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

The Court of Appeal in Atholl House CA held that the Third RMC Stage is a multi-factorial test. Its purpose is to assess whether, notwithstanding the existence of mutuality and control, the “provisions of the contract as a whole are consistent with its being a contract of service”: RMC at516-517. In its analysis of the Third RMC Stage, the FTT focussed entirely on whether Mr Chiles was in business on his own account and whether the hypothetical contracts could be seen as part of that business. This was the same error as the Upper Tribunal fell into in Atholl House UT.

For the purposes of the third stage assessment, the tribunal may take into account relevant factors other than the express and implied terms of the contract: Atholl House CA at [122]. The fact that the individual performs services for others as an independent contractor is relevant, “but it goes no further than that”: Atholl House CA at [128]. The focus of the tribunal must be on the particular engagement entered into and the terms of the hypothetical contract must remain “central to the enquiry”: Atholl House CA at [130].

Asking whether a person is generally in business on their own account cannot assist in determining whether a particular engagement would be an employment. It is not the nature of the activities which matters, but the capacity in which they are performed.

Having purported to apply the RMC test of employment status, the FTT erred in eliding the Third RMC Stage with a freestanding “business on own account” test. It applied that test as if it were by far the most important determinant at the third stage. In doing so, the FTT was following Atholl House UT, but thereby fell into the same error as that identified in Atholl House CA.

The FTT also erred in concluding that the extent of control by the BBC and ITV was not a compelling factor pointing toward employment.

The FTT failed, as directed by Atholl House CA, to place the hypothetical contracts at the centre of the enquiry. Instead, it focussed almost exclusively on Mr Chiles’ general ways of working and asked itself the wrong question of whether the hypothetical contracts were entered into as part of that business. In doing so, it took into account irrelevant matters and failed to take into account relevant matters.

HMRC were attempting to reargue the case and interfere with an evaluative decision of the FTT, and also attempting to conflate the considered approach taken by the FTT with the error of law identified in Atholl House CA.

The FTT correctly directed itself as to the applicable test at the Third RMC Stage, and conducted a careful and thorough analysis of all potentially relevant factors, including the terms of the hypothetical contracts and whether Mr Chiles would have been in business on his own account.

The Upper Tribunal should be very reluctant to interfere with an evaluative judgment of the FTT unless it is clear that the FTT misdirected itself as to the law, misapplied the law to the facts or reached an irrational conclusion on the facts found. None of those errors was committed by the FTT.

The Decision must be read in the round, avoiding over-analysis or undue focus on particular passages or turns of phrase.

In Atholl House CA, the Court of Appeal rejected HMRC’s argument that whether a person was in business on their own account could not be considered as part of the Third RMC Stage: indeed, it could be an important factor. The error of approach in AthollHouse UT which was identified by the Court of Appeal was therefore not simply applying the business on own account test, which the Court of Appeal accepted as an appropriate approach in some cases, but the Upper Tribunal’s comparative approach to that test, namely asking whether the activities performed by Ms Adams for the BBC were “of the same nature and kind” as those she carried on as an independent contractor.

HMRC’s argument that the FTT erred in its approach to the “business on own account” test fails to grapple with the different ways in which that phrase has been used in the case law. The FTT used the question of whether Mr Chiles would have been in business on his own account both to describe his activities separate from the hypothetical contracts and to express the Third RMC Stage. The FTT understood the difference between these uses, both of which are correct as a matter of law and consistent with Atholl House CA.

The FTT Decision did consider Atholl House UT and treat it with the respect due to a recent, binding decision in a similar area, but did not slavishly follow it and did not adopt the comparative approach used in Atholl House UT. The FTT was well aware of HMRC’s then forthcoming appeal against the decision in Atholl House UT.

HMRC’s argument as to the relevance of control at the Third RMC Stage is an impermissible argument as to the weight to be afforded to a factor.

HMRC’s argument that the FTT did not put the terms of the hypothetical contracts at the centre of its enquiry is an attempt to elevate comments of Sir David Richards to a principle of law. It also fails to reflect the context of Sir David Richards’ statement. In any event, while the terms of the hypothetical contracts are important, the weight to be given to different factors will vary and is a matter for the FTT: Atholl House CA at [86] and [124].

The irrelevant matters said by HMRC to have been considered by the FTT were all relevant. As to the terms of the hypothetical contracts which HMRC said the FTT failed to take into account or afforded insufficient weight, the FTT considered the matters specifically raised by HMRC and took into account all the terms of the hypothetical contracts. There was no need to refer again to each and every term.