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URL: http://www.bailii.org/uk/cases/UKSPC/2003/SPC00379.html
Cite as: [2003] UKSC SPC379, [2003] UKSC SPC00379

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Tilbury Consulting Ltd v HM Inspector of Taxes [2003] UKSC SPC00379 (15 August 2003)

WITNESS SUMMONS - application for - objected to - whether commercial risk to taxpayer ever-rides the interests of justice - no -application allowed - The Special Commissioners (Jurisdiction and Procedure) Regulations1994 SI 1994 No. 1811 Reg 5(1)

THE SPECIAL COMMISSIONERS

TILBURY CONSULTING LIMITED

Appellant

- and -

MARGARET GITTINS

(HM INSPECTOR OF TAXES)

Respondent

Special Commissioner: DR A N BRICE

Sitting in public in London on 18 July 2003

Miss Theresa Naylor, of Accountax Consulting Limited, Chartered Tax Advisers, for the Appellant

Mr Barry Williams, of the Inland Revenue Appeals Unit London, for the Respondent

© CROWN COPYRIGHT 2003

REASONS FOR DIRECTION

Background

On 12 June 2003 the Special Commissioners gave notice of a preliminary hearing in this appeal which is an appeal by Tilbury Consulting Limited (the Appellant) against a decision of Mrs Margaret Gittins (the Respondent). Thereafter the parties corresponded and agreed a number of directions. However, the Respondent wanted a witness summons to be issued to Mr Ian Baker of Ford Motor Company (Ford) requiring his attendance at the hearing of the appeal to give oral evidence but the Appellant objected. The preliminary hearing was held on 18 July 2003 and a number of Directions were given at that hearing. Direction (2) was that, on the application of the Respondent, the witness summons would be issued. Direction (2) stated that reasons for the Direction would be given separately. These are the reasons referred to.

seq level0 \h \r0 seq level1 \h \r0 seq level2 \h \r0 seq level3 \h \r0 seq level4 \h \r0 seq level5 \h \r0 seq level6 \h \r0 seq level7 \h \r0 The Regulations

The procedure before the Special Commissioners is governed by the Special Commissioners (Jurisdiction and Procedure) Regulations 1994 SI 1994 No. 1811. Regulation 5 contains the provisions about the summoning of witnesses and the relevant part provides:

"5(1) Where a party to any proceedings requires the attendance of a person at the hearing of those proceedings to give evidence or to produce any document in his possession, custody or power relevant to the subject matter of the proceedings, a Special Commissioner may, on the application of that party, issue a summons (in this regulation referred to as a "witness summons") requiring the attendance of that person at the hearing, or the production of the document, wherever that person may be in the United Kingdom".

The facts relevant to the application

Mr Roger Tilbury, a director of the Appellant, contracts with the Appellant who contracts with Compuware who contracts with Ford. The issue in the appeal is whether, had the arrangements taken the form of a contract between Mr Tilbury and Ford, Mr Tilbury would be regarded as employed in employed earner's employment by Ford (see F S Consulting Limited v McCaul [2002] STC (SCD) 138 at paragraph 8(2)).

On 7 September 2001 the representatives of Mr Tilbury contacted the Inland Revenue and asked for an opinion about his status. With the consent of Mr Tilbury, the Respondent wrote on 19 February 2002 to Mr Ian Baker of Ford. The Respondent said that she had received an enquiry in respect of Mr Tilbury who supplied consultancy services through his own limited company to Ford. She said that she needed to establish the exact nature of the terms and conditions which existed in respect of the engagements and asked Mr Baker to provide information in reply to twenty-two detailed questions.

On 18 July 2002 Mr Baker sent a reply by facsimile transmission to the Respondent's twenty-two questions. On 6 August 2002 the Respondent wrote to the Appellant's representatives to say that she had considered the information supplied by Ford and was of the opinion that, if there had there been a contract between Ford and Mr Tilbury, it would be considered to be a contract of service. Further correspondence between the parties followed and, on 4 December 2002, the Respondent wrote again to the Appellant's representatives to say that she had not changed her view. The last paragraph of that letter stated that the opinion in it did not create a decision subject to appeal but the Appellant could request a section 8 decision against which there was a right of appeal.

Without informing the Appellant of her intention so to do the Respondent wrote again to Mr Baker on 6 January 2003 and asked for some further information about the use of a substitute if Mr Tilbury were not available. Mr Baker replied on 14 January 2003 to give the information requested. The tone of his reply gave the impression that he had not been too pleased to have been troubled again about the matter.

The arguments of the Inland Revenue

For the Inland Revenue Mr Williams applied for the witness summons. He argued that, in order to decide the issue in the appeal, it was necessary for the Special Commissioners to have evidence from both parties to the notional contract and he referred to the supplement to the Explanatory Leaflet about appeals and other proceedings before the Special Commissioners entitled ""IR35" Appeals" published by the Presiding Special Commissioner on 21 March 2002. He also relied upon paragraph 10 in Lime-IT Limited v Justin [2003] STC (SCD) 15. If a witness summons were not issued it would mean that the appeal would be decided without oral evidence from one of the parties to the notional contract and the Special Commissioners would be unable to see and hear a witness give that evidence and ask questions of their own. It would not be adequate for further information to be obtained in writing or through the Appellant's representatives. Mr Williams argued that the interests of justice over-rode the arguments put forward on behalf of the Appellant.

The arguments of the Appellant

For the Appellant Miss Naylor argued that there was a real commercial risk to the Appellant if the witness summons were issued. One of Mr Tilbury's contracts had already been terminated and there was a real risk that Mr Baker or Ford might conclude that the arrangements with Mr Tilbury were more trouble than they were worth. The tone of Mr Baker's second letter of 14 January 2003 indicated that he might be losing his patience. Further, Mr Baker had already written twice to the Inland Revenue and so his evidence was in writing. The Appellant did not challenge the written evidence and the oral evidence would only duplicate it. Ms Naylor distinguished Lime-IT where there was no evidence from the client but in this appeal there was evidence in writing from Ford. Ms Naylor relied upon regulation 17(6) which provided that the Tribunal could not refuse to admit evidence which would be admissible in proceedings before a court of law. She argued that, under regulation 5(4)(b), Mr Baker could not be cross-examined by the Inland Revenue and it was, therefore, difficult to see what his presence would add.

Reasons for directions

Before considering the arguments of the parties I set out the relevant provisions of the supplement to the Explanatory Leaflet referred to by Mr Williams. The relevant paragraphs state:

"1. What is an IR35 appeal?

An IR35 appeal is an appeal against a decision of the Inland Revenue that payments made to intermediaries such as service companies should be treated as earnings of the worker for the purposes of income tax and/or national insurance contributions.

In IR35 appeals the worker is called "the worker", the service company (or other intermediary) is called "the intermediary", and the person, firm or company to whom the worker supplies work is called "the client".

5. Why is an IR35 income tax appeal unusual?

An IR35 income tax appeal is unusual because it is the intermediary which receives the decision from the Inland Revenue and so it is the intermediary which is the appellant in the appeal. However, the two persons most affected by the decision of the Inland Revenue are the worker and the client and neither of these are the appellant in the appeal

8. What oral evidence is likely to be needed?

Since the question to be decided is whether the worker should be regarded as an employee of the client it would be helpful for both the worker and someone from the client to give oral evidence about the factors mentioned in 6 above. Oral evidence would also be useful about: the extent to which the terms of the written contracts have been carried out; whether there has been any unwritten variation in the contracts; and whether any additional terms have been implied in the contracts.

9. How should I get evidence from the client?

You can ask someone from the client to attend at the hearing of your appeal and to give evidence on your behalf.

If you wish to make sure that someone comes then you can apply in writing for a witness summons. Please read paragraph 6 of the Explanatory Memorandum which tells you how to do this."

seq level0 \*arabic 10. These paragraphs explain the desirability of producing evidence from both the worker and the client. In Lime-IT there was no witness to give evidence on behalf of the client and the Special Commissioner said, in paragraph 10:

"In future cases on this legislation (and its income tax equivalent) the Special Commissioners will wish to explore at a preliminary hearing whether it is possible to obtain evidence from the client."

Once again this emphasises the desirability of producing evidence from both the worker and the client.

With those matters in mind I turn to consider the arguments of the parties and here I have to balance the interests of justice on the one hand and the commercial risk to Mr Tilbury on the other.

Dealing first with the interests of justice this is, of course, the over-riding objective. Although regulation 5 gives the Special Commissioners a discretion as to whether to issue a witness summons the presumption must be that an application for such a summons will normally be granted. Regulation 5(11) provides that a person on whom a witness summons has been served may apply to have it set aside and no doubt that would be done if a summons were not applied for in good faith, or if the witness was unable to give relevant evidence, or if the application were irrelevant, speculative or oppressive. In this appeal I am satisfied that the application is none of those things and it is clear that Mr Baker has relevant evidence to give. The document published by the Presiding Special Commissioner, and the decision in Lime-IT, emphasise the desirability of his giving it. It is also relevant that, although the Appellant in this appeal is Tilbury Consulting Limited, there will be no difficulty in Mr Tilbury personally giving oral evidence about his notional contract with Ford. It is, therefore, desirable for the other party to the notional contract (Ford) to give oral evidence about it as well.

The Appellant argues that Mr Baker's evidence is already in documentary form and that the oral evidence will only repeat this. However, that is not inevitable and the documentary evidence may well be expanded and/or clarified by oral evidence.

The Appellant's main argument is the commercial risk faced by Mr Tilbury. Whilst fully appreciating this I have nevertheless concluded that the interests of justice are best served by granting the application for the issue of the witness summons.

Direction

For the above reasons a Direction has been given that a witness summons be issued to Mr Ian Baker of Ford requiring his attendance at the hearing of the appeal to give oral evidence. When the date of the hearing has been fixed the summons will be issued.

DR NUALA BRICE

SPECIAL COMMISSIONER

RELEASE DATE

SC 3020/03

08.03