Contractors won’t be able to use the Oziegbe case to help them with the control aspect of IR35 or false self-employment cases, except in special circumstances. Plus this case should never have gone to tribunal
This is according to IR35 expert Andy Vessey of Qdos Consulting, who believes that the case was flawed from the outset, partly as a result of “shoddy work” by HMRC “And ultimately, this case will have no bearing on most false self-employment and IR35 cases,” he says.
“The case might give a crumb of comfort to some contractors in very niche examples, but this it does not really say a great deal about control.”
Gabriel Oziegbe is a security contractor who, in addition to providing his own services, also subcontracts work to other security contractors. HMRC first tried to prove that the subcontractors were in fact Oziegbe’s employees
When they failed to do this, HMRC then tried to apply the ‘agency workers’ legislation to extract income tax and National Insurance Contributions (NICs) from Oziegbe. The tax tribunal judges concluded that, because the end-clients’ construction businesses did not have security skills in-house, they could not influence the ‘how’ element of control that Oziegbe’s subcontractors showed, and so they were not employees or agency workers.
The underlying case was flawed by ‘shoddy’ HMRC work
Vessey’s first question when reading the ruling was: “Why did this case ever reach the tribunal? If I was the agent representing Oziegbe, I would have been appalled by HMRC’s shoddy work in finding and delivering evidence, as the tribunal judge highlighted.
“In addition to their lack of effort to gain third party evidence from the end-user clients, HMRC tried to have two ‘bites of the cherry’ and apply two different sets of legislation when it became clear that they were not making progress. This was disgraceful.”
The case might give a crumb of comfort to some contractors in very niche examples, but this it does not really say a great deal about control
Andy Vessey, Qdos Consulting
Vessey highlights that HMRC provided no evidence that it had spoken to the clients. HMRC’s tribunal representative Gill Carwardine actually acknowledged to the judge that if the appellant Oziegbe’s evidence had emerged at an earlier date, HMRC would not have raised its assessment of around £50,000 in unpaid pay-as-you-earn (PAYE) income tax and NICs, which Oziegbe was clearly not in a position to pay.
The implications of the control element, or lack of control, in this case
According to Vessey, this case is not helpful at all in IR35 enquiries, or any other employment status or false self-employment cases, except where the exact same circumstances arise.
“Where the worker’s services are extraneous to the end-client’s business, control is not an issue. The judges in this case were stating the obvious, and they highlighted that HMRC’s own guidance actually applied to Oziegbe’s business,” continues Vessey.
“As a result, the primary conclusion of the tribunal judges was that the security guards could not be controlled because there was no evidence that the client companies had their own security guarding skills, and so no evidence that they could supervise, direct and control the subcontractors.
Contractors are unlikely to benefit from this case
“Realistically, contractors rarely enter a business that has absolutely no skills that are aligned with the contractor’s,” continues Vessey. “For example, banks typically have their own developers to work alongside financial IT contractors, and engineering businesses typically have in-house engineers working alongside the contractor teams.
Vessey notes that HMRC’s examples of control [view ESM2757 to 2068], updated in March 2014 to support the revised agency legislation, clearly highlight that where there are no in-house skills, there can be no control.
“Although the example of a security officer provided in HMRC’s guidance indicates control, that example shows the client as having an in-house team with the same skills. With Oziegbe, HMRC provided no evidence of this. In fact, HMRC provided little evidence at all.”
HMRC always tries to dismiss the ‘how’ element of control
Control, as Vessey highlights, is broken down into four areas: how, when, where and what. This case hinged on the ‘how’, because the clients were presumed by the tribunal judges not to be able to tell the security officers how to do their jobs because there was no evidence that the clients had the in-house expertise to do this.
However, as Vessey points out, this is not only a rare occurrence in the ‘real’ contracting market place, but HMRC also often resorts to applying a case from the sixties to negate the ‘how’ element.
“HMRC often trots out the Morren versus Swinton and Pendlebury Borough Council case to negate the ‘how’ element. The crux of this case, from 1965, says that: ‘Clearly superintendence and control cannot be the decisive test when one is dealing with a professional man or a man of some particular skill and experience’.”
‘Where’ is commonly ruled out as being a neutral factor because most contractors are required to work on their clients’ sites to access IT systems and equipment; or to perform their duties where they need performing, such as on a construction site, drilling platform or survey vessel.
‘When’ and ‘what’ tend to be the deciding factors
Although being told when they can work might suggest a contractor is controlled, Vessey notes that in most contractors’ cases, they can only access their clients’ sites at certain times: “If a client’s office is open from 08:00 to 20:00, clearly a contractor can only work during these times. But it is a positive IR35 element if they are able to vary the times they do the work between office hours.
“’What’ is increasingly the deciding factor. If a client can decide on whim that a contractor should focus on an emergency project, this demonstrates a high degree of control. However, if the contractor said ‘hold on a minute, I am happy to do this but it is outside of my existing contract so let’s put a new one in place for the duration of this emergency’, then this demonstrates a clear lack of control over what the contractor does.”
Vessey says: “This case is yet another example of how HMRC is slipping back into its old bad habits, where the inspector decides there is an employment relationship and then goes looking for the evidence to support that hypothesis.
“Since HMRC’s new regime started in May 2012, this attitude had largely gone away. But the four compliance teams in place right now are tackling IR35 cases like they used to, ignoring evidence, being stubborn and wasting contractors’ and tribunals’ time.”