BKL Tax news
by Anthony Newgrosh
In the recent Special Commissioner’s case of HMRC v Castle Construction (Chesterfield) Limited HMRC contended that all of the company’s 321 self-employed subcontractors should be re-categorised as employees.
The 321 subcontractors were as follows :-
2 supervisors for the labourers
6 fork lift drivers
1 truck driver
2 slinger signalmen (who directed the crane operators)
The company had in addition a small number of permanent office staff, quantity surveyors and novice bricklayers who were already dealt with as employees.
The Special Commissioner found that the company had correctly classed the bricklayers as self-employed. His decision was based on the following factors:
- No significant control over the bricklayers appeared to have been exercised, or was exercisable, by either the company or the company’s main contractors. The bricklayers worked independently and would be likely to regard attempts to tell them how to lay bricks as unwelcome. Their performance was monitored but not closely controlled.
- Subcontractors had to provide their own tools, hard hats and to purchase the company’s high visibility vests and provide their own transport to and from sites.
- The contract with the company merely specified an hourly rate and contained features which were inconsistent with a normal employment contract. The hourly rates were higher than would have been paid to permanent employees.
- They were paid only for the hours worked and were not paid if bad weather prevented them from working.
- A sample of subcontractors showed that they worked for other companies for parts of the year and it was disclosed in evidence that in a particular year the company used 450 subcontractors. Had they been employed full-time the company would have only needed 150 such workers.
- Subcontractors had to rectify faulty work at their own cost.
- When it was suggested by the company to the subcontractors that they might need to enter into employment contracts many threatened to walk out in protest.
- HMRC had conducted a status enquiry into the company four years earlier and the workers were confirmed as self-employed. HMRC had lost the relevant papers.
- In at least one respect HMRC had been lax in its conduct of the enquiry. They had reached a decision on the status of the workers before interviewing a single bricklayer.
Regarding the other categories of workers the Special Commissioner found that the scaffolders were also self-employed. Their terms of engagement were identical to those of the bricklayers. The status of the labourers was more finely balanced but when they worked side by side with the bricklayers and the scaffolders and on identical terms they too were self-employed. The foremen, the labourer supervisors and the slinger signalmen were also found to be self-employed.
However, the fork lift drivers and the truck driver were employees because they were operating expensive plant owned or hired by the company and were therefore subject to more control than the bricklayers and scaffolders.
How much of a precedent does this case set? Probably not very much because it was decided on its own particular facts and these were critical to the Commissioner’s decision on those matters where he found in favour of the taxpayer. Nonetheless, it undoubtedly will give subcontractors who are subject to status enquiries by HMRC greater confidence of success. In addition, a very important feature of the case is the great length of the judgement (over 20,000 words), and the Commissioner’s comprehensive analysis of the arguments for and against self-employed status, with particular reference to the construction industry.
For more information, please contact Neil Graham.