DECISION
The Appeal
1. Mr
Barney appealed against an assessment for income tax which increased the amount
of tax payable for 2006/07 to ₤13,372.12, and an amendment to his self
assessment return for 2007/08 which increased the tax due to ₤8,879.56.
HMRC issued the assessment and the amendment on 26 August 2009.
2. The
question to be determined by the Tribunal is whether Mr Barney was employed
(contract of service) or self employed (contract for services) in respect of
his engagement as a deckhand/factory hand on the sea-going vessel, the Norma
Mary, during the years in question. The parties acknowledged that the Tribunal
would not be dealing with the question of quantum which will have to be reconsidered
in the light of the Tribunal’s decision in this Appeal.
3. The
Appeal was listed on 23 June 2011 when the Tribunal heard evidence from the
Appellant and from Mr Jonathan Carden and Tracey Jackson for HMRC. Since 2006
Mr Carden as an employee of Marr Management Limited has acted as agent for the
owners of the Norma May in respect of crewing matters. Mr Carden has worked in
the fishing industry for 23 years and gave evidence on the details of Mr Barney’s
engagement and work on the Norma Mary, and the fishing industry in general.
Miss Jackson was an Inspector of Taxes and joined the Inland Revenue almost 30
years ago. Miss Jackson carried out the investigation into Mr Barney’s
employment status, concluding that Mr Barney was a self employed share
fisherman.
4. During
the course of the hearing Mr Barney’s niece, Miss Danielle Barney, applied to
represent her uncle in place of Miss Rhodes of Pelham Chartered Accountants,
who had been handling Mr Barney’s tax affairs. Miss Barney was a qualified
legal executive. Mr Hall who was presenting for HMRC raised no objections. The
Tribunal gave its permission for Miss Barney to act as her uncle’s
representative.
5. The
Tribunal did not have adequate time on the 23 June 2011 to conclude the
hearing. The Tribunal decided to go part heard and invited the parties to make
their final submissions and replies by writing. The Tribunal reconvened on 14
November 2011 to consider the evidence and submissions. Regretfully the Tribunal
missed its deadline of the 22 November 2011 for publishing the decision for
which the Tribunal apologises to the parties.
The Facts
Facts Not In Dispute
6. Mr
Barney went to sea at the age of 15 and worked almost continuously on fishing
vessels for the next 43 years. He first went out on the steam trawlers from Grimsby and then did a spell on the wooden fishing boats before he joined the crew of the
Norma Mary around 2000. Mr Barney has not worked since February 2009 which he
puts down to the ongoing dispute about his employment status. Mr Carden denies
that this is the case saying it was Mr Barney who refused to work on the new
Norma Mary.
7. This
Appeal concerned Mr Barney’s work arrangements on the old Norma Mary which was
a UK flagged large deep sea stern trawler operating outside UK territorial waters. The Norma Mary was commonly referred to as a factory ship. The fish
caught (except red fish) would be processed, boxed, wrapped and frozen on
board, which enabled the Norma Mary to make long sea trips. The Norma Mary was
entitled to fish the UK quota in waters around Greenland, north Norway and Iceland and sailed from and docked in either Iceland or Germany. The Norma Mary was
normally used for fishing cod and haddock, and occasionally Icelandic red fish.
The Norma Mary would carry on fishing until the quota was used up, when it
would be kept in dock until the new quota started in the following January.
8. Onward
Fishing Company Limited (“Onward”) owned the Norma Mary until 2008
when it was sold on to a company operating as a supply ship in the waters
around Africa. Onward originally operated from an office in Aberdeen under the
control of a Mrs Norma Smart. In 2006 Onward became part of the corporate group
of Samherji, an Icelandic Company, which resulted in the closure of the Aberdeen office with Marr Management Ltd of Hull given the responsibility of running the
administration for Onward including the recruitment of crews for the Norma
Mary. Samherji holds a 50 per cent share in the ownership in Marr Management.
9. Mr
Barney first worked on the Norma Mary in 2000. Back then he heard on the
grapevine that a job was available on the ship. Mr Barney telephoned Mrs Smart
who gave him the job of deckhand/factory hand. There was no formal interview or
recruitment process and no requirement on Mr Barney to provide references. Mrs
Smart previously knew Mr Barney since he had worked on one of her other vessels
some years earlier. Mrs Smart told him the time of sailing and that a taxi and
flight had been booked in his name to take him to the Norma Mary in Iceland.
10. Mr Barney
worked on the Norma Mary for the next eight years, and had no other jobs during
that period. After the Norma Mary was sold Mr Barney sailed twice on the Odra,
which was another vessel owned by Samherji. Mr Barney ceased working for
Samherji in February 2009.
11. The sailings on
the Norma Mary normally lasted for six to ten weeks at a time, although it
could be short as one week or as long as 14 weeks. At the end of each sailing
Mr Barney would fly home at the expense of the vessel owner for seven to ten
days before being flown back. Occasionally he would stay on when the Norma Mary
ended her sailing to help with repairs and servicing for the vessel for which
he received a daily rate of between ₤80 to ₤100. The owner always
made and paid for Mr Barney’s travel arrangements between his home and the port
in which the Norma Mary was docked.
12. Throughout the
eight years Mr Barney was engaged as a deckhand and factory hand. The terms of
his engagement were not put in writing, and there was no letter of appointment.
Once aboard the Norma Mary Mr Barney signed the articles or crew agreement
which was required under the Merchant Shipping Acts, and gave details of his
next of kin. The articles did not constitute either an employment contract or
contract for services.
13. The Norma Mary
normally sailed with 24 to 26 men who included the Skipper, First Mate, Second
Mate, Boson, engineers and deckhands. The crew consisted of several nationalities.
The Skipper, however, was always Icelandic supported by British First and
Second Mates. Mr Carden suspected that the Skippers were Samherji Men, and
later said that they were employees of Samherji.
14. The crew was
organised into two watches, six hours on and six hours off, with 14 men
on any one watch. Mr Barney’s duties on the watches were to haul, shoot and
mend the nets, and to work in the factory filleting and packing fish. Mr Barney
took his instructions from one of the officers, normally the Second Mate who
would tell him at the beginning of each watch the nature of his duties that
day.
15. The Skipper
through his officers instructed the deckhands as to when to haul and shoot the
nets. The owners decided when the Norma Mary sailed, the areas where the fishing
would take place and when repairs to the vessel happened. The owners determined
the length of the sailing and told the Skipper when the vessel would return to
shore. The Skipper took the decision of where the fishing actually took place.
The crew outside the officers had no say in respect of these matters.
16. Mr Barney was
told what do whilst on board. He was not able to change the rota and not in a position
to refuse work. Mr Barney believed that if he disobeyed the officer’s
instructions he would be sacked and not taken on for future trips. Mr Barney
did not require ongoing supervision of his work because of his experience in
the fishing industry.
17. The owners
provided the vessel, associated machinery and nets. They also supplied Mr
Barney with a knife, overalls, hair net and an apron for the work in the
factory. Mr Barney provided his own wetsuit for work on deck which included
jacket, trousers and boots. The owners gave Mr Barney a hard hat which was
required for the fishing duties. The owners also supplied Mr Barney with his
food at no cost whilst on board.
18. There was no substantial
disagreement between the parties in respect of the above facts, although they
held different standpoints regarding the significance of those facts for the
disputed issue. The Tribunal now considers those facts which were contested
between the parties.
Disputed Facts
19. Mr Barney
contended that he had a continuous nine year engagement with the owners, and
during that time he never worked on another vessel under different owners. Mr
Barney stated that after finishing a trip onboard he held an expectation that
he would be automatically taken on for the next trip provided he had performed
his duties on the previous trip. Mr Barney was not able to put forward another
person in his place, if he could not go on a fishing trip.
20. Mr Carden
disagreed with Mr Barney’s interpretation of his expectation of continuous
work. Mr Carden stated that Mr Barney was engaged on a trip by trip basis with
no obligation on either the owners or Mr Barney to maintain the arrangement
beyond the particular trip. Mr Carden cited the example of when Mr Barney did
not work on the Norma Mary between the end of August 2006 and 19 January 2007.
Mr Carden said that fishermen usually rang the office on the off chance for
work. Marr Management did not advertise for jobs or recruit.
21. The picture
painted by the oral evidence was somewhat different from that portrayed by Mr
Carden. The actual practice was that before the end of each trip, the Skipper
would compile a list of crew members to return for the next trip which was
given to Mr Carden who would then contact each crew member on the list by
telephone to make the arrangements for the next trip. Mr Carden confirmed that
during the period Mr Barney was always on the list of returning crew members.
Also it was generally the same crew members who sailed on board the Norma Mary.
Mr Carden also explained the reason for Mr Barney not working for the five
month period from August 2006 which was that the Norma Mary had exhausted its
fishing quota, in which case she could not go out to sea until the following
January.
22. The Tribunal
finds that the facts of the actual arrangements supported Mr Barney’s view of
his relationship with the ship owners which was that he had the expectation and
guarantee of work on the Norma Mary provided he satisfactorily performed his
duties on board. Mr Barney did not have to take action to find work at the end
of each trip. He knew that he was on the Skipper’s list of returning crew, and
that he had simply to await the phone call from Mr Carden. Mr Barney did not
work in the five months in 2006 because the Norma Mary did not go out to sea.
23. Mr Barney stated
that his remuneration from his work on the Norma Mary was calculated on a
percentage of the gross sales of the fish without deduction from each trip. The
vessel owners fixed the percentage and was not negotiable. The percentage rate
varied between the different grades of staff with the officers receiving a
higher fixed percentage than the deckhands. Mr Barney explained that his
remuneration took the shape of a fixed payment of ₤200 per week which the
owners sent to his home, and two settlings. Mr Barney believed that the
₤200 payment was an advance of his wages rather than a retainer.
24. The settlings were
paid over in two stages. The first one was made when he left the ship and
approximated to 80 per cent of the gross sales of the fish less the advance
payments of ₤200 made during the trip. The second settling took place
some six to eight weeks after the end of the trip and represented the balance
calculated on the percentage of the actual gross sales of fish. The owners paid
the settlings into Mr Barney’s bank account, always on time. Mr Barney did not
have to issue invoices.
25. When Mrs Norma
Smart was responsible for the payroll she sent Mr Barney a payslip in respect
of the settlings, bearing an address label entitled employee name and
address below which was the name of Mr Barney and his address in Grimsby. When Mr Carden took over the payroll, he discontinued the practice of sending out
payslips and simply provided the settling sheets to Mr Barney. It was a matter
of dispute between the parties whether the settling sheets were sent out
regularly. This dispute was not relevant to the issue of employment status but
may have some bearing on Mr Barney’s incomplete self assessment returns.
26. The heading for
the settling sheets gave details of the vessel, the dates when Mr Barney joined
and left the ship and the value of the gross sales. There was no indication on
the sheets that the gross sales bore deductions. The body of the document
supplied information on the specific settling for Mr Barney and the deductions
which included the weekly payments of ₤200 described as advances, other
advances, the bond and phone cards. No deductions were made for tax and
national insurance.
27. Mr Barney argued
that he carried no financial risk in respect of his work on the Norma Mary. He
insisted that he was always paid his percentage of the gross sales, and that
the ₤200 advance payment was guaranteed. According to Mr Barney, the
₤200 would not be reclaimed if there had been a loss. Mr Barney had no
essential living costs to pay for on board as the owners provided everything.
He asserted that the question of the Norma Mary making a loss was unrealistic
because the Skipper would not allow it to happen. Mr Barney stated that he
could anticipate his eventual earnings from the settling sheets which were displayed
daily on board the vessel.
28. Mr Barney
compared his experience on the Norma Mary with that on the wooden fishing boats
where the crew would share 50 per cent of the fish sales after deductions of
fuel, ice, food and gear. The crew would decide each member’s share of the 50
per cent of the fish sales less deductions allocated to the crew..
29. Mr Carden
confirmed that the settlings were paid in two stages, and that Mr Barney
received a fixed percentage of the gross sales. Mr Carden, however, insisted
that the figure given for gross sales in the settlings was net of freight
costs. Mr Carden indicated that Mr Barney’s remuneration would fluctuate with
the profitability of the fishing expedition.
30. Mr Carden
disagreed with Mr Barney’s characterisation of the ₤200 as a guaranteed
payment. He pointed out that the owners had an arrangement with crew members
that they could ask for a sub or weekly cash advance ranging from
₤30 to ₤200 per week which was normally sent to their home. Mr
Barney was always granted the maximum advance payment.
31. Mr Carden stated
that it was highly unlikely that the Norma Mary would make a loss on a fishing
trip. He explained that at the time in question fishing quotas and prices for
fish were good and that Norma Mary would fish until the quota was exhausted.
32. Mr Carden could
only recall one occasion when the fishing from the Norma Mary resulted in a
loss which concerned a redfish voyage. In that instance the owners recovered
the loss from subsequent redfish voyages. Mr Carden asserted that when the
Norma Mary made this loss the overpayment on the cash advances made to Mr
Barney was carried forward and set off his settling for the subsequent trip.
33. The record of
settling sheets dealing with the redfish voyages referred to in paragraph 32 above
did not support Mr Carden’s assertion. According to the settling sheets, the
loss of ₤177.38 was not carried forward to the subsequent settling. The
record was exhibited at E7 to E9 and set out below:
|
Trip Number
|
Sailing Dates
|
Settling
(₤)
|
Advance
Payments (₤)
|
Net Payment
Due (₤)
|
|
3 part 1
|
17.10.07- 26.10.07
|
295.04
|
400.00
|
-177.38
|
|
3 part 2
|
26.10.07 – 01.11.07
|
390.81
|
200.00
|
190.81
|
|
3 part 3
|
01.11.07 – 08.11.07
|
537.52
|
233.50
|
304.08
|
34. The Tribunal
finds the following in respect of the questions of losses and Mr Barney’s
remuneration:
(1)
Mr Barney was not required to contribute to the costs of the vessel and
fishing trips which were borne by the owners.
(2)
If the costs for a particular trip exceeded the value of the gross sales
of fish the vessel owners would carry the losses forward to the next trip. There
was only one occasion when the Norma Mary made a loss. Mr Barney did not have
any financial liability in respect of the losses incurred.
(3)
Mr Barney’s remuneration was calculated as a fixed percentage of the
value of the gross sales of fish from the designated voyage. The owners specified
the fixed percentage which depended on the rank of the crew members and was
non-negotiable.
(4)
On balance the Tribunal prefers the evidence of Mr Carden in respect of
the value used for gross sales to calculate Mr Barney’s remuneration. Mr Carden
stated that it was the value of the sales minus freight costs. The Tribunal,
however, accepts that Mr Barney was not aware of this arrangement. The settling
sheets given to Mr Barney simply gave a figure for gross sales, and did not
mention the amount of freight costs. Also the freight costs were not
significant in relation to the overall gross sales. The indicative figures
given by Mr Carden were that the freight costs constituted about two to three
per cent of the gross sales.
(5)
The sole financial risk carried by Mr Barney in respect of his
engagement on the Norma Mary was that the size of his remuneration depended
upon the value of gross sales. The Tribunal considers that the risk was such
that it would not mean that Mr Barney would receive no remuneration from his
engagement on the Norma Mary. The evidence showed that the owners always
achieved a gross sales figure for each trip undertaken by Norma Mary.
(6)
The risk of Mr Barney receiving minimal remuneration was mitigated by
the facility of a weekly cash advance of ₤200 afforded to him by the
vessel owners. The Tribunal decided that Mr Barney’s description of the cash
advance as a guaranteed weekly payment was supported by the settling evidence
for the redfish fishing trip which was the only occasion when the settling did
not exceed the list of the deductions. The Tribunal considers Mr Carden’s
assertion that the owners would have taken steps to recover the overpayment
from Mr Barney was an after-thought when he realised that no adjustments had
been made in the subsequent settling sheets to recover the overpayment to Mr
Barney for the first redfish trip.
35. Mr Barney
accepted that he received no holiday pay from the Norma Mary vessel owners. Mr
Barney took his leave when the Norma Mary was docked. Mr Barney believed that
he was entitled to sick pay from the owners who held an insurance policy to cover
such risks. Mr Barney gave an example of when his legs were crushed on the
Norma Mary and was off work for ten to twelve weeks during which he was paid
₤100 per week by the owners. Mr Barney also recalled an occasion when he
fractured his hand onboard and unable to work but he still received his full
share of the settling for that trip. Finally Mr Barney asserted that the owners
funded his attendance at the local further education college to gain the
necessary certificates which were required to be held by all seamen by the Sea
Fishing Authority.
36. Mr Carden
conceded that the vessel owners took out insurance cover for members of crew to
cover risks of death, total and temporary disablement. Mr Carden indicated that
the owners paid a premium of ₤30,000 per annum for each crew to
Ecclesiastical Life Ltd for cover under The Fisherman’s Protection Plan. The
terms of the Plan exhibited in the bundle used the words, employer and employment
at paragraphs 4(c) and 16. Mr Carden stated that originally when a crew
member suffered an injury the owners received a payment from the insurance
company which was then passed onto the crew member. Now the insurance company
paid the crew member direct. Mr Carden explained that the owners took out the
insurance policy because the crew members would have nothing if they were
injured on board. He considered that the taking out of insurance by the owners
was not a problem for them, and cast them in good light.
37. Mr Carden
disputed that the owners paid for Mr Barney’s attendance at the local further
education college to gain the necessary certificates. As far as he was concerned
the courses were organised by the Sea-Fish Industry Authority and local colleges
funded by Government which he knew from his position as the local treasurer for
the Sea-Fish Industry Authority.
38. The Tribunal
considers that Mr Barney and Mr Carden were in agreement about the nature of
the payments which Mr Barney received, whilst off work for injuries suffered on
board the Norma Mary. Both accepted that the payments originated from an
insurance policy taken out by the owners. The Tribunal finds that the owners
took out the insurance cover because they acknowledged that they bore some
responsibility for the welfare of the crew members engaged by them on their
vessels.
39. The
Tribunal accepts Mr Carden’s evidence that the courses attended by Mr Barney were
organised by the Sea-Fish Industry Authority, a non-departmental public body
set up by an Act of Parliament, and that the courses were not funded directly
either by the owners of the Norma Mary or by Mr Barney.
40. The final area
of the factual context concerned the parties’ intentions in respect of the
nature of the engagement between them. The Tribunal finds the following that
(1)
There was no written agreement between the parties stating that Mr
Barney was employed or self employed in respect of his engagements with the
owners of Norma Mary during the relevant period.
(2)
Mr Carden believed that he was not in a position to engage anyone in an
employed capacity and not authorised to tell anyone that they were an employee.
In his view the engagement of any person for work on the Norma Mary would have
always been on the basis of self-employment. Mr Carden considered that everyone
working in the fishing industry knew that share fishermen were self employed.
(3)
Mr Carden asserted that Mrs Norma Smart would have told Mr Barney that
he was self employed and that he did the same but not on every trip made by Mr
Barney. The Tribunal was not convinced by Mr Carden’s assertions of what Mr
Barney was told by Mrs Smart. Mr Carden’s statement regarding Mrs Smart was an
assumption. Mr Carden acknowledged that he had no involvement with Mr Barney
prior to 2006, and that he changed the payroll arrangements put in place by Mrs
Smart which described Mr Barney as an employee on the payslip. Equally the
Tribunal considers that on balance Mr Carden did not inform Mr Barney that he
was self employed because of his belief that Mr Barney must have known that
share fishermen were self employed, in which case there would have been no need
to tell him.
(4)
Mr Barney paid enhanced Class 2 National Insurance as a self employed
person under a special scheme for share fishermen for the period 11 April 1993
until 5 July 2008.
(5)
Mr Barney used the self employed pages for his self assessment tax
returns for the disputed years. No income from employment was declared in those
returns.
(6)
Mr Barney did not make a claim for redundancy or unfair dismissal when
his engagements with the owners of Norma Mary ceased.
(7)
Mr Barney had tax stopped from his settlings by the Icelandic and German
authorities. Mr Barney has not made a claim for double taxation relief and that
the tax paid to the German authorities was deducted in a period outside the tax
years under dispute.
(8)
Mr Barney first raised with HMRC about the possibility of being employed
on 7 August 2009 which was after HMRC opened their enquiry into his tax returns
on 16 January 2009. Despite raising the question on his status, he subsequently
submitted on 30 January 2010 a self assessment tax return on the basis of self
employment.
(9)
Mr Barney considered he was naïve and unaware of the different tax
regimes between self employment and employment until informed by his
accountant. Mr Barney believed that as a British Citizen he should be paying
tax. Mr Barney had registered as self employed when he started on the wooden
fishing boats, and thereafter submitted self employed tax returns. Mr Barney
had simply carried on the same arrangements when he joined the Norma Mary.
Consideration
41. In this Appeal
there was no written contract between the parties dealing with the terms of Mr
Barney’s engagement on the Norma Mary. Equally the Tribunal has found there was
no evidence of the words used by the parties to create their contract. Thus the
disputed issue of whether Mr Barney’s contract was one of employment (contract
of service) or of self employment (contract for services) is principally one of
fact, which is examined in two stages.
42. The first stage
is to identify all the relevant incidents of the relationship between Mr Barney
and the owners of the Norma Mary which the Tribunal has carried out in the
preceding section. The second stage is the evaluation of the facts found and
form a conclusion on all the facts taken together as to whether the contract is
one of employment or self employment.
43. The Tribunal is
assisted with its evaluation by an analysis of the authorities on whether a
particular relationship is a contract of service or not.
44. In Ready
Mixed Concrete (South East) Ltd v Minister of Pensions and
National Insurance [1968] 2 QB 497 the issue was whether a worker was
within the class of employed persons under the National Insurance Act 1965.
MacKenna J said ([1968] 2 QB 497 at 515):
'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.'
45. MacKenna J added
([1968] 2 QB 497 at 515):
'Control includes 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.'
46. In MacKenna J's
view, control was a necessary, but not sufficient, condition of a contract of
service. A contract might thus be for services, rather than of service, even if
control existed.
47. In Montgomery v Johnson Underwood Ltd [2001] EWCA Civ 318, the Court of Appeal
identified the elements of control and mutuality of obligation as part of the
"irreducible minimum" for the existence of a contract of
employment.
48. In Market
Investigations Ltd v Minister of Social Security [1969] 2 QB 173 Cooke J
said that the fundamental test was whether a person performed services as a
person in business on his own account. Although control was relevant it was
not the sole determining factor; when one was dealing with a professional man,
or a man of some particular skill and experience, there could be no question of
the employer telling him how to do the work.
49. In Hall
(Inspector of Taxes) v Lorimer [1994] STC 23, [1994] 1 WLR 209 the taxpayer
was a vision mixer who undertook work for a number of different television
production companies and whose engagements consisted of short term contracts
lasting one to two days. In four years he worked over 800 days. The Court of
Appeal held that there was no single path to a correct decision whether a
person was an employee or self employed:
“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 a check list 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 matter of the overall effect of the detail, which is not
necessarily the same as the sum total of the individual details. Not all
details are of equal weight or importance in any given situation. The details
may also vary in important from one situation to another”.
50. The Court of
Appeal then went onto identify a non-exhaustive list of relevant factors taken
from decided cases about whether a person was employed or self employed:.
“The decided cases give clear
guidance in identifying the detailed elements or aspects of a person's work
which should be examined for this purpose. There is no complete exhaustive list
of relevant elements. The list includes the express or implied rights and
duties of the parties; the degree of control exercised over the person doing
the work; whether the person doing the work provides his own equipment and the
nature of the equipment involved in the work, whether the person doing the work
hires any staff to help him; the degree of financial risk that he takes, for
example, as a result of delays in the performance of the services agreed; the
degree of responsibility for investment and management; how far the person
providing the services has an opportunity to profit from sound management in
the performance of his task. It may be relevant to consider the understanding
or intentions of the parties, whether the person performing the services has
set up a business-like organisation of his own; the degree of continuity in the
relationship between the person performing the services and the person for whom
he performs them; how many engagements he performs and whether they are
performed mainly for one person or for a number of different people. It may
also be relevant to ask whether the person performing the services is accessory
to the business of the person to whom the services are provided or is
"part and parcel" of the latter's organisation”.
51. Mr Carden regarded Mr Barney as a share fisherman which is a form of
engagement recognised by statute and raises specific issues about the nature of
the relationship between the fisherman and the vessel owners. In respect of the
latter the decision of the Court of Appeal in Todd & Anors v Adams &
Anor [2002] EWCA CIV 509 is particularly instructive. At paragraph 122 the
Court of Appeal identified the statutory references to share fishermen:
“Mr Nolan for
the defendants points to the definition in a series of statutory instruments of
"share fishermen" as meaning (with irrelevant minor variations):
"any person who . .
. is ordinarily employed in the fishing industry otherwise than under a
contract of service, as a master or member of the crew of any fishing boat
[within the meaning of section 373 of the Merchant Shipping Act 1894 being a
fishing boat] manned by more than one person, and . . . remunerated in respect
of that employment in whole or in part by a share of the profits or gross
earnings of the fishing boat; . . ."
Instances are: The Social Security (Employed Earners
Employment for Industrial Injuries Purposes) Regulations 1975 SI No467, Sch 2
Pt 1 para.1(5); The Social Security (Mariners' Benefits) Regulations 1975 SI
No529 reg 1(2); The Social Security (Contributions) Regulations 1979 SI No591,
reg 86; The Social Security Benefit (Computation of Earnings) Regulations 1996
SI No2745 reg 13(1)(c); The Jobseeker's Allowance Regulations 1996 SI No207 reg
156. Other regulations refer to a self-employed earner whose employment is that
of a share fishermen as defined in The Social Security (Mariners' Benefits)
Regulations 1975 SI No529: see The Income Support (General) Regulations 1987 SI
No1967 reg 38; The Council Tax Benefit (General) Regulations 1992 SI No1814 reg
22; The Housing Renewal Grants Regulations 1996 SI 2890 reg 27; and The Family
Credit (General) Regulations 1987 SI No1973 reg 22”.
52. Mance LJ at
paragraph 124 pulled the threads together regarding the statutory definitions
of share fishermen, and concluded that the question of whether a share
fisherman is employed or self employed is a matter of judgment having regard to
all the circumstances:
“These
statutory definitions suggest that the concept of a self-employed share
fisherman is well-known to the fishing industry and the legislature, and also
demonstrate that a description of someone as "employed" by no means
indicates whether he is employed by a master or self-employed. However,
Parliament has also shown itself conscious that a fisherman remunerated only by
a share of the profits or gross earnings of a vessel may be employed under a
contract of service: otherwise the provisions of s 144(2) of the 1978 Act,
cited above, now s 199(2) of the Employment Rights Act 1996 would not have been
necessary. So ultimately it must be a matter of judgment in the light of all
the relevant circumstances and factors into which category any fisherman falls”.
53. The Tribunal now
turns to the evaluation of the facts. The Tribunal found that Mr Barney had
been worked as a deckhand and factory hand on the Norma Mary for a continuous
period of eight years. During that period Mr Barney had not missed a voyage of
the Norma Mary and not worked on any other boat. Also the Tribunal decided that
Mr Barney had the expectation and guarantee of work on the Norma Mary provided he
satisfactorily performed his duties on board. In those eight years Mr Barney’s
periods of inactivity coincided with the times when the Norma Mary was in dock
and not fishing. The Tribunal finds that the above factors supported a
characterisation of the engagement of Mr Barney on the Norma Mary during the
periods in question as one of employment.
54. HMRC accepted
that the owners of Norma Mary supplied the vessel, the associated machinery,
the nets and virtually all the equipment necessary for Mr Barney to perform his
duties. In addition the Tribunal found that Mr Barney was subject to a high
degree of control in the discharge of his duties. He was told what to do and
would effectively be dismissed if he refused to carry out the instructions of
the officers. The fact that Mr Barney who was an experienced and competent
deckhand requiring minimal supervision did not upset the Tribunal’s finding on
the high degree of control.
55. Under normal
circumstances the combination of high control and the provision of the infrastructure
by the owners enabling Mr Barney to perform his duties would strongly suggest
an employment relationship. The Court of Appeal, however, decided in Todd
& Anors that these factors carried less weight in determining the
correct characterisation of the status of fishermen because they were an
inevitable and given part of the nature of a fishing enterprise. As Neuberger
J, as he then was, observed at paragraphs 71 and 72:
“In the present case, many of the features of
the arrangement between the respondent owners and those on board the Vessel,
and indeed as between those on board amongst themselves, were inevitable
because of the fact that the respondents were the owners of the Vessel, or
because of the very nature of the venture upon which the Vessel was engaged,
namely fishing at sea. Thus, the fact that the Vessel was owned by the
respondents alone meant it was inevitable that they would be responsible for
keeping the Vessel, machinery, and its fishing equipment in good condition; it
was inevitable that they would have some say as to where the Vessel went, in
the sense, for instance, of being able to veto dangerous waters. Equally, it
was inevitable that there should be a Skipper, and that he should have some
control and authority over the other members of the crew and that, presumably,
he would be the natural channel of communication between members of the crew
and the owners. Further, the nature of the venture was such that those on board
would have to have a substantial degree of control over where to fish and for
how long to fish.
That is not to say that those factors are therefore
of no relevance when deciding whether or not the deceased were "employed
under a contract of service", because, inevitable or not, they were
features of the relationship which existed between the parties. However, it
seems to me legitimate, indeed appropriate, to bear in mind which features of
the relationship, which are in principle relevant to the question of
determining its characterisation, are virtually inevitable in light of the
nature of the enterprise concerned, and which features are not so inherent. Of
course, the very fact that some features are inevitable because, for instance,
the respondents owned the Vessel, can rightly be said to serve to emphasise why
the fact that they owned the Vessel assists the argument that the crew were
engaged under contracts of service”.
56. According to
Mance LJ, the traditional analysis of the distinction between contracts of
service and for services as highlighted in the authorities of Ready Mixed
Concrete, Market Investigations and Hall did not address in sufficient
detail the critical issue of joint venture which was at the heart of the nature
of the relationship between fishermen and owners. If it was a joint venture
the relationship was one of self employment.
57. The defining
characteristics of a joint venture were the sharing of profits, and liability
for losses. In the case of Mr Barney, the Tribunal found that the size of his
remuneration depended upon the value of gross sales after deduction of freight
charges with those charges constituting a relatively insignificant proportion
of the gross sales. The use of gross sales rather than profits meant that the
risk of Mr Barney receiving no income from his work onboard the Norma Mary was
remote. The reality of that risk was further dissipated by the Tribunal’s
finding that the weekly cash advance of ₤200 afforded to Mr Barney was in
effect a guaranteed weekly payment.
58. On the question
of liability for losses the Tribunal found that Mr Barney had no responsibility
for the costs of the voyages of the Norma Mary. Also the Tribunal was satisfied
that Mr Barney had no exposure to any losses incurred by the owners of Norma
Mary. HMRC suggested that Mr Barney would suffer a loss if the level of his
settling for a particular trip was below the value of the weekly cash advance. The
Tribunal considers that HMRC’s construction strained the ordinary meaning of
loss. In any event the Tribunal held on the evidence that the owners did not
recover from Mr Barney overpayments in the cash advances.
59. The Tribunal
concludes that Mr Barney was not subject to significant financial risk from his
work for the owners of the Norma Mary. Mr Barney’s relationship with the owners
did not have the hue of a joint venture. This view was reinforced by the facts
that Mr Barney had no say in the key operational decisions concerning the Norma
May, and was not in a position to negotiate the terms of his remuneration. The
owners determined when and where the Norma Mary fished and fixed Mr Barney’s
percentage of gross sales which decided the level of his earnings. As
identified by the Court of Appeal in Todd & Anors share fishermen
engaged in a joint venture would usually have a substantial degree of control
over the actual fishing operations,
and the ability to negotiate the size of their remuneration.
60. The Tribunal
identified a series of features of Mr Barney’s relationship with the owners
which in the Tribunal’s view were more at home in a contract of service. Mr
Barney would not offer a substitute if he was unable to attend work. The owners
organised and paid for Mr Barney’s journeys to and from the Norma Mary. The
owners supplied at no cost Mr Barney’s food whilst on board. The owners took
out insurance which provided Mr Barney with cover if he was injured at work.
61. The principal
incident of Mr Barney’s work arrangements on the Norma Mary that supported a
contract for services was the parties’ intentions. Mr Carden was adamant that
Mr Barney was engaged on a self employed basis which was in line with the
fishing industry’s understanding of the status of share fisherman. Given those
circumstances the owners did not deduct UK tax at source from Mr Barney’s
earnings or supply him with P45’s P60’s or P11d’s. The owners, however,
deducted Icelandic and German tax from Mr Barney’s settlings but this was after
the tax years under Appeal.
62. Although the
Tribunal was not convinced that Mr Carden informed Mr Barney that he was self
employed, Mr Barney submitted self-assessment tax returns on the basis of his
self employment as a share fisherman. Further Mr Barney did not question his
self employment status with HMRC until after an enquiry was opened into his tax
returns, and despite raising the question Mr Barney made another return
declaring that he was self employed.
63. The facts
found on Mr Barney’s treatment of his tax affairs during the disputed period
damaged his credibility, and left him open to the allegation that his assertion
of employment status was an afterthought to escape liability from a substantial
assessment. Mr Barney explained that he had worked hard all his life and believed
he had an obligation to pay tax. Mr Barney stated that he completed the self
assessment returns because they were sent to him. Mr Barney considered he was
naïve and only realised that he was an employee after receiving advice from his
accountant. Mr Barney was minded to raise the question of his status when the
owners deducted German and Icelandic tax from his earnings but in the end took
no action. Mr Barney asserted that his under-declaration in the returns was due
to Mr Carden’s failure to send a complete set of settling sheets for the years
in question.
64. The Tribunal
considers that Mr Barney’s explanation had a ring of truth, with tallied with
his life experience. The Tribunal’s view of Mr Barney was that he was a hard
working individual who had managed to hold down regular employment for 43 years
in a tough and precarious industry. He had been at sea from the age of 15 doing
a range of manual jobs. The Tribunal considers that his life experience was
such that he would not readily appreciate the technicalities and tax
consequences associated with contracts of service and for services, except that
he had to pay tax. In respect of the latter he resorted to the method that he
had used throughout his working life of completing self assessment returns as a
share fisherman. In short the Tribunal believes his assertion of naivety and
that he only realised the correct position regarding his employment status
after advice from his accountant. The Tribunal, however, was circumspect about
his reasons for the under-declaration of earnings in his returns. Mr Barney should
have known his level of earnings during the years in question and it was unfair
to blame Mr Carden for his own shortcomings.
65. The decision of
Lord Denning in Massey v Crown Life Insurance Co [1978] IRLR 31 provides
the starting point on the significance of the parties’ intentions in discerning
whether the contract is one of service or for services. At page 33 he said:
“The law as I see it is this: If the true
relationship of the parties is that of master and servant under a contract of
services, the parties cannot alter the truth of that relationship by putting a
different label upon it …..On the other hand, if their relationship is
ambiguous and is capable of being one or the other, then the parties can remove
that ambiguity, by the very agreement itself which they make with one another.
The agreement itself then becomes the best material from which to gather the
true relationship between them”.
66. Manse LJ in Todd
& Anor placed weight on the declared intentions of the parties, at
paragraph 141 he said:
Fourthly, what was clearly common ground between the
parties was their shared understanding (accepted by the Inland Revenue) that
the crew members were self-employed….. The judge mentioned Mr Nolan's reliance
on this factor in passing in his concluding analysis. But it seems to me a
factor deserving some emphasis, particularly in a case which the judge regarded
as borderline. Both in Ready Mixed Concrete [1968] 2 QB 497, [1968] 1
All ER 433 and in Massey [1978] 2 All ER 576, [1978] 1 WLR 676, the
courts were prepared to attach weight to the parties' own expressed attitude in
a contractual statement regarding their respective status, and the parties'
attitude also seems to me relevant, even in the case of post-contractual
conduct, to throw light on the true nature of an unwritten relationship”.
67. Neuberger J,
however, in the same decision explained that the parties’ treatment of their
tax affairs whilst significant was not decisive in determining the nature of
the contract. At paragraph 81, he said:
“Those Statutory Instruments treat share fishermen
(defined in terms which plainly included the crew members in the present case)
as people employed "other than under a contract of service". In the
context of determining whether a share fisherman is "employed under a
contract of service", which will depend on the facts of the particular
case, the fact that he is treated as self-employed for taxation purposes
plainly cannot be decisive. However, it is a point of some significance,
particularly in a case such as this, where it appears to have been accepted
that there was nothing unusual in the share fishing arrangements”.
68. The Tribunal concludes
that in this Appeal the parties’ intentions, and in particular the tax
treatment of their respective positions, were an important feature in the
factual matrix. The clarity of those intentions was, however, tempered by the
absence of documentary and oral evidence of a shared understanding of the
nature of their relationship at the onset of Mr Barney’s engagement. The
Tribunal understands that the owners now require crew members to sign a
document confirming that they are responsible for their tax affairs at the
beginning of a fishing trip.
69. The Tribunal considers
that the evidence on parties’ intentions indicated a shared assumption that
their relationship was one of share fishing with the normal rules applying
without testing that proposition against the individual circumstances. In this
respect, the owners’ deduction of foreign tax from Mr Barney’s earnings was
relevant, even though the deduction occurred after the tax years under Appeal.
It appears to the Tribunal that the owners simply applied their understanding
of the tax rules in the various jurisdictions without considering the
implications of those decisions for each jurisdiction.
Conclusion
70. The Court of
Appeal in Hall emphasised the decision should not be a mechanical
exercise of running through items on a check list. The object of the exercise
is to paint a picture from the accumulation of detail and stand back from that
picture to make an informed qualitative decision.
71. The picture in
this Appeal was complicated by the overlaying of share fishing which gives the
picture an added dimension and blurs those features normally associated with a
contract of service. The case that HMRC has conducted this Appeal on the basis
that Mr Barney was a share fisherman, however, should not preclude the Tribunal
from examining whether the use of the description, share fisherman by
the parties is a label of convenience rather than an accurate statement of the
relationship between the parties.
72. The facts of
this Appeal were different from those considered by the Court of Appeal in Todd
& Anors. In the latter there were two distinct parties, the owners and
the skipper and the crew, with each party making a specific and separate
contribution to the success or otherwise of the fishing expedition but coming
together at the end to share in the triumphs and tribulations of their joint
venture.
73. The picture of
this Appeal was in marked contrast to that painted in Todd & Anors. The
owners not only provided the vessel and all the necessary equipment but the Skipper
and the officers who were company men. The owners through their Skippers
determined where and when the vessel fished, laid down the precise roles played
by the various fishermen on board, and decided their terms of engagement. The
owners bore the costs of the voyages and any associated losses. Within that
overall context Mr Barney did what he was told to do and at the end of each
voyage took home what he was given by the owners. Mr Barney in taking up his
position of deckhand with the owners of the Norma Mary was not exposed to
financial risk. The owners paid and arranged for his transport to and from the
vessel. The owners took out insurance to provide him with cover in the event of
injury at work. The owners looked after his needs whilst on board and when he
was injured and off work. The owners made regular cash advances which ensured
that the needs of his loved ones back home were met. His earnings were
calculated with reference to gross sales which meant that he received some
reward for his endeavours. The fluctuations in his earnings were mitigated by
the regular cash advances which on the evidence were not recovered if they
exceeded the settling for a particular trip. Mr Barney was guaranteed a job on
the next trip provided he performed his duties to the satisfaction of the
skipper. Mr Barney worked on the Norma Mary for a period of eight years, and
during that time he did not go out on another vessel under different ownership.
74. The picture
portrayed in the above paragraph is one of a contract of service (employment).
The vividness of that picture was not dulled by the facts to the contrary
regarding the parties’ intentions, no provision for notice, and that the owners
did not provide the full range of benefits normally associated with employment,
such as paid leave.
75. Mr Hall for HMRC
raised two matters which require examination by the Tribunal. The first was his
contention at paragraph 49 of his final submissions when he suggested that Mr
Barney had no expectation of remuneration from his work on the Norma Mary. Thus
the requirement of mutuality of obligation, an essential ingredient of the
irreducible minimum for a contract of service, was not met. The Tribunal found
otherwise. The Tribunal decided that Mr Barney would receive remuneration for
his efforts and that the risk of him receiving minimal or no remuneration was
remote because of its relationship with gross sales rather than profit and the
provision of a guaranteed cash advance.
76. Mr Hall in his
final submissions alleged that Mr Barney had not established a nexus between
himself and Samherji, and, therefore, there could be no contract of service
between them. The Tribunal did not understand Mr Hall’s submission, if he was
correct there presumably would be no contract for services either. In the
Tribunal’s view there was clear evidence of an agreement between Mr Barney and
the owners of the Norma Mary in which Mr Barney provided work in return for
remuneration. The Tribunal has decided that the agreement took the form of a
contract of service. The owner of the Norma Mary was Onward in which Samherji
had a controlling interest from 2006.
Decision
77. The Tribunal
decides that Mr Barney was employed under a contract of service with the owner
of the Norma Mary during the tax years of 2006/07 and 2007/08. The Tribunal
allows the Appeal in respect of this specific issue of employment status. The
Tribunal is not in a position to determine the other matters that flow from
this decision, which requires discussion between the parties. The Tribunal
gives leave to the parties in absence of agreement to request the Tribunal to
decide the outstanding issues.
78. The Tribunal
wishes to acknowledge the able assistance given to it by the parties’
representatives. Ms Barney who stood in at the last moment and proved to be a
competent advocate for her uncle. Mr Hall was equally as competent in
presenting the case for HMRC.
79. 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.
MICHAEL
TILDESLEY OBE
TRIBUNAL JUDGE
RELEASE DATE: 22 December 2011
