period of time covered by each completed task shall represent the commencement and termination of an individual Contract for Services and that a new Contract for Services commences on the next day contract works are undertaken. All clauses of this Contract for Services will be operative during any such individual contract, but specifically both Parties agree that no an umbrella or composite contract is being entered into.

8. The Contractor and Sub Contractor agree and intend that each gross payment represents an individual Contract for Services and that a new Contract for Services commences on the next day contract works are undertaken. All clauses of this Contract for Services will be operative during any such individual contract, but specifically both Parties agree that no an umbrella or composite contract is being entered into.

FINANCIAL RISK

9. The Sub Contractor will negotiate the price for the Works and is obliged to honour any agreed price.

10. The Sub Contractor shall not be entitled to receive the sick pay, holiday pay or Bank holiday pay in any circumstances. The Sub Contractor agrees he/she is not entitled to any employment rights which may be available to direct employees.

11. The Sub Contractor will not be entitled to receive payment for cancelled Works.

12. This Contract for Services can be immediately terminated by either party for whatever reason and no notice is required to be given. The Sub Contractor is not entitled to partake in any grievance procedure against the Contractor.

13. The Contractor is not obliged to offer ongoing contracts for Works to the Sub Contractor nor is the Sub Contractor obliged to accept such contracts or Works if offered. The Sub Contractor is not obliged to make his/her services available. Specifically, both parties accept that they do not wish to create or imply any mutuality of obligations whatsoever, at any time, either during or in between any individual Contract for Services.

14. The Sub Contractor agrees to accept responsibility for liability insurance in respect of the Works.

15. The Sub Contractor is not entitled to any pension benefits or partake in any pension run by the Contractor. Personal pension provision May be made by the Sub Contractor at his/her own discretion.

FREEDOM OF THE SUB CONTRACTOR TO UNDERTAKE OTHER WORKS

16. The Sub Contractor is free to undertake other Contracts for Services for other parties at any time, either before, after or concurrently with this Contract for Services.

17. The Contractor acknowledges and agrees that he does not have first call on the services of the Sub Contractor and cannot require the Sub Contractor to give him, the Contractor, any priority over another Contractor.

TAXATION AND NATIONAL INSURANCE

18. The Sub Contractor agrees that as an independent person in business on his/her own account, he/she is responsible for his/her own tax and national insurance.

BUSINESS ORGANISATION

19. The Sub Contractor will at all times represent him/herself as an independent Sub Contractor and will in no circumstances represent him/herself or hold him/herself out as a servant or employee of the Contractor. The Sub Contractor hereby acknowledges the/she is in business on his/her own account and is not part and parcel of the Contractor's business.

INTENTION OF THE PARTIES

20. Both parties agree and intend that the legal relationship is one of an independent Sub Contractor and specifically is not a relationship of master and servant or employer and employee."

37. Although paragraph 5 of the contract allowed Dr Bhimagunta to send a substitute, in practice, Mr Mitchell made it clear that he would not accept a substitute unless it was the registrar whom he knew well.

38. In accordance with the contract, Dr Bhimagunta was not entitled to sick pay, travel expenses or paid holiday. There was no commitment by Mr Mitchell to use only Dr Bhimagunta as his surgical assistant. Equally, there was no commitment from Dr Bhimagunta to work only with Mr Mitchell, although in practice he only assisted Dr Mitchell. There was no commitment by Mr Mitchell to provide work to Dr Bhimagunta – the work was ad hoc.

39. Dr Bhimagunta had included the payments from Mr Mitchell in respect of his role as a surgical assistant on his income tax returns, although we understood that these returns had been filed late.

Legal principles

Looking at the " whole picture"

40. The issue in this appeal, beguiling in its apparent simplicity, is whether Dr Bhimagunta was Mr Mitchell's employee when he assisted Mr Mitchell in operations on Mr Mitchell's private patients. Mrs Walker, for HMRC, helpfully cited a number of authorities which we shall now consider in more detail.

41. As a general matter, the authorities suggest various guidelines or indicia which can be used in various different factual circumstances to determine whether an engagement is a contract of employment or a contract for services (i.e. the hiree is self-employed). We consider these indicia later in this decision. For present purposes, however, they can be summarised as follows:

(1) the well-known threefold test set out by MacKenna J in Ready Mixed Concrete (South East) Ltd v. Minister of Pensions and National Insurance [1968] 1 All ER 433;

(2) whether the worker is in business on his own account: see in particular the judgment of Cooke J in Market Investigations Ltd v Minister of Social Security [1969] 2 QB 173;

(3) the "mutuality of obligation" test: see the judgment of Park J in Usetech Ltd v. Young (HMIT) [2004] STC 1671 and Cornwall County Council v Prater [2006] EW CA Civ 102;

(4) the "substitution issue": see the decision of the Court of Appeal in Express & Echo Publications Ltd v Tanton [1999] EWCA Civ 949, the decision of Park J in Usetech (see above) and the decision of Henderson J in Dragonfly Consultancy Ltd v The Commissioners for Her Majesty's Revenue & Customs [2008] EWHC 2013 (Ch);

(5) the influence of the surrounding terms; and

(6) the intentions of the parties.

42. It is important to understand, however, that the courts have warned against a mechanistic approach to these tests. Each case must be decided on its own individual facts. The hirer-hiree relationship (to use neutral expressions) must be examined in detail in each case. The factual matrix may mean that some of the indicia mentioned above are very important or even determinative of the nature of the relationship. In other cases, the same indicia will be of little help (or may even be irrelevant) in determining whether the relationship is that of employment or self-employment.

43. In Hall v Lorimer 66 TC 349 Mummery J said (at 366G):

"In order to decide whether a person carries on business on his own account, it is necessary to consider many different aspects of that person's work activity. This is not a mechanical exercise of running through items on the checklist to see whether they are present in, or absent from, a given situation. The object of the exercise is to paint a picture from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole. It is a matter of evaluation of the overall effect of the detail, which is not necessarily the same as the sum of the individual details. Not all details are of equal weight would importance in any given situation. The details may also vary in importance from one situation to another."

44. Mummery J's comments were approved on appeal by Nolan LJ, with whom Dillon LJ and Roch LJ concurred, (at 375 E-F) who said:

"Mr Goldsmith invited us to adopt the same approach as that of Lord Griffiths in applying the test or indicia set out by Cooke J [in Market Investigations Ltd v Minister of Social Security [1969] 2 QB 173]. That is an invitation which I view with some reserve. In cases of this sort there is no single path to a correct decision. An approach which suits the facts and arguments of one case may be unhelpful in another."

45. Nolan LJ continued (at 375 I) by expressing approval of the comments of Vinelott J in Walls v Sinnett 60 TC 150 at 164 where the learned judge said:

"It is in my judgment, quite impossible in the field where a very large number of factors have to be weighed to gain any real assistance by looking at the facts of another case and comparing them one by one to see what facts are in common, what are different and what particular weight is given by another tribunal to the common facts. The facts as a whole must be looked at, and what may be compelling in one case in the light of all the facts may not be compelling in the context of another case."

46. In our view, with respect, these comments set out the correct approach to be adopted by this Tribunal in determining the question whether Dr Bhimagunta was Mr Mitchell's employee or whether he was self-employed. The detailed nature of the working relationship between Mr Mitchell and Dr Bhimagunta and all the surrounding circumstances must be examined. The various indicia mentioned above must then be applied to that detailed factual matrix, with the Tribunal using its judgment to evaluate the weight or relevance of the indicia involved and taking care to look at the picture as a whole. In the end, there is no one test that can determine every case. The process, once the facts and circumstances are determined, is one of evaluation and where mechanical application of the guidance contained in the many decided cases on this topic is to be avoided.

47. With this approach, and the reservations of Nolan LJ, in mind we now turn to consider in more detail the indicia of employment considered in the authorities.

The tests of MacKenna J in the Ready Mixed Concrete case

48. MacKenna J set out his well-known test (at at 439) as follows:

“I must now consider what is meant by a contract of service. A contract of service exists if the following 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.”

49. . As regards (i) he said (at 440):

"There must be a wage or other remuneration. Otherwise there will be no consideration, and without consideration no contract of any kind. The servant must be obliged to provide his own work and skill. Freedom to do a job either by one's own hands, or by another's is inconsistent with a contract of service, though a limited or occasional power of delegation may not be...."

50. The first test appears to concern the ability to substitute another person to carry out the work -- as to which, see below. We describe the second and third tests in more detail below.

Control

51. The second test put forward by MacKenna J relates to control by the employer of the employee. MacKenna J said (at 440):

"Control includes a part 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 when it shall be done. All these aspects of control must be considered in deciding whether the right exists in a sufficient degree to make one party the master and the other his servant. The right need not be unrestricted."

52. It should be noted that in Market Investigations Ltd v Minister of Social Security [1969] 2 QB 173 Cooke J (at 183) expressed the view that an analysis of the extent and degree of control was not in itself decisive. Cooke J referred to Morren v Swinton and Pendlebury Borough Council [1965] 1 WLR567 where Lord Parker CJ pointed out (at 582):

The cases have over and over again stressed the importance of the factor of superintendence and control, but that it is not the determining test is quite clear. In Cassidy v The Minister of Health [1951] 2 K.B. 343, 351. Somervell L.J., referred to this matter, and instanced, as did Lord Denning in the later case of Stevenson, Jordan & Harrison v. McDonald & Evans [1952] 1 T.L.R. 101, C.A. 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, or 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. "

53. We shall see, in the context of the test which considers whether the worker is in business on his/her own account that some of the indicia of employment or self-employment cause particular problems in the context of a professional or highly skilled individual. In Market Investigations Ltd Cooke J continued:

"Cases such as Morren's case [1965] 1 WLR 576 illustrate how a contract of service may exist even though the control does not extend to prescribing how the work shall be done. On the other hand, there may be cases when one who engages another to do work may reserve to himself full control over how the work is to be done, but nevertheless the contract is not a contract of service. A good example is Queensland Stations Proprietary Ltd. v. Federal Commissioner of Taxation (1945) 70 C.L.R. 539, the "drover" case, where Dixon J. said, at p. 552:

"In considering the facts it is a mistake to treat as decisive a reservation of control over the manner in which the droving is performed and the cattle are handled. For instance, in the present case the circumstance that the drover agrees to obey and carry out all lawful instructions cannot outweigh the countervailing considerations which are found in the employment by him of servants of his own, the provision of horses, equipment, plant, rations, and a remuneration at a rate per head delivered."

If control is not a decisive test, what then are the other considerations which are relevant? No comprehensive answer has been given to this question, but assistance is to be found in a number of cases."

54. Cooke J then set out an alternative test, viz whether the person was engaged in business on his own account, and we consider this test later in this decision.

55. In Dragonfly Consultancy Ltd v The Commissioners for Her Majesty's Revenue & Customs [2008] STC 3030 (Ch) Henderson J held that a highly skilled IT system tester was an employee. The worker in question worked exclusively for the AA number of periods of several months. Although the worker was not subject to control as to how the work was done, he was subject to regular appraisal and monitoring. Henderson J said (at 3068):

"On the strength of the oral evidence, the Special Commissioner was in my view fully entitled to conclude that Mr Bessell's performance of his duties was subject to a degree of supervision and quality control which went beyond merely directing him when and where to work. In the case of a skilled worker, you do not expect to find control over how the work is done. Conversely, in the case of a self-employed worker in business on his own account you would not normally expect to find regular appraisal and monitoring of the kind attested to by Mr Palmer and Miss Tooze. The weight and significance to be attached to this evidence was a matter for the Special Commissioner, and in my view it was open to him to conclude that the nature and degree of the control by the AA under the hypothetical contract was on balance a pointer towards employment."

56. From these decisions we conclude that in the case of a skilled professional person control is relevant in determining whether that person can be characterised as an employee. However, the test is not decisive and will depend on the degree of control exercised in each case. In Dragonfly regular appraisal and monitoring over several months were held to be sufficient. In other cases, e.g. those cases cited by Cooke J in Market Investigations Ltd, control was not determinative, where other factors pointed towards self-employment.

57. Finally, before leaving the subject of control, it should be noted that the reference by MacKenna J to the test of control including the thing to be done and the time and place at which it shall be done are factors which need to be weighed in the balance. However, specifying the job that needs doing and the time and place in which should be done will often be factors which arise in a contract for services where a hirer engages an independent contractor. If you say to a plumber, for example, 'please fix my leaking pipe at my home on Thursday morning' that cannot, in our view, turn a self-employed plumber into an employee. Nonetheless, they are factors which can be taken into account in the overall factual matrix. In addition, at the risk of stating the obvious, the circumstances (rather than the hirer) may dictate the nature of the job that needs to be done, as well as the place and the time of performance.

In business on own account

58. As we have seen, Cooke J in Market Investigations rejected control as the decisive test. The learned judge, in a well-known passage, said (at 185):

“…control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor'. The fundamental question which has to be asked is whether the person who has engaged himself to perform the services in question is performing them as a person in business on his own account. If the answer to that question is 'yes', then the contract is a contract for services. If the answer is 'no', then the contract is a contract of service.”

59. Cooke J said that there is no exhaustive list which could be compiled of the considerations which are relevant in answering that question, nor could strict rules be laid down as to the relative weight which the various considerations should carry in particular cases. Apart from control, factors, which may be of importance included

“…are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk takes [sic], what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task …'

60. In Lee Ting Sang v Chung Chi-Keung [1990] 2 AC 374 the Privy Council (in a judgment delivered by Lord Griffiths) approved the approach of Cooke J in Market Investigations, saying (see [1990] 2 AC 374 at 382) that 'the matter had never been better put.'

61. In Hall v Lorimer the Court of Appeal noted the limitations of Cooke J's formulation in relation to professional persons. Nolan LJ observed (at 377):

" Again the question, whether the individual is in business on his own account, though often helpful, may be of little assistance in the case of one carrying on a profession or vocation. A self-employed author working from home or an actor or a singer may earn his living without any of the normal trappings of a business. For my part I would suggest there is much to be said in these cases for bearing in mind the traditional contrast between a servant and an independent contractor. The extent to which the individual is dependent upon or independent of a particular paymaster for the financial exploitation of his talents may well be significant. It is, I think, in any event plain that Cooke J. in Market Investigations Ltd. v. Minister of Social Security [1969] 2 Q.B. 173 was not intending to lay down an all purpose definition of employment. For example, his test does not mention the duration of the particular engagement or the number of people by whom the individual is engaged.

62. In our view, Nolan LJ is simply illustrating the general principle that, whilst all tests are potentially helpful and should be considered, the facts may be such that some tests or indicia may be of limited relevance or usefulness. In this case, he notes that a person whose activity comprises that person’s particular professional or artistic skill or experience may require few, if any, trappings or minimal apparatus of a self-employed business. In such cases, the type of activity will determine whether Cooke J's test is particularly relevant. As regards the difficulties of applying the various tests to highly skilled professional workers Nolan LJ commented, earlier in his judgment, (at 375):

“Mr. Goldsmith acknowleged that the work of the taxpayer, unlike that of Mr. Lee Ting Sang, depended upon his own rare skill and judgment but submitted that the nature and degree of skill involved in the work cannot alone be decisive. Again I agree. A brain surgeon may very well be an employee. A window cleaner is commonly self-employed.”

63. Nolan LJ continued (at 377):

" Mr. Goldsmith submitted that the fundamental distinction between a contract of employment and a contract for service is that in the former the contracting party sells his skill or labour; in the latter he sells the product of his labour. In one case the employer buys the man; in the other he buys the job. If that were right, it would have provided a short and simple answer in Market Investigations Ltd. v. Minister of Social Security [1969] 2 Q.B. 173; Fall v. Hitchen [1973] 1 W.L.R. 286 and Lee Ting Sang v. Chung Chi-Keung [1990] 2 AC 374; but that aside, I find the distinction very hard to apply in the case of a professional man. Surely the self-employed barrister advising in his chambers or the doctor advising in his surgery is selling his skill and labour and not its product. If the scene shifts to the court or to the operating theatre can the client or patient really be said to be buying the product which may be disastrous in spite of the best efforts of the advocate or the surgeon in the litigation or operation?”

Mutuality of obligation

64. In Nethermere (St Neots) Ltd v Taverna and Gardiner [1984] ICR 612 the Court of Appeal referred to the first limb of MacKenna J's three tests referred to above. Stephenson LJ said (at 623):

"There must, in my judgment, be an irreducible minimum of obligation on each side to create a contract of service. I doubt if it can be reduced any lower than in the sentences I have just quoted."

65. In Usetech Ltd v. Young (HMIT) [2004] STC 1671 Park J said:

“If there is a relationship between a putative employer and employee, but it is one under which the 'employer' can offer work from time to time on a casual basis, without any obligation to offer the work and without payment for periods when no work is being done, the cases appear to me to establish that there cannot be one continuing contract of employment over the whole period of the relationship, including periods when no work was being done. There may be an 'umbrella contract' in force throughout the whole period, but the umbrella contract is not a single continuing contract of employment. See Clark v Oxfordshire Health Authority [1998] IRLR 125 (Court of Appeal); Carmichael v National Power PLC [1999] 1 WLR 2042 (House of Lords);Stevedoring & Haulage Services Ltd v Fuller [2001] EWCA Civ 651, [2001] IRLR 627 (Court of Appeal).

That leaves open the possibility that each separate engagement within such an umbrella contract might itself be a free-standing contract of employment, and it was, I believe, that concept which the Special Commissioner had in mind as covering this case. That is consistent with his referring in the same paragraph of his decision to the decision in Market Investigations Ltd v Minister of Social Security [1969] 2 QB 173,[1968] 3 All ER 732, in which part time interviewers for a market research company were held to be engaged under a series of separate contracts of employment. The judgment of Cooke J in that case contains a valuable and much cited discussion of principles which are relevant to distinguishing between contracts of employment and contracts for services rendered in a self-employed capacity (see especially [1969] 2 QB 173 at 184 –185, [1968] 3 All ER 732 at 737 –738). I confess that I have doubts about the factual conclusion which the learned judge reached when he applied the principles to the facts of the case. For myself, I see considerable force in the alternative analysis, namely that the interviewers provided their services on a free lance or casual basis and not as employees. See for an example of an analysis of that nature O’Kelly v Trusthouse Forte plc [1984] QB 90, [1983] IRLR 369.”

66. In Cornwall County Council v Prater [2006] EW CA Civ 102 the Council engaged Mrs Prater as a home tutor to teach children who were unable to attend school. She worked under different engagements for the Council for almost 10 years. She taught some pupils for five hours a week and others for as much as 10 hours a week. The duration of the individual engagements varied from a few months to several years. It was argued on behalf of the Council that there was no mutuality of obligation because there was no on-going duty to provide work and there was no ongoing duty to accept work. The Court of Appeal rejected this argument. Longmore LJ said (at paragraph 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 people for whom the Council wanted her to provide tuition. That is 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."

67. With respect, the ingredients of "mutuality of obligation" stated by Longmore LJ would be present in any contract for services just as much as in a contract of employment. Longmore LJ's comment must be understood in the light of the fact that the alleged absence of "mutuality of obligation" was the Council's only ground of appeal. Indeed, as Lewison J pointed out (at paragraph 51):

“The question whether there is mutuality of obligation is not the complete test for determining whether a contract of service exists. I would have thought that the question of mutuality of obligation goes to the question whether there was a contract at all, rather than what kind of contract there was, if a contract existed. However the alleged lack of mutuality of obligation is the only ground of appeal."

68. We adopt the summary of the law, as regards mutuality of obligation, set out by the Special Commissioner (Howard Nowlan) in Castle Construction Ltd v The Commissioners for Her Majesty's Revenue & Customs Spc 00723:

"I think that a fair summary ...is that:-

- it is not clear, within the confines of one contract, that anything more is required to establish a contract of employment than the obligation to work and the obligation to pay;

-when considering whether the umbrella contract that links various separate employment contracts constitutes one continuous employment contract, there must then be some obligation to provide work or to offer work for the umbrella contract to constitute a continuing contract of employment; and

-an obligation on the employer to provide work, or in the absence of available work to pay, whilst not a precondition to a single contract ranking as an employment contract, is nevertheless a “touchstone” or a feature that one would expect to find in an employment contract."

69. We entirely agree with the comments of the learned Special Commissioner and of Lewison J. Once the "mutuality of obligation" test is understood as not requiring, in the context of a series of engagements, the hirer to promise or offer work other than in respect of each individual engagement, it does not in our view provide much assistance in determining the question currently before the Tribunal.

Substitution

70. As already noted, MacKenna J in Ready Mixed Concrete considered that an employee must be obliged to provide his own work and skill. The ability to do a job "either by one's own hands or by another's is inconsistent with the contract of service...." (at 515).

71. In Express & Echo Publications Ltd v Tanton [1999] EWCA Civ 949 Gibson LJ appeared to suggest that any contract for services which contained any right for the worker to provide a substitute can never be a contract of employment. This was doubted by Park J in Usetech (at 1697) and he said (at 1699):

"As it seems to me the present state of the law is that whether a relationship is an employment or not requires an evaluation of all of the circumstances. In the words of Hart J in Synaptek Ltd v Young [2003] STC 543, 75 TC 51, para 12, the context is one 'where the answer to be given depends on the relative weight to be given to a number of potentially conflicting indicia'. The presence of a substitution clause is an indicium which points towards self-employment, and if the clause is as far-reaching as the one in Tanton it may be determinative by itself."

72. These views of Park J were endorsed by Henderson J in Dragonfly (at 3061).

73. Finally, in Belcher v Autoclenz Ltd [2009] EWCA Civ 1046 the Court of Appeal considered whether an express term in a contract which allowed substitution had to be disregarded because it did not represent the true intentions of the parties. Smith LJ said (at paragraph 53):

"In my judgment the true position, consistent with Tanton, Kalwak and Szilagyi, is that where there is a dispute as to the genuineness of a written term in a contract, the focus of the enquiry must be to discover the actual legal obligations of the parties. To carry out that exercise, the tribunal will have to examine all the relevant evidence. That will, of course, include the written term itself, read in the context of the whole agreement. It will also include evidence of how the parties conducted themselves in practice and what their expectations of each other were. Evidence of how the parties conducted themselves in practice may be so persuasive that the tribunal can draw an inference that that practice reflects the true obligations of the parties. But the mere fact that the parties conducted themselves in a particular way does not of itself mean that that conduct accurately reflects the legal rights and obligations. For example, there could well be a legal right to provide a substitute worker and the fact that that right was never exercised in practice does not mean that it was not a genuine right."

74. Aikens LJ (with whom Sedley LJ concurred) put the point rather differently (at paragraph 91):

"Thus, in cases where there is a dispute as to the genuineness of the written terms of a contract relating to work or services, the focus of the enquiry must be to discover the actual legal obligations of the parties. Speaking for myself, I would respectfully suggest that it is not helpful to say that a court or tribunal has to consider whether the words of the written contract represent the “true intention” or the “true expectation” of the parties. There is a danger that a court or tribunal might concentrate too much on what were the private intentions or expectations of the parties. What the parties privately intended or expected (either before or after the contract was agreed) may be evidence of what, objectively discerned, was actually agreed between the parties: see Lord Hoffmann's speech in the Chartbrook case at [64] to [65]. But ultimately what matters is only what was agreed, either as set out in the written terms or, if it is alleged those terms are not accurate, what is proved to be their actual agreement at the time the contract was concluded. I accept, of course, that the agreement may not be express; it may be implied. But the court or tribunal's task is still to ascertain what was agreed."

The influence of the surrounding terms

75. The third of the requirements that MacKenna J listed, seemed to the Special Commissioner (Howard Nowlan) in Castle Construction Ltd v The Commissioners for Her Majesty's Revenue & Customs Spc 00723 essentially to be making the point that one must finally look to all the terms, or indeed the notable absence of terms, in order to judge whether these reinforce or undermine the initial conclusions reached by applying the first two tests.

76. The Court of Appeal (Gibson LJ) in Express and Echo Publications Ltd v Tanton [1999] ICR 693 described the approach to be adopted as follows (at 697):

"(1) The tribunal should establish what were the terms of the agreement between the parties. That is a question of fact.

(2) The tribunal should then consider whether any of the terms of the contract are inherently inconsistent with the existence of a contract of employment. That is plainly a question of law, and although this court, as indeed the appeal tribunal before us, has no power to interfere with findings of fact (an appeal only lies on a point of law), if there were a term of the contract inherently inconsistent with a contract of employment and that has not been recognised by the tribunal's chairman, that would be a point of law on which this court, like the appeal tribunal before us, would be entitled to interfere with the conclusion of the chairman.

(3) If there are no such inherently inconsistent terms the tribunal should determine whether the contract is a contract of service or a contract for services, having regard to all the terms. That is a mixed question of law and fact."