TC09663 - [2025] UKFTT 01250 (TC)

Section 44(2) ITEPA provides that:

“(2)

But this section does not apply if ––

(a)

it is shown that the manner in which the worker provides the services is not subject to (or to the right of) supervision, direction or control by any person, or

(b)

remuneration receivable by the worker in consequence of providing the services constitutes employment income of the worker apart from this Chapter.”

This subsection, therefore, takes someone outside of the charge to tax. Either the worker is, in fact, subject to SDC, or they are subject to the right of SDC.In relation to SDC, it is not necessary that all three are present.

“Supervision” refers to someone looking over the manner in which something is being done, and not controlling how it is done. The facts we will return to later show that supervision was present in the circumstances of this appeal. Mr Stone accepted, in his evidence, that the client, in conjunction with the security adviser, supervises the work of the handler. The legislation refers to supervision “by any person”. The legislation also refers to the “agency” and the “client”. The most obvious person is the client. It will frequently be the case in such relationships that control is split between the agency and the client. The legislation cannot be avoided by simply splitting up control between different people. Mr Young, in his closing note, accepts elements of SDC by the client. In this respect, he refers to the client controlling the uniform and the client controlling the tasks that are going to be performed. It is clear from the evidence in the appeal before us that the client’s security manager has discussions with the security adviser (if there is one), or the search adviser. There is also an element of control over the task by the end-client(s) in this appeal. We are satisfied that that is “control by any person”.

“Control” does not have to be absolute, and it does not have to be control over everything. In illustration of this point, an example concerning a locum doctor was given during the hearing. Mr Stone submitted that the doctor would obviously have their professional training and their regulatory obligations beyond those owed to the Trust that has engaged their services. He added that no-one would seek to interfere with the precise diagnostic, or medical, decisions that the doctor makes (e.g., stepping up to tell a doctor or a surgeon how to perform a medical procedure). He further added that this does not prevent there being sufficient control.

Returning to PGMOL, the appeal considered the employment status of part-time football referees in order to determine the way match fees paid to them should be treated for income tax and NI purposes. PGMOL provided referees and other match officials for the most significant football competitions. The underlying question in the appeal was whether these individual contracts were contracts of employment. Before the tribunals and the Court of Appeal, the key issues were whether two key elements for the establishment of an employment contract were present: (i) the mutual obligations of the employee (to provide personal service) and the employer (to pay for those services) and (ii) a sufficient degree of control by the employer over the employee. The Supreme Court unanimously dismissed PGMOL’s appeal, holding that the minimum requirements of mutuality of obligation and control necessary for a contract of employment between the National Group referees and PGMOL were satisfied in relation to the individual contracts. What was said by the Supreme Courtwas that there must be some element of control, otherwise it cannot be an employment relationship. But it could be control over ancillary matters if it is the type of industry, or profession, where you cannot affect day-to-day control.

At [61] and [62], the Supreme Court said this, in respect of ‘control’:

“Control

61.

There can be no doubt that a sufficient element of control by the employer over the employee is essential to the existence of a contract of employment, but it is a test that can prove difficult to apply. In most situations, of course, there is no difficulty. The degree of control over the work to be undertaken by the employee, where and when it is to be undertaken and, in many cases, the way the work is to be done leaves no room for doubt that the level of control is consistent with employment. But, in a minority of cases, where the nature of the services provided by the putative employee leaves little room for intervention by the putative employer, the question of control may be difficult to answer.

62.

This was recognised by MacKenna J in RMC. In his summary of the three conditions for the existence of an employment contract, he expressed the requirement of control in these terms: “[The employee] 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 [the employer]” (emphasis added) (p 515D). The emphasised words, which are echoed in later authorities, allow for a wide range of circumstances and leave the question of control to be answered by an assessment of the facts of each case. In Montgomery v Johnson Underwood Ltd [2001] EWCA Civ 318, [2001] ICR 819 (“Montgomery”) at para 19, Buckley J (with whom Brooke and Longmore LJJ agreed) referred to “some sufficient framework” of control.”

By reference to a passage in Montgomery v Johnson Underwood Ltd [2001] EWCA Civ318, Lord Richards said this, at [67]:

“67.

The reference in the passage from Montgomery contains reference to those in occupations where, by the nature of the work, a putative employer can have little or no control over the execution of the work. Buckley J gave the examples of masters of vessels, surgeons, research scientists and technology experts. Zuijs concerned an acrobat working for an itinerant circus and it was in that context that the majority made the statement quoted by MacKenna J in RMC. The principal judgment was given by Dixon CJ and three other members of the Court. It is worth quoting the entirety of the relevant part of that judgment (at p 571):

“The duties to be performed may depend so much on special skill or knowledge or they may be so clearly identified or the necessity of the employee acting on his own responsibility may be so evident, that little room for direction or command in detail may exist. But that is not the point. What matters is lawful authority to command so far as there is scope for it. And there must always be some room for it, if only in incidental or collateral matters. Even if Mr Phillip Wirth could not interfere in the actual technique of the acrobatics and in the character of the act, no reason appears why the appellant should not be subject to his directions in all other respects.”

At [68] and [69], Lord Richards said this:

“68.

This passage makes clear that, on the one hand, the requirement for control extends only so far as there is scope for it and, on the other hand, that there must be some control, if only in incidental or collateral matters.

69.

As will be seen, the FTT in the present case laid stress on the inability, as a matter of law as well as practice, of PGMOL intervening in the performance by referees of their duties while officiating during matches. This is to misunderstand the degree of control which is necessary as a pre-condition to a finding of employment. As the authorities show, it is not necessary that an employer should have a contractual right to intervene in every aspect of the performance by an employee of his or her duties. In the case of football referees, the FA rules put them in a position of institutional independence while officiating at a match. This is as true of the Select Group as it is of the National Group, but it is common ground, and obviously correct, that members of the Select Group are employees of PGMOL.”

This was the finding that PGMOL could not pull a referee off pitch mid-match. It is not, therefore, necessary that an employer should have a contractual right to intervene in every aspect of the performance by an employee of his or her duties.

At [70], Lord Richards said this:

“70.

Equally, there are many occupations in which the employer would not have the practical ability, nor probably the legal right, to intervene during the performance of at least some duties so as to direct the manner in which they were performed. It is hard to see that hospital managers would be entitled to intervene in the performance of an operation which was being carried out in a competent manner or that the managers of an opera house could intervene in the conductor’s performance to direct him or her to increase or reduce the tempo. That is not to say that there would not be circumstances in which intervention would be both permissible and practical, such as where the duties were being performed in a way which was by relevant standards unacceptable. That would be equally true in the case of an independent contractor. Dixon CJ was right to say in Zuijs at pp 571-572: “There are countless examples of highly specialised functions in modern life that must as a matter of practical necessity and sometimes even as a matter of law be performed on the responsibility of persons who possess particular knowledge and skill and who are accordingly qualified.”

Continuing at [72], he said this:

“72.

While I entirely agree with the well-established proposition that control must be based on the terms of the contract in question, it does not follow that an employer must have a contractual right to intervene in every aspect of the performance by the employee of his or her duties.”

In Ready Mixed Concrete, McKenna J said this, at p 515F (in respect of control):

“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. All these aspects of control must be considered in deciding whether the right exists in a sufficient degree to make one party the master and the other his servant. The right need not be unrestricted.

‘What matters is lawful authority to command so far as there is scope for it. And there must always be some room for it, if only in incidental or collateral matters.’— Zuijs v Wirth Brothers Proprietary, Ltd (1955) 93 CLR 561, 571.”

The case of Zuijs v Wirth Brothers Proprietary, Ltd (1955) 93 CLR 561 concerned an acrobat working for an itinerant circus. It was in that context that the majority in PGMOL made the statement quoted by McKenna J in Ready Mixed Concrete.

It is clear from the authorities that there are those industries in which you cannot, practically, intervene. There is, however, no need for a contractual right to intervene in all aspects of the performance. Provided that there is some element of control, it may be over incidental, or ancillary matters. In the circumstances of the appeal before us, it is not open to the Appellant to say that because there is not control over everything, there is no control. It further is of no real consequence that the client cannot intervene in the manner in which the work is being done, at the time that it is being done. It further does not matter that the worker is regulated and highly experienced. For instance, one would not interfere with the professional judgment of a doctor. There are, however, ancillary matters such as a GP going to a surgery as a locum where the surgery may control the list of the patients that the GP will see, the order in which they will see patients, and whether the GP does home visits. Those elements of control are not actually over the doctor’s clinical judgment whilst in clinic.

The Appellant in the appeal before us does not interfere in the performance of the dog-handler’s duties during the searches. It is, however, clear from the evidence before us that if the dog-handlers failed to follow the Appellant’s standard operating procedures, failed to follow a protocol given by the client, or failed to do the searches that they were told to, this would be picked up by the Appellant later.

The dog-handlers personally attended the end-client’s venues. We have considered the fact that the dog-handlers were sent a ‘job sheet’ by the Appellant. Mr Stone explained that he selected which handlers to send the job sheets to. This was consistent with his discretion as to the allocation of tasks recorded in the contract with Mr Goode. The job sheet informed the handlers that work was available for a particular client. The job sheet also set out the type or work required. As Mr O’Ryan and Mr Thornborrow made clear, the handler’s presence was essential. During cross-examination, Mr Stone accepted that if the Appellant sent a job sheet to a handler, the handler had to personally do the job, unless they are unable to do it. He further accepted that the handler cannot send another person in their place because the identity of a particular dog-handler matters as they have to be licensed and regulated. They also have to be vetted by the Appellant in order for the Appellant’s insurance to cover them. Mr Stone further clarified that if a loss was caused by a dog-handler engaged through the Appellant, it was the Appellant’s insurance against which the claim would be made.

The standard terms and conditions in the contracts provide that:

“Supplier Personnel: the Supplier’s employees or agents who may be provided to perform the Services and who shall be under the direction, supervision and control of the Supplier.”

This document was produced by the Appellant in advance of the educational due diligence meeting. It was not suggested in that meeting that it was inaccurate, or that it had never been used with clients. In evidence, Mr Stone suggested it had never been used with a client, but could not explain why it had nonetheless been provided to HMRC without making this clear.

The obligations in the Fulham contract required the Appellant to ensure that the search dog operatives complied with Health & Safety, complied with the directions of Fulham, or complied with industry best practice. The only way that the Appellant could warrant those things is if it has an element of control over the worker (i.e., dog-handler) to ensure that the worker is using industry best practice. Otherwise, to use the language used during the hearing, if they are “unleashed” on the client’s site with no sense of control, the Appellant is not contractually able to warrant that certain outcomes will take place. A further thing the agreement warrants is that the Appellant will be responsible for the operatives, and this can only happen with an element of control. In this respect, we are satisfied that the Appellant is taking the risk for what the dog-handlers do on the ground at the client’s site.

In respect of ‘dress codes’, we have considered the fact that some clients might request handlers to follow a specific dress code. For example, Tottenham Hotspur might request a Spurs tie, while the Appellant had its own branded jacket. By his own oral evidence, Mr Stone confirmed that he generally liked the handlers to have a ‘corporate’ appearance. He accepted that a failure to adhere to the dress code would reflect badly on the Appellant. Furthermore, Mr O’Ryan accepted that he would wear what he was told to wear, and that if he turned up wearing clothes which were out of keeping with the dress code, he would expect the client to tell him to get changed into something more appropriate. Mr Thornborrow accepted that the end-clients could set requirements as to the dress code that he was required to follow. Indeed, dress code formed a part of Wimbledon’s Key Performance indicators (“KPIs’). In relation to the Wimbledon dress code, Mr Stone explained that Wimbledon were:

“very intent on what the team should wear, even down to a harness for the dog…has to be a certain colour.”

Mr Thornborrow accepted that he was required to follow the dress code. The general tenor of the evidence that we heard was that ensuring a proper dress code at Wimbledon was “absolutely” important for the Appellant.

We have further considered that some venues had ‘site inductions’, which were provided by the end-clients. For ‘Tideway, this lasted three days, and the dog-handler received a certificate at the end of that period. The handler was then tested on what they would do in particular situations during ‘scenarios’ that took place during the inductions. For Fulham, there was a briefing on ‘match day’, which was always with a ‘health and safety’ element. The background further shows that for handlers who were unfamiliar with the venue, a representative from Fulham would talk them through matters and explain how things were done at that particular venue. We have also considered the fact that Mr Stone might also attend the induction, which he accepted in his oral evidence.

A further incontrovertible fact in this appeal is that each venue had a ‘security manager’, whose contact details were provided on the job sheets. As considered earlier, the security manager was responsible for security on site and was responsible for liaising with the various handlers. The security manager liaised with the dog-handlers and with the staff who were responsible for body searches, and the stewards. The dog-handlers were in daily contact with the security manager. This was confirmed by Mr Thornborrow in relation to ‘Tideway’. The evidence before us also showed that sometimes dog-handlers attended from a variety of companies, and not just from the Appellant. This shows that the dog-handlers were part of a larger security operation which was run by the end-clients. In his oral evidence, Mr Thornborrow referred to his having “one contact person” in “a massive security team”. Mr Stone ultimately accepted that there was a hierarchical command structure at the venues. This involved the security manager, those working in the control room, and the rest of the end-client’s security apparatus. The security manager determined which searches would be done and information would be filtered down to dog-handlers through the security manager. If requirements changed on the day, that would be communicated by the security manager to the handlers.

Another undisputed fact is that the Appellant would provide a search adviser. Mr Thornborrow accepted during cross-examination that the decision as to how many dogs were needed, and how long searches would take, was made by the clients in conjunction with the search adviser. Moreover, Mr Stone accepted in evidence that the search adviser would issue directions to the handlers at the venue by giving them the ‘tasking sheets’, telling them what they needed to do. The dog handlers followed the directions of the end-client as to what kinds of searches to carry out and where to do them, providing those directions were safe and not unreasonable. Mr Stone also accepted that the handlers would be required to follow client protocols, insofar as they were safe and reasonable. For example, they were required to follow Wimbledon’s protocols upon making a find. It was the client’s prerogative to create assignment instructions for their venues, within reason. The dog-handlers were expected to follow these instructions. By his own oral evidence, Mr Stone regarded ‘instructions’ as synonymous with ‘orders’. The search advisers directed the individual handlers as to the tasks they specifically were to perform.

As regards Wimbledon, Mr Stone accepted that when the search adviser said to a particular handler that they had to go and do Centre Court, level 1 search, that handler “is required to do that”. Handlers did not have the discretion to do different tasks to those shown on the tasking sheet. As regards Tideway, when Mr Thornborrow arrived on the Tideway site, he physically reported to the security point and was told he would be doing vehicle searches. He did not know the task he was going to perform before arrival on site. He was given information such as what to do if he found something suspicious, and who to call. As regards Spurs, the handlers would go to the search adviser as soon as they arrived at the site. The search adviser then allocated the tasks that needed to be done to the handlers over the period of time required.

Similarly, the dog handlers followed the directions of the end-client as to the manner of the searches, again providing those directions were reasonable. Mr Thornborrow said that the reference to ‘Code Black’ on the job sheet referred to a particular kind of response to an unattended bag. He said:

“each venue has different ways of dealing with it, so you make yourself aware of that and you deal with it as they directed, as the venue want you to deal with it”

In the case of Wimbledon, the documents recorded the concepts of ‘HOT’ and ‘Confirm, Clear, Cordon, Control, Check’, which were ultimately drawn from government guidelines. Mr Thornborrow accepted he was required to follow these guidelines. Mr Stone also accepted that the Appellant provided standard operating procedures that the handlers were required to follow. Clients might have their own protocol as to what to do in case of a suspect package. Mr O’Ryan did not suggest that he was free to disregard this. He also said that sometimes he might be directed to do a search in a manner he disagreed with, and explain his reasoning; but if it was insisted upon, he would carry out the search “in their manner”, and not his own. He would then write up a report of how the search was done, and have it signed.

Mr Stone accepted that the search manager (or the equivalent role in the client’s security set-up) was able to supervise and check that the searches were being done as they are meant to be done, in liaison with the search advisor. Upon making a find, but before starting a search, the handlers would have to call the site control room and inform them of the find. Mr Thornborrow was asked during cross-examination:

“So the search advisor can direct you?”

He replied:

“Yeah, the search advisor oversees us”.

At Wimbledon, the handlers were also required to inform the control room when some of the tasks were completed. If Mr O’Ryan had been asked to perform mobile searches but himself decided to do static searches instead, he would expect that to be picked up on by the clients, and to be told to do what he had been asked to do.

As regards dress code, we have considered that the client would be entitled to direct a handler who was not properly attired to change into suitable clothing. This was accepted by Mr Stone. The Appellant was required to comply with written directions from the clients, and was also required to ensure compliance by the handlers with applicable laws, regulations, orders, directions and codes of practice. Mr Stone accepted it was the Appellant’s responsibility to enforce codes of practice and see that the handlers followed directions. The Appellant was, generally, required to ensure the handlers complied with the terms of the contract. Clients supervised the dress code that had to be adhered to. The following exchange occurred in cross-examination of Mr O’Ryan:

“Q. [….] at Royal Ascot if everybody else turns up in suits and you turn up in shorts and a T shirt, [….] -- but you would expect that somebody would say to you that you are wearing the wrong clobber and you have to go and get changed?

A.

Yes, probably the client.”

Mr O’Ryan was clear that if he did not conduct himself in a professional manner, this would reflect badly on Appellant. He further explained that the handlers would, upon arrival, sometimes be made to sign a document containing health and safety rules, rules regarding social media posts, and other similar rules. Wimbledon had site rules, which included health and safety requirements. Mr Thornborrow said he “definitely” had to comply with these. Mr Stone also accepted the handlers had to follow these rules. As to health and safety, Mr Thornborrow explained that PPE had to be worn as a health and safety requirement, and that if this was not done it would be picked up “straightaway” by the cameras at the venue.

Mr Stone accepted that the Appellant had a disciplinary procedure in place. If a handler committed misconduct on site, Mr Stone would investigate the matter to find out what happened. If the clients complained that searches were not being carried out in the agreed manner, Mr Stone would investigate in order to understand whether there was a reasonable explanation for what had occurred. He would “have to ask questions”. Where there had been a problem and things had not been done according to the necessary standards, remedial training might be offered, or Mr Stone might simply not use the handler again.

Whilst the end-client in this appeal does not perform dog detection services, the end-clients that we have heard about in this appeal do have a security operation. Wimbledon and Tideway operations involve a large, complex security team. What the dog-handlers are doing is fitting into that team so that the security team will have a number of different parts of the operation. In respect of Wimbledon, the picture that emerged is that there certainly is a hierarchical structured organisation, and that they are in a position to use the search dogs in a way that fits within their security operation. The fact that the venues do not, themselves, provide dog detection services is not relevant. Returning to the GP surgery example, a GP may bring in an agency doctor to supplement the provision of healthcare, but many organisations bring in individuals to do work which is ancillary to the business. A GP surgery may also bring in an IT contractor via an agency. That does not prevent the Agency legislation from applying.

Therefore, whilst nobody interfered with the searches in this appeal, the searches were decided and dictated to the dog-handlers. The dog-handlers were told the order in which the searches are to be done. It is clear that a person may be told that they are going to search a particular area but they move to another area because a dog was sick. This does not, however, detract from the fact that the client can, and does, dictate the type of search, the protocols that must be adhered to, and the dress code. We have considered the fact that the Appellant had its standard operating procedures, which had to be followed by the dog-handlers; and which are to do with the actual work that is being performed. There was also the wearing of PPE, in some circumstances. Despite such elements of control applying to all persons on site, those elements of control are still relevant. Despite the fact that the venues may not have been licenced or qualified to carry out dog searches, they were certainly able to supervise how the work was done. For instance, in relation to Wimbledon, the security manager has “feet on the ground” and observes how the searches are being performed. That is supervision.

Mr Stone told HMRC and the SIA that the contract between the Appellant and Mr Goode was used for all dog-handlers, However, during cross-examination, he stated that only two or three handlers had a written contract, but he could not specify how many handlers would have had a written contract in 2017. Mr Stone accepted that what he had said during that meeting was inaccurate and explained his position during his evidence thus:

“I said something that was inaccurate purely because I may have been a little bit annoyed with the SIA and HMRC for treating me the way they’ve treated me.”

The absence of a written contract does not prevent there being the right to SDC. Ready Mixed Concrete is authority for the proposition that in a relationship of work, the right to control what, where, when and how the work is done will sometimes be express, in a contract; but if it is not express, it must be implied and that is because in this kind of work relationship, control over those things must lie somewhere. In Ready Mixed Concrete, at p 516A, the court said this:

“To find where the right resides one must look first to the express A terms of the contract, and if they deal fully with the matter one may look no further. If the contract does not expressly provide which party shall have the right, the question must be answered in the ordinary way by implication.”

In the absence of an express right, it is implied by looking at all the circumstances. It is relevant - when looking at all the circumstances to infer were the right to control lies - to look at the contractual relationship that the Appellant has with its clients.

Lastly, Mr Young submitted that some of the dog-handlers are VAT registered, and that HMRC accept that they make a standard-rated supply of services. He added that this is inconsistent with the Determination that there is a supply of ‘labour’. Mr Stone accepted during his evidence that only one dog-handler was VAT registered for the relevant period (Mr Blackmore). He explained that Mr Blackmore was VAT registered because he runs, or ran, his own jobs and, therefore, it was more for his clients’ purposes. Mr Stone added that Mr Blackmore had only helped him “once in a blue moon”.There is, however, no evidence as to why he was VAT registered; or, in particular, that it was a requirement of his work for the Appellant. We are satisfied that the VAT treatment of the supplies is irrelevant to the application of the Agency legislation. Supplies of labour/staff are taxable supplies. VAT is not due in respect of employees, or deemed employees.

The fact that the ‘agency’ may be making a taxable supply for VAT purposes does not affect the application of the Agency legislation. In Adecco, the taxpayer paid PAYE and NICs in respect of temporary staff they supplied to end-clients. This did not preclude a finding that the taxpayer was making a VAT-able supply of staff. In Moher and Adecco, the question of whether the taxpayer was making a supply of staff or a supply of, respectively, medical services or introduction services, turned on whether it was the taxpayer or the end-client who exercised control over the individuals supplied.

We are satisfied that there is SDC in this appeal. The Agency legislation requires, merely, that it be shown that either the ‘agency’ or the ‘client’ exercise SDC over the individual. It does not matter whether that SDC is exercised by one, the other or both. As the dog-handlers are not engaged on an employed basis, the income is not otherwise chargeable as employment income before the Agency legislation applies. Applying the Agency legislation, the remuneration receivable by the dog-handlers is treated as earnings from employment with the Appellant and, therefore, the Appellant is responsible for accounting for the PAYE due.