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United Kingdom Special Commissioners of Income Tax Decisions

You are here: BAILII >> Databases >> United Kingdom Special Commissioners of Income Tax Decisions >> First Word Software Ltd v Revenue & Customs [2007] UKSPC SPC00652 (11 December 2007)
URL: http://www.bailii.org/uk/cases/UKSPC/2007/SPC00652.html
Cite as: [2007] UKSPC SPC652, [2007] UKSPC SPC00652
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First Word Software Ltd v Revenue & Customs [2007] UKSPC SPC00652 (11 December 2007)
    Spc00652
    NATIONAL INSURANCE CONTRIBUTIONS – provision of services through intermediary – whether, if the arrangements had taken the form of a contract between the worker and the client, the worker would be regarded as employed by the client - no – appeal allowed - Social Security Contributions and Benefits Act 1992 s 4A; Social Security Contributions (Intermediaries) Regulations 2000 SI 2000 No. 727 reg 6(1)(c)
    INCOME TAX – provision of services through intermediary – whether the circumstances were such that, if the services were provided under a contract directly between the individual and the client, the individual would be regarded for income tax purposes as an employee of the client - no – appeal allowed - FA 2000 s 60 and Sch 12
    THE SPECIAL COMMISSIONERS
    FIRST WORD SOFTWARE LIMITED

    Appellant

    - and -
    THE COMMISSIONERS FOR HER MAJESTY'S
    REVENUE AND CUSTOMS

    Respondents

    Special Commissioner : DR A N BRICE
    Sitting in London on 1 and 2 November 2007

    Matt Boddington of Accountax, Chartered Tax Advisers, for the Appellant

    Graham Conway, of the Appeals Unit, for the Respondents

    © CROWN COPYRIGHT 2007

     
    DECISION
    The appeal
  1. First Word Software Limited (the Appellant) appeals against three decisions of the Commissioners for Her Majesty's Revenue and Customs (the Revenue). All the decisions were dated 14 July 2006. The first decision related to the period from 4 September 2000 to 31 January 2002 and was that the Appellant was liable to pay national insurance contributions of £18,793.00. The second decision related to the year 2000-01 and determined that income tax under PAYE of £17,187 was due. The third decision related to the year 2001-02 and determined that income tax under PAYE of £27,264 was due.

  2. The sole director and shareholder of the Appellant is Mr Neill Atkins who is a computer consultant. From 4 September 2000 to 31 January 2002 Mr Atkins supplied services to the Appellant who supplied them to an organisation called Plexus Personnel (Plexus) who supplied them to Reuters Limited (Reuters). The disputed decisions were made because the Revenue were of the view that the circumstances were such that, if the services had been performed under a contract between Mr Atkins and Reuters, Mr Atkins would be regarded as employed by, and as an employee of, Reuters. From that it followed that the Appellant, as an intermediary, was liable to pay national insurance contributions and income tax under PAYE in respect of the payments made to Mr Atkins. The Appellant appealed because it was of the view that, if the services had been performed under a contract between Mr Atkins and Reuters, Mr Atkins would not be regarded as employed by, or an employee of, Reuters and so the provisions about the supply of services through an intermediary did not apply.

    3. The legislation
  3. , The legislation relating to the first disputed decision, about the payment of national insurance contributions, is contained in the Social Security Contributions and Benefits Act 1992 (the 1992 Act) which contains separate provisions applicable to employed earners on the one hand and self-employed earners on the other. After 22 December 1999 a new section 4A was inserted in the 1992 Act and provides that regulations may make provision for securing that, where a worker personally performs services for a client, and where the performance of those services is referable to arrangements involving a third person, and where the circumstances are such that the worker would be regarded as employed by the client, then relevant payments are to be treated as earnings paid to the worker.

  4. The regulations made under the provisions of section 4A are the Social Security Contributions (Intermediaries) Regulations 2000 SI 2000 No 727 (the 2000 regulations). The relevant parts of regulation 6 provide:

    5. "6(1) These regulations apply where –
    (a) an individual ("the worker") personally performs, or is under an obligation to perform, services for the purposes of a business carried on by another person ("the client"),
    (b) the performance of those services by the worker is carried out, not under a contract directly between the client and the worker, but under arrangements involving an intermediary, and
    (c) the circumstances are such that, had the arrangements taken the form of a contract between the worker and the client, the worker would be regarded, for the purposes of Parts I to V of the Contributions and Benefits Act as employed in employed earner's employment by the client."
  5. Regulation 6 goes on to provide that, where the regulations apply, the worker is treated as employed in employed earner's employment by the intermediary.

  6. The legislation relating to the second and third disputed decisions, about income tax under PAYE, was, at the relevant time, contained in section 60 of the Finance Act 2000 (the 2000 Act) which provided that, for income tax purposes, Schedule 12 had effect with respect to the provision of services through an intermediary. Paragraph 1 of Schedule 12 provided:

    7. "1(1) This Schedule applies where –
    (a) an individual ("the worker") personally performs, or is under an obligation to perform, services for the purposes of a business carried on by another person ("the client"),
    (b) the services are provided not under a contract directly between the client and the worker but under arrangements involving a third party ("the intermediary"), and
    (c) the circumstances are such that, if the services were provided under a contract directly between the client and the worker, the worker would be regarded for income tax purposes as an employee of the client."
  7. Schedule 12 went on to provide that, if the other conditions of the Schedule were met, and if the worker received from the intermediary a payment that was not chargeable to tax under Schedule E, then the intermediary was treated as making, and the worker was treated as receiving, a payment chargeable to income tax under Schedule E.

    8. The issues
  8. It was agreed that Mr Atkins personally performed services for Reuters within the meaning of section 4A(1) of the 1992 Act, regulation 6(1)(a) of the 2000 regulations and paragraph 1(1)(a) of Schedule 12 of the 2000 Act. Thus the issue for determination in the appeal was whether, had the arrangements taken the form of a contract between Mr Atkins and Reuters, Mr Atkins would be regarded as employed by, or as an employee of, Reuters.

    9. The evidence
  9. A bundle of documents was produced. There was a statement of agreed facts. Oral evidence was given on behalf of the Appellant by Mr Atkins. Oral evidence was given on behalf of the Revenue by Mr Khalil Ayub who is now the Technology Careers Manager at Reuters and by Mr Stephen John Turner, who is now the programme director for Reuters.

  10. Also put in evidence was a letter dated 2 September 2003 written by Mr Richard Shaw, Director of Finance/HR Systems at Reuters, to the Appellant's previous advisers. Mr Shaw's letter contained answers to a number of questions raised by the Revenue. However, many of the statements in the letter conflicted with the oral evidence of Mr Atkins.

  11. Mr Shaw did not give oral evidence at the hearing. Mr Turner's evidence was that Mr Shaw's letter was a true reflection of how contractors were managed at the time when Mr Atkins worked for Reuters. However, Mr Turner admitted that he had no specific knowledge of the contractual arrangements between Reuters and Plexus nor of the arrangements between Plexus and the Appellant nor did he have any specific knowledge of the work done for Reuters by Mr Atkins. The evidence of Mr Ayub was that, from information which he had obtained by talking to his colleagues, it was his opinion that Mr Shaw's letter was, for the most part, an accurate reflection of how Reuters managed its relationships with contractors. However, Mr Ayub admitted that he was only in a position to comment on how things operated since 2003 and could not comment on the arrangements for the period in issue in this appeal; also he had no specific knowledge of the Appellant or of the project on which Mr Atkins worked for Reuters.

  12. I heard and saw Mr Atkins give oral evidence and I found him to be a credible witness. Where the evidence of Mr Atkins conflicted with the statements of Mr Shaw, I preferred the evidence of Mr Atkins. Mr Atkins spoke from his personal experience and was questioned on his evidence. Mr Shaw was not available to be questioned. Neither Mr Ayub nor Mr Turner were able to give direct evidence of events between 2000 and 2002.

    13. The facts
  13. From the evidence before me I find the following facts

    14. Mr Atkins and the Appellant
  14. In 1995 Mr Atkins ceased to be employed by an employer for whom he had worked for eight years. He decided to start his own business and established the Appellant. He then put all his efforts into the Appellant and has worked for many clients of the Appellant. Mr Atkins has a particular expertise in the migration of human resource and payroll systems.

  15. The Appellant was incorporated on 11 April 1995 and commenced trading on 5 June 1995. Its principal activity is the provision of computer consultancy services. Its sole director and shareholder is Mr Atkins. The Appellant has an office at Mr Atkins' home. The Appellant has no written contract with Mr Atkins.

    16. Reuters
  16. In 2000 Reuters had a number of legacy computer systems in a large number of countries. They wished to merge these into one single, global system. As a representative of the Appellant, Mr Atkins heard that Reuters were looking for specialist skills, particularly in the area of the migration of human resource and payroll systems. The Appellant forwarded to Reuters a curriculum vitae describing the work previously done by Mr Atkins. Some time before September 2000 Mr Atkins, representing the Appellant, had an interview with a technical manager at Reuters. The interview lasted for an hour and a half. All the questions were directed towards finding whether the Appellant could supply the technical skills necessary to achieve the required task. At the interview Mr Atkins was not asked about his personal interests or his ability to work with other employees.

    17. The 1998 agreement between Reuters and Plexus
  17. Meanwhile on 2 November 1998 Reuters had entered into an agreement (the 1998 agreement) with Plexus under which Plexus agreed to provide Reuters with software consultancy services in return for which Reuters would pay Plexus a fee. The agreement was stated to be effective from 2 November 1998 to 2 May 1999. In it Plexus agreed to supply the services of a named consultant to complete a stated task. The named consultant was not Mr Atkins, the task stated was not the task undertaken by the Appellant, and the duration of the agreement meant that it had expired before Mr Atkins worked for Reuters. Thus the 1998 agreement is not relevant to this appeal. I accept that some similar agreement was most probably in force because on 1 September 2000 Plexus entered into an agreement (the 2000 agreement) with the Appellant about the supply of services to Reuters. However, where the provisions of the 1998 agreement conflict with the provisions of the 2000 agreement or the oral evidence of the witnesses, I prefer the latter.

  18. Clause 1.2 of the 1998 agreement provided that, at Reuters' option, Plexus was to submit a report to Reuters about the work done The report was to be to two stated employees of Reuters and clause 1.2 also provided that instructions were to be taken from the same named employees. Mr Atkins did not send his reports to the two employees named in the 1998 agreement but to a different manager in Geneva.

  19. Clause 4 of the 1998 agreement provided that all works by Plexus or under its direction, including all developments in software, were the sole and complete property of Reuters and Plexus agreed to assign all proprietary rights in the works and developments to Reuters. This provision conflicted with clause 9 of the 2000 agreement which I prefer.

  20. Clause 5.3 of the 1998 agreement provided that either party could terminate the agreement by giving the other party one month's notice. Clause 6.2 provided that neither party could assign its rights or obligations under the agreement without the prior written consent of the other party. Clause 6.3 provided that, should some of the services be performed by other employees or agents of Plexus, the prior consent of Reuters was required on their names.

    21. The 2000 agreement between Plexus and the Appellant
  21. On 1 September 2000 Plexus entered into an agreement with the Appellant under which it was agreed that Plexus would make payments to the Appellant and that the Appellant would supply specified services to Reuters. The specified services were stated to be "for the design, development and migration of Reuters' subsidiary human resource and payroll computer systems onto a single global instance of Oracle Applications III (Project Leapfrog) as required by Reuters". The project was to be based at Reuters' premises in London but involved consultation with customers on various other global Reuters' sites. The Appellant agreed to provide certain non-exclusive resources in support of the specified services. These included one or more consultants and it was agreed that Mr Atkins would lead the project on behalf of the Appellant. The non-exclusive resources also included a personal computer based at the Appellant's offices. The consideration payable by Plexus to the Appellant was at a stated hourly rate for the actual time spent on the specified services. The total price was estimated to be £143,000 (which represented 2080 hours at the stated hourly rate).

  22. The 2000 agreement provided that it was to commence on 4 September 2000 and was to run until completion of the project although the agreement could be terminated at any time by mutual consent. Under the agreement the Appellant agreed to take all reasonable steps to comply with any timetable or other targets for progress or delivery or completion of the specified services as agreed between the Appellant and Reuters.

  23. Clause 6.1 of the 2000 agreement provided that the Appellant's method of work should be its own but that the Appellant would comply with all reasonable requests from Reuters to abide by procedural and quality standards documented on the project. I accept the evidence of Mr Atkins that the relevant standards were set by Oracle and that the work he did had to integrate with Reuter's overall system. For this reason those responsible for the overall system could be asked to comment on his finished job and at the user acceptance test stage he welcomed their views.

  24. Clause 6.3 of the 2000 agreement provided that the Appellant might assign the obligations and benefits of the agreement provided that Reuters was satisfied within its absolute discretion that the proposed assignee possessed the necessary skills, expertise and resources to fulfil the specified services and that the assignee would comply with Reuter's rules on health, safety, security and confidentiality. Clause 7.1 provided that the Appellant warranted to Reuters that the specified services would be provided using reasonable care and skill and, as far as reasonably possible, in accordance with any agreed timetables or other targets.

  25. Clause 9 of the 2000 agreement contained provisions about intellectual property. It provided that Reuters was to retain ownership of all intellectual property rights in the documents, data or other information provided to the Appellant and was not deemed to have granted the Appellant any right to use that information other than for the purposes of the agreement. Clause 9 also provided that the Appellant should retain ownership of all intellectual property rights in all documents, data or other information and devices or processes provided or created by the Appellant save that the Appellant was deemed to have granted Reuters a non-exclusive licence to make use of such information in the context of the specified services. This provision conflicts with clause 4 of the 1998 agreement and, for the reasons I have mentioned, I prefer the provisions of the 2000 agreement. I accept the evidence of Mr Atkins that he retained the right to re-use for other clients the processes which he devised for the purposes of the work he did for Reuters.

  26. The 2000 agreement also provided, in Schedule 1, that additional services (that is, services not included within the specified services) would only be undertaken by mutual consent between the Appellant and Reuters before the commencement of the work; the Appellant had the right to negotiate a separate agreement for the provision of additional work for Reuters through Plexus. The schedule to the 2000 agreement provided that the contractor should charge a stated hourly rate for work performed and that time worked over 40 hours a week was to be by prior agreement.

    27. Mr Atkins' methods of work
  27. At the beginning of the project the Appellant worked out the requirements of the project and Mr Atkins designed a solution for Reuters' problem with the migration of human resource and payroll systems. The Appellant initiated its own plan for the development and completion of the project and provided Reuters with a way to migrate its information. Reuters told the Appellant that they wanted to migrate the information by a specified date and the Appellant was expected to manage its own project and was responsible for delivery, quality and timescales The Appellant set milestones and Mr Atkins was expected to meet them.

  28. Because of the demands of the project, and the type of work being undertaken, Mr Atkins attended at the London offices of Reuters where he was provided with a desk and a computer. He could be accessed by email at Reuters. He was given a security identity card as a contractor so that he could access that part of the premises which contained his desk and also Reuters' computer systems. There was a team of about twenty people working on Project Leapfrog; some were employees but most were contractors. Mr Atkins described the whole of Project Leapfrog as "a big jig saw" of which his task was a small piece. Only he worked on the migration of the human resource and payroll systems. There was no hierarchy.

  29. All who extracted data from the legacy systems had to work to timescales and provide information to the functional consultants and to a project manager. Mr Atkins sent his weekly up-dates to a manager based in Geneva. Communication was informal and could be by email or telephone and occasionally the manager would come to London for a meeting. I accept the evidence of Mr Atkins that all that the manager wanted to know was that "it was happening"; otherwise he adopted a "hands-off" approach. However, as the manager oversaw the whole of the project he had the final decision on tasks and the re-alignment of project plans. If Mr Atkins had a problem he would discuss it with a technical colleague and conversely he would assist his colleagues if they had a problem.

  30. Mr Atkins had no interaction with the management of Reuters in the United Kingdom; he provided the Reuters manager in Geneva with weekly updates on progress. No-one at Reuters told him what to do or how to do it; he was expected to meet the time scales within the project plan. He did not ask permission to go on holiday. If he were going to take a holiday he let people know and sent an email to the manager in Geneva so that the manager did not expect an update during that period. Mr Atkins had no responsibility for managing others at Reuters.

    31. Mr Atkins' hours of work
  31. There was no agreement with Reuters about Mr Atkins' hours of work but Mr Atkins was expected to achieve the timescales and milestones relating to the project. Mr Atkins' hours of work depended upon the demands of the project. Normally he started work between 8.00 am and 9.00 am and worked until 4.15 pm or 4.20 pm. Sometimes he worked longer or shorter hours. He did not have to ask permission to leave Reuters' offices. It was left to him to make sure that he delivered the project in time. When he wanted to finish early he said good-bye to the people working with him and left. He did not tell the manager in Geneva if he was to be absent for half a day.

  32. Each week Mr Atkins completed a time sheet recording the number of hours he had worked; the timesheet was countersigned by any employee of Reuters. The Appellant submitted the time sheet with an invoice to Plexus showing the hours supplied the previous week, charged at the agreed hourly rate. The Appellant invoiced Plexus weekly. During the relevant period Mr Atkins worked for Reuters for seventy weeks. For a little more than one third of the total number of weeks he worked for forty hours; for a little less than a third he worked for less than forty hours; and for the remaining number of weeks he worked for more than forty hours. In the week that the project "went live" he worked for 109 hours and stayed in a London hotel that week.

  33. In addition to the work he did on Reuters' site Mr Atkins also did work from home where he used the Appellant's computer and network to undertake work for Reuters. Also, on his journey home he worked on the train using a laptop computer belonging to the Appellant. Sometimes he worked in the evening using the Appellant's computer. During this time the hours spent by Mr Atkins working on the train or at home were not invoiced by the Appellant to Plexus. I accept the evidence of Mr Atkins that he achieved a lot on the train and that if he had not done that work he would have struggled to meet the timescales and milestones of the project. I also accept his evidence that he wanted to give a good impression to Reuters that he was meeting the milestones and not seeking to maximise the amount of money he claimed.

    34. Mr Atkins' status at Reuters
  34. Mr Atkins was identified as a contractor in Reuters' telephone directory. He did not receive holiday pay, sick pay or any pension benefit. He was not given a copy of any staff handbook He was paid for the hours he worked and no more. Unlike Reuters' employees he did not receive an annual salary. Unlike the employees of Reuters he did not receive any increase of pay each year after the annual review. Again, unlike the employees of Reuters, he did not receive a formal yearly appraisal. Insurance for professional indemnity, public liability and employer's liability was held by the Appellant.

    35. Substitution
  35. Mr Atkins had no official post or job title within the Reuters organisation and was free to work for other clients at the same time so long as he worked the hours needed to meet Reuters' requirements. In fact, he did not work for anyone else during the relevant period.

  36. Clause 6.3 of the 2000 agreement between the Appellant and Plexus provided that the Appellant might assign the obligations and benefits of the agreement so long as Reuters were satisfied with the assignee. In practice there was no substitution. However, I accept the evidence of Mr Atkins that he could have assigned his work to a well-qualified contractor and he knew a number of contractors who would be able to pick up the work with a hand-over period of two or three days. I accept the evidence of Mr Turner that, if an agency wished to replace one contractor with another, then Reuters would wish to interview the replacement contractor in order to establish their credentials and would look for a hand-over period. Reuters contracted with Plexus and they would negotiate the replacement with Plexus. I accept the evidence of Mr Ayub that Reuters did not contract with the contractor but with the agency.

  37. Accordingly I find that, although Mr Atkins did in fact do the work personally, the intention of the parties was that the Appellant could assign the obligations and benefits of its agreement with Plexus so long as the assignee was acceptable to Reuters. In other words, the intention of the parties was that Mr Atkins did not necessarily have to do the work personally.

  38. I also accept the evidence of Mr Atkins that if he had been unable at any stage to work on his part of Project Leapfrog he would not expect Reuters to find him other things to do; he was only there to work on the migration of the human resource and payroll systems. This evidence was confirmed by Mr Turner who said that if Project Leapfrog had been terminated then Reuters would have terminated the arrangements with the Appellant; Reuters did not find other work for contractors to do – that was why they used contractors.

    39. October 2001 – the project "goes live"
  39. The initial work for Project Leapfrog was completed by October 2001 when the project "went live". The work relating to countries outside the United Kingdom had been relatively straightforward but the work relating to the United Kingdom was more complicated and some further verifications were needed. Mr Atkins continued working for Reuters until 31 January 2002 on United Kingdom "support issues". The project was successful and the contract of 4 September 2000 ended on 31 January 2002.

  40. From about mid-2001 there were problems with Plexus and the Appellant's invoices were paid late. Initially the delays were four weeks and then extended to six weeks. The Appellant used to chase up the late payments but I accept the evidence of Mr Atkins that it did not make any difference.

  41. Between 1 September 2000 and 1 February 2002 the Appellant claimed for 2,644 hours worked by Mr Atkins and was paid £182,859.91.

    42. Mr Atkins' work at Reuters after 1 February 2002
  42. After 1 February 2002 Mr Atkins was asked to continue working for Reuters to resolve developmental and migration issues. The Appellant entered into a new contract with Plexus on 4 February 2002 at a reduced hourly rate. There was some uncertainty as to how long that contract lasted because Plexus became insolvent at about the same time. Thereafter, and until August 2002, Mr Atkins had a contract direct with Reuters and worked for Reuters exclusively from his home using the Appellant's computer. During this time the Appellant was connected to broadband and Mr Atkins could access Reuters' computer through the Appellant's computer and small network. During the period from about February or March 2002 to August 2002 the Appellant sent invoices direct to Reuters who paid them. The period after 1 February 2002 is not the subject of this appeal.

    43. Later events
  43. Some time in or about February 2002 Plexus became insolvent All the Appellant's invoices which had been sent to Plexus had been paid but two colleagues of Mr Atkins had not been paid and lost significant amounts.

  44. Since the successful completion of the migration of data for Reuters Mr Atkins has undertaken similar work for other large national companies and two government departments. In about 2004 Mr Atkins and a business partner formed another company and started to trade through that company which now has a turnover of about £700,000 and seven employees. The Appellant is now no longer trading and is dormant.

    45. The Revenue's enquiries
  45. On 30 April 2003 the Revenue wrote to the Appellant's previous representatives asking a number of questions about the terms and conditions under which Mr Atkins had worked for Reuters. The letter requested the representatives to arrange for Reuters to supply the information. It was for this reason that Mr Shaw of Reuters wrote his letter dated 2 September 2003 to the Appellant's previous representatives.

    46. The arguments
  46. For the Appellant Mr Boddington cited Ready Mixed Concrete (South East) Limited v Minister of Pensions and National Insurance [1968] 2 QB 497 for the principle that a person could only be regarded as an employee if he was obliged to give personal service (with no substitution); if the work provider had to offer work or pay if no work was available; if the worker was controlled; and if the other provisions of the contract were consistent with a contract of service. He went on to argue that Mr Atkins had not been obliged to perform the services personally; that there had been no obligation on Reuters to provide work for Mr Atkins or to pay him if there were no work; the Mr Atkins had not been subject to control by Reuters; and that the other arrangements were inconsistent with a contract of service.

  47. Mr Boddington cited Lime-It v Justin [2003] STC (SCD) 15 for the principle that it was necessary to look at all the circumstances of the case; he also relied upon Hall v Lorimer 66 TC 349 at 376D and argued that Mr Atkins took the financial risk of bad debts and outstanding invoices and held his own professional indemnity insurance and public liability insurance. Mr Boddington cited Market Investigations Limited v Minister of Social Security [1968] 3 All ER 732 for the principle that it was necessary to consider whether Mr Atkins would be considered to be in business on his own account; since 1995 Mr Atkins had worked for a number of clients of which Reuters was only one and had developed his business over the years; he had worked unpaid overtime for Reuters in order to promote his own business; Mr Atkins had not been part and parcel of Reuter's business. Finally Mr Boddington cited Express & Echo Publications Limited v Ernest Tanton [1999] EWCA Civ 949 and argued that the intention of the parties was relevant and in this appeal the intention of Mr Atkins and Reuters was that Mr Atkins was not employed by Reuters.

  48. For the Revenue Mr Conway accepted the principles in Ready Mixed Concrete. However, he argued that Mr Atkins had been subject to "a sufficient degree" of control by Reuters, relying upon Ready Mixed Concrete at 515C and clause 6.1 of the 2000 agreement. He agreed that the arrangements, including the hours of work, had been flexible and informal but argued that that was appropriate for a senior, skilled employee. He relied upon clause 1.2 of the 1998 agreement and the provisions about reporting and taking instructions. The evidence was that Reuters' project manager had the final decision as to what work should be done when. He also relied upon clause 3.3 of the 2000 agreement and argued that Mr Atkins had to comply with the timetable as set by Reuters; Mr Atkins had to have his time sheets approved by Reuters and under Schedule 1 of the 1998 agreement needed permission to work more than forty hours a week; his arrangements for going on leave were the same as for a senior employee. The 2000 contract provided that Project Leapfrog was based at Reuters' London office and Mr Atkins in fact attended there on a daily basis. .

  49. Mr Conway accepted that, if there were a right of substitution, then the fact that it was not exercised was not relevant. However, he argued that there was no right of substitution in either the 1998 contract or the 2000 contract. He accepted that clause 6.3 of the 2000 contract gave a right of assignment but argued that that was not the same as a right of substitution. If there were an assignment then the assignor would have no further interest in the agreement but if there were a substitution the rights would be retained but another person would perform the contract. In this appeal Reuters had specifically wanted Mr Atkins' personal services and they had interviewed him for one and a half hours to ensure that he had the specialised skills they needed. The evidence of Mr Ayub was that a proposed replacement would have had to be interviewed by Reuters. However, even if there were a right of substitution this was a far cry from a contractual right to send a substitute and was merely a pointer towards self-employment.

  50. Mr Conway went on to argue that there was mutuality of obligation because the 2000 agreement provided that the Appellant had to supply the services of Mr Atkins and that Reuters would pay the Appellant. He cited Cornwall County Council v Prater [2006] EWCA Civ 120 at [40(5)] for the principle that the fact that a contract need not be renewed was not relevant; it was enough that, while the contract continued, the worker was under an obligation to work and the client was under an obligation to pay for the work made available by the client.

  51. Finally, Mr Conway argued that Mr Atkins had not taken any financial risk as all his invoices had been paid and he could not increase his profit by good management. Mr Atkins was part and parcel of Reuters and used their equipment. Mr Atkins did not own all the rights to his intellectual property; Mr Atkins did send regular reports to Geneva; He cited Netherlane Ltd v York (2005) SPC 457 at 14 and Island Consultants Limited v The Commissioners for Her Majesty's Revenue and Customs [2007] SPC 618 at 13 for the principle that it was not possible for the parties to have an intention over the hypothetical contract postulated by the statutory provisions.

    52. Reasons for decision
  52. The issue for determination in the appeal is whether had the arrangements taken the form of a contract between Mr Atkins and Reuters, Mr Atkins would be regarded as employed by, or as an employee of, Reuters.

    53. The authorities
  53. I start by considering the authorities cited by the parties to see what legal principles they establish.

  54. In Ready Mixed Concrete (1968) the issue was whether a worker was within the class of employed persons under the National Insurance Act 1965 as being an employed person under a contract of service. McKenna J said at 515C:

    55. "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."

  55. McKenna J added at 515F:

    56. "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."
  56. The judge then went on to identify a number of factors to be taken into account in deciding whether a contract was a contract of service. These included: whether the contractor was to provide at his own expense the necessary plant and material; whether the contractor hired his own employees; whether the contractor provided and maintained his own tools and equipment; whether the contractor was paid by reference to the volume of work done; whether the contractor had invested in the enterprise and bore the financial risk; whether the contractor had the opportunities of profit or the risk of loss; and whether the relationship was permanent.

  57. In Market Investigations (1968) Cooke J said at 184G that the fundamental test was whether a person performed services as a person in business on his own account. No exhaustive list could be compiled of the considerations which are relevant in determining that question. At 185A he said that 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. At 185B he said that a relevant factor could be whether a person who engaged himself to perform services did so in the course of an already established business of his own but this factor was not decisive.

  58. In Hall v Lorimer (1993) the taxpayer was a vision mixer who undertook work for a number of different television companies and whose engagements consisted of short term contracts lasting one or two days. In four years he worked on over 800 days. The Court of Appeal held that there was no single path to a correct decision. The question whether an individual was in business on his own account might be helpful but might be of little assistance in the case of one carrying on a profession or vocation. Factors which were critical in that appeal were the duration of the particular engagements and the number of people by whom the individual was engaged.

  59. In Cornwall County Council (2006) the issue was whether a teacher engaged by a local authority was entitled to be regarded as an employee throughout the ten year period in which she was paid for her work as a home tutor in performing multiple individual teaching assignments of varying duration under a succession of separate contracts. The Council was under no obligation to offer pupils and the teacher was under no obligation to accept them. However, if the teacher took on a pupil she was obliged to teach that pupil, and the Council was obliged to provide that work, until that particular engagement ceased. At paragraph 33 of the judgment Mummery LJ said that the authorities did not support the argument that there was mutuality of obligation over and above the mutual obligations existing within each separate contract, namely the obligation on the teacher to teach the pupil and the obligation on the part of the Council to pay her for teaching the pupil whom they continued to make available for teaching by her.

    60. The principles
  60. From these authorities I derive the principle that the question as to whether a person is employed under a contract of service, or whether he is self-employed and provides a contract for services, is a question of fact in each case to be determined having regard to all the relevant circumstances. Relevant factors could be: (1) whether the worker has to provide his own work and skill or whether he may substitute the work and skill of another; (2) whether the worker is subject to "a sufficient degree" of control"; (3) whether there is mutuality of obligation so that there is an obligation on the worker to work and an obligation on the other party to pay him and to continue to make work available during the time of the contract; (4) whether the worker was in business on his own account; relevant factors here could be: whether the worker had to provide at his own expense the necessary plant and material, hire his own employees and provide and maintain his own tools and equipment; whether the worker has invested in the enterprise and bears the financial risk; whether the worker has the opportunities of profit or the risk of loss; and whether the worker engaged himself to perform services in the course of an already established business of his own; (5) whether the worker is paid by reference to the volume of work done; and (6) the duration of the particular engagements and whether the relationship is permanent and the number of people by whom the individual was engaged.

  61. I now turn to apply the principles established by the authorities to the facts of this appeal.

    62. (1) – Right to substitute
  62. Beginning with substitution, I have already found that, although Mr Atkins did in fact do the work personally, the intention of the parties was that the Appellant could assign the obligations and benefits of its agreement with Plexus so long as the assignee was acceptable to Reuters. In other words, the intention of the parties was that Mr Atkins was not obliged to perform the services personally. This points to the conclusion that Mr Atkins would not be regarded as an employee of Reuters.

    63. (2) - Control
  63. In considering whether Mr Atkins was subject to "a sufficient degree" of control by Reuters I bear in mind that Mr Atkins was engaged for his specific expertise and was engaged only for a particular project. To the extent that the provisions of the 1998 agreement are inconsistent with the oral evidence and the 2000 agreement I prefer the latter. Clause 6.1 of the 2000 agreement provided that his method of work should be his own. The evidence was that Mr Atkins was engaged to provide "a small piece of a large jig saw" and the way in which that was done was left to him. Although Reuters decided the thing to be done, (namely the migration of the legacy computer systems) Mr Atkins decided the way in which the migration of the human resource and payroll systems was to be undertaken. He also decided on the means to be employed in doing it and the time when it was to be done so long as it met the overall requirements of the main project. Mr Atkins could, and did, choose his hours of work so long as he met the timescales and milestones of the project. During the period of the relevant contract Mr Atkins worked at Reuters' office in London because he needed to access Reuters' computer; however he also chose to do work on the train and at home. Although Mr Atkins sent up-dates to a technical manager in Geneva, the evidence was that the manager did not control Mr Atkins in the way he worked in the way that an employer controls an employee, even a senior professional employee. Finally, Mr Atkins was free to work for others at the same time as he worked for Reuters. The arrangements were consistent with the conclusion that Mr Atkins acted as a sub-contractor, with responsibility for part only of a larger project, and not as an employee.

    64. (3) -Mutuality of obligation
  64. As far as mutuality of obligation is concerned, the evidence of both Mr Atkins and Mr Turner was that if, for any reason, Mr Atkins had been unable to work on Project Leapfrog during the period of the agreement, then Reuters would not have to find him other work to do and would not have to pay him. Reuters were under no obligation to continue to make work available for the duration of the 2000 agreement. These arrangements point to the conclusion that Mr Atkins was not an employee of Reuters.

    65. (4) – In business on his own account?
  65. In considering whether Mr Atkins was in business on his own account it is relevant that he did in fact provide his own computer for work on the train or at home although the main work was done in London with Reuters' computer. Mr Atkins had also invested in his own enterprise by establishing the Appellant, which in 2000, was an already established business and had been so for five years. After his work for Reuters ceased Mr Atkins continued in business on his own account. During his time with Reuters Mr Atkins had some financial risk of unpaid invoices and bad debts because Plexus became insolvent. Both before and after his work for Reuters Mr Atkins had the risk of an insufficient number of engagements. Also, although he was given work throughout the agreement with Reuters, he might not have been. These arrangements point to the conclusion that Mr Atkins would not be regarded as an employee of Reuters.

    66. (5) - Volume of work done and other factors
  66. Mr Atkins was paid by reference to the volume of work done inasmuch as he was paid an hourly rate which meant that some weeks he was paid less and some weeks more. Mr Atkins' relationship with Reuters was not permanent; it was temporary only and was always to terminate when the project was completed. As mentioned, Mr Atkins could have worked for others at the same time as he worked for Reuters. Other relevant factors are that Mr Atkins did not receive holiday pay, sick pay, or pension benefit. He did not get a weekly wages or an annual salary. And he was not treated like an employee by Reuters. All these factors point to the view that Mr Atkins should not be regarded as an employee of Reuters.

  67. Finally, clause 9 of the 2000 agreement makes it clear that Mr Atkins brought his own expertise and intellectual property rights to the project and retained ownership of them. He also retained ownership of the processes he devised for the purposes of Project Leapfrog. This points to the conclusion that Mr Atkins would not be regarded as an employee of Reuters.

    68. Conclusion
  68. A consideration of the relevant factors in this appeal point to the conclusion that Mr Atkins would not be regarded as an employee of Reuters.

    69. Decision
  69. My decision on the issue for determination in the appeal is that, had the arrangements taken the form of a contract between Mr Atkins and Reuters, Mr Atkins would not be regarded as employed by, or as an employee of, Reuters.

  70. That means that the appeal is allowed.

    71. DR NUALA BRICE
    SPECIAL COMMISSIONER
    RELEASE DATE: 11 December 2007

    SC 3054/2007

  71. 12.07

    72. Authorities referred to at the hearing but not mentioned in the Decision

    Island Consultants Limited v The Commissioners for Her Majesty's Revenue and Customs (2007) SPC 00618
    Montgomery v Johnson Underwood Limited [2001] EWCA Civ 318
    Morren v Swinton and Pendlebury Borough Council [1965] 1 WLR 576
    Propertycare Limited v Gower and others UKEAT transcript of judgment of 14 November 2003 at [9(3)]
    Synaptek Limited v Young ...2003) 75 TC 52 at 73E
    Usetech Limited v Young (2004) 76 TC 811 at 836D and 841E
    Wright v Redrow Homes (Yorkshire) Ltd [2003] 3 All ER 98 at [35] and [36]

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