UT/2023/000018 - [2024] UKUT 00165 (TCC)

In many cases the question can only be settled by examining the whole of the various elements which constitute the relationship between the parties. In this way it is in some cases possible to decide the issue by raising as the crucial question whose business is it, or in other words by asking whether the party is carrying on the business, in the sense of carrying it on for himself or on his own behalf and not merely for a superior.

…the fundamental test to be applied is this: "Is the person who has engaged himself to perform these services performing them as a person in business on his own account? " If the answer to that question is " yes," then the contract is a contract for services. If the answer is " no," then the contract is a contract of service.

No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of the considerations which are relevant in determining that question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases. The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors which may be of importance are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk he takes, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task.

The application of the general test may be easier in a case where the person who engages himself to perform the services does so in the course of an already established business of his own; but this factor is not decisive, and a person who engages himself to perform services for another may well be an independent contractor even though he has not entered into the contract in the course of an existing business carried on by him.

In some cases, as for instance, with a jobbing gardener or a carpenter or a music teacher, who is found to be carrying on the activities in question for several customers or clients as part of his or her own business, the test may be very helpful indeed, but in many other cases the answer to the question whether the person concerned is carrying on business on his or her own account can only come as the corollary of the answer to the question whether he or she was employed under a contract of service.

It is important to have in mind that each case must depend on its facts, and the same question, as an aid to appreciating the facts, will not necessarily be crucial or fundamental in every case.

I will below review some of the authorities and the way they have developed. From this review, I have reached a number of conclusions relevant to this appeal. First, there is not a dichotomy between the RMC test on the one hand and the approach in Hall v Lorimer and the line of authorities of which it is part on the other. They do not represent significantly different tests for determining employment. Second, the question posed in Hall v Lorimer and other authorities as to whether a person is in business on their own account is, for the most part, simply another way of asking whether they are an independent contractor. If the evidence establishes that they do in fact conduct a business on their own account, quite apart from the engagement in dispute, that may be a relevant factor in the determination of the issue – a point to which I will return. But, as used in the authorities, that is not the situation to which this phrase is generally applied. See in this respect the observation of Dillon LJ in Nethermere (St Neots) Ltd v Gardiner [1984] ICR 614, which I set out below when referring to that case. Third, the factors to which a court or tribunal can have regard when assessing whether a contract is a contract of employment or a contract for services are not confined only to the terms of the contract and the effects of those terms.

It is clear from these cases [RMC, the Privy Council decision in Lee Ting Sangv Chung Chi-Keung [1990] 2 AC 374 and Market Investigations Ltd vMinister for Social Security [1969] 2 QB 173] that there is no single satisfactory test governing the question whether a person is an employee or is self-employed. As Lord Griffiths observed in the last, most recent and authoritative case the question has never been better put than by Cooke J. in the MarketInvestigations case, at p. 184G. The question is: does the taxpayer perform his services as a person in business on his own account? If he does, his work as a vision mixer for the various television production companies must be regarded as performed under a series of contracts for services, entered into by him in the course of carrying on his own business. If he does not, his work must be regarded as performed under a series of contracts of employment with those companies.

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 a matter of evaluation 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 importance from one situation to another.

…

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.

In this connection, Nolan LJ went on to say that the question whether an individual is in business on his own account, though often helpful, “may be of little assistance in the case of one carrying on a profession or vocation. A self-employed author working from home or an actor or a singer may earn his living without any of the normal trappings of a business.” Clearly, Nolan LJ was not suggesting that an author or actor was less likely to be self-employed than a person carrying on a commercial business on their own account, only that the indicia applicable to a commercial business (“the trappings of a business”) might well be inapplicable to a person carrying on a profession or vocation. Pointing out that the taxpayer in Hall v Lorimer customarily worked for twenty or more production companies and that the vast majority of his assignments lasted only a single day, Nolan LJ said “there is much to be said for the traditional contrast between a servant and an independent contractor. The extent to which the individual is dependent upon or independent of a particular paymaster for the financial exploitation of his talents may well be significant.” Again, Nolan LJ was bringing into account factors which went beyond the terms of each separate engagement.

The authorities show that there is no one test which is conclusive for determining into which category a particular contract falls. As Nolan LJ put it in Hall v Lorimer [1994] ICR 216, 226: “In cases of this sort there is no single path to a correct decision. An approach which suits the facts and arguments of one case may be unhelpful in another”.

In my judgment, this review of the authorities bears out the propositions which I earlier stated. It is wrong to treat RMC and the line of cases including Hall v Lorimer as representing two separate tests, with the possibility that the result in any particular case could depend on which test is applied. Both approaches recognise mutuality of obligation and the right of control as necessary pre-conditions to a finding that a contract is one of employment. Once those necessary, but not necessarily sufficient, conditions are satisfied, both approaches require the identification and overall assessment of all the relevant factors present in the particular case. In other words, they are both multi-factorial in their approach. A strict reading of the third condition in the RMC test might exclude consideration of any factor beyond the express and implied terms of the contract, and this is certainly the way that it has been interpreted in some of the authorities. There are, however, many other authorities in which a wider range of factors was taken into consideration and indeed, as recently as 2012, HMRC were successfully inviting the Upper Tribunal to do just that: Matthews v HMRC.

The more difficult question, in my view, is not whether other factors can be taken into consideration but what limit there is on the choice of such factors. For this, there must be a return to first principles. The relationship of employment is created by the employer and employee through the contract made by them. The question for the court or tribunal is whether, judged objectively, the parties intended when reaching their agreement to create a relationship of employment. That intention is to be judged by the contract and the circumstances in which it was made. To be relevant to that issue any circumstance must be one which is known, or could be reasonably be supposed to be known, to both parties. Those circumstances are the same as those comprising the factual matrix admissible for the interpretation of contracts: the “facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to the parties” (Arnold v Britton [2015] UKSC 36; [2015] AC 1619 at [21]).

If the person providing the services is known to carry on a business, profession or vocation on their own account as a self-employed person, it would in my judgment be myopic to ignore it, when considering whether or not the parties intended to create a relationship of employment. In many of the cases, it has been taken into account for that purpose. The weight to be attached to it is a matter for the decision-making court or tribunal. If the contract provides, as did Ms Adams’ contracts with the BBC, that she was a freelance contributor, the relevance of this fact arises directly from the contract’s express terms.

Whether or not an individual is in business on their own account can be used in two contexts; in determining the status of the contract in question and in describing the individual’s working practices outside that contract.

The relevance of the issue differs depending on which of these contexts applies.

As applied in determining the status of the contract in question, the formulation is one way of approaching the Third RMC Stage. It is not a different test to the Third RMC Stage, but simply one way of answering the question framed by MacKenna J.

In determining the status of the contract in question, asking whether or not the individual was acting in business on their own account under that contract may be a helpful way of answering the question, and may even be “very helpful indeed” (Nethermere). However, that approach “may be of little assistance in the case of one carrying on a profession or vocation” (Nolan LJ in the Court of Appeal in Hall v Lorimer). The extent to which the approach is a helpful way of answering the Third RMC Stage depends on all the facts.

The existence of a business on own account in the second context, namely the individual’s working practices outside the contract in question, is a relevant factor in considering the employment status of the contract in question. It is “an important contextual circumstance”, but is “no more than that”: Synaptek at [20].

While it would be “myopic to ignore” the existence of a business on own account outside the contract in question, the weight to be attached to that factor is a matter for the FTT: Atholl House CA at [124].

The Third RMC Stage is not approached correctly by asking whether the activities under the contract in question are different in some relevant respect from activities performed by the individual outside the contract: Atholl House CA.