Upper Tribunal Tax and Chancery Chamber

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

Fecha: 06-Feb-2024

the approach to determining whether the intermediaries legislation applies

the approach to determining whether the intermediaries legislation applies

The contract postulated by section 49(1)(c) ITEPA 2003 has come to be termed the “hypothetical contract”, and we refer to it as such below.

In considering the application of the intermediaries legislation, the FTT should carry out a three-stage analysis. Somewhat confusingly, the third stage of that analysis itself entails the determination of another three issues, being those set out in relation to the identification of employment status in Ready Mixed Concrete (South East) Ltd v Minister of Pensions andNational Insurance [1968] 2 QB 497 (“RMC”).

10.

The three-stage analysis with which the FTT should begin has been summarised as follows by the Court of Appeal in Kickabout Productions Ltd v HMRC [2022] EWCA Civ 502 (“Kickabout”) at [7]:

(1)

Stage 1: Find the terms of the actual contractual arrangements and the relevant circumstances in which the individual worked.

(2)

Stage 2: Ascertain the terms of the “hypothetical contract”.

(3)

Stage 3: Consider whether the hypothetical contract would be a contract of employment or a contract for services.

11.

At Stage 3, there is no statutory definition of employment in this context, but it is generally accepted that the test to identify whether a contract is a contract of service remains that set out by MacKenna J in RMC at page 515:

I must now consider what is meant by a contract of service.

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.

12.

These three criteria are generally referred to as mutuality of obligation, control and the “third stage”.

13.

We refer below to the three stages identified in Kickabout as Stages 1, 2 and 3, and to the three conditions identified in RMC as mutuality, control and the Third RMC Stage.

14.

MacKenna J gave his guidance over fifty years ago and IR35 was implemented almost twenty-five years ago. However, the case law in relation both to employment status and IR35 has not only developed considerably over time, but continues to be in a state of flux. The position in relation to mutuality of obligation awaits clarification by the Supreme Court in HMRC v Professional Games Match Officials Limited; the approach to be taken at Stage 2 and at the Third RMC Stage must now be seen in light of the Court of Appeal’s decision in HMRC v Atholl House Productions Limited [2022] EWCA Civ 502 (“Atholl House CA”), and the meaning and significance of a taxpayer being in business on their own account continues to evolve.

15.

Presented with this moving target, taxpayers and their advisers must nevertheless grapple with whether the legislation applies to any particular engagement, and the courts and tribunals must do the same. However, it should not be forgotten that behind every personal service company is a person, and, as we have seen in this case, the uncertainty and financial exposures generated by the difficulty in establishing a clear and stable legal position continue to produce a very real human cost.