[2010] UKFTT 27 (TC)

TC00341

Appeal number: SC/3067/2009

Whether Second Respondent is deemed to be employed or self-employed

FIRST-TIER TRIBUNAL

TAX 

	THE ATHENAEUM CLUB	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS 	Respondents

-and-

                                                      MR. A. BECAGLIA	                Second Respondent

				TRIBUNAL: 	JENNIFER BLEWITT (JUDGE)

Sitting in public in London on 7 January 2010

Mrs. Margaret Jones, Manager, on behalf of the Appellant.

Ms Parslow instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondent

© CROWN COPYRIGHT 2009

DECISION

1.	The Appellant appears before the Tribunal to appeal against Regulation 80 Determinations for the years 2003-2004 and 2004-2005, in the sums of £2,899.06 and £351.53 respectively, and a Notice of Decision dated 22 June 2007 in which HMRC assert that Class 1 contributions for the period 6 April 2003 to 5 April 2005 in the sum of £4,039.72 are payable by the Appellant.
2.	The Second Respondent indicated to the Tribunal, in an email dated 6 January 2010, that he could not attend the hearing and was aware that the case may proceed in his absence. An adjournment was not requested by the Second Respondent who confirmed to Mr Plummer, Clerk to the Tribunal, by telephone on 7 January 2010 that he would not be attending the hearing. The Tribunal proceeded to determine the appeal. The Tribunal was assisted by skeleton arguments from both the Appellant and HMRC
3.	The issue for determination by the Tribunal is whether, at the relevant time, the Second Respondent was an employee of the Appellant Company or whether the appellant is to be treated as a self employed person for Income tax purposes.
4.	By way of background, facts which are not disputed by HMRC, the Second Respondent, Mr Becaglia, applied to the Appellant Company for the post of Fitness Manager. During interview it became apparent to the Appellant that the experience of Mr Becaglia extended far beyond that required by the position of Fitness Manager and the Appellant took the view that Mr Becaglia’s experience could be of great assistance to the growth of the Athenaeum Club. Mr Becaglia was subsequently offered the position of Assistant Manager with a salary of £22,500 per annum, which he accepted. 
5.	On the agreed start date, Mr Becaglia renegotiated his position because he expressed concern that full time employment would hinder his various other business interests and this renegotiated position is the issue in dispute before the Tribunal.
6.	The Appellant asserts that Mr Becaglia was engaged by way of an agreement between the Appellant and Mr Becaglia’s Company “P3/Propaganda” an unincorporated business in respect of which Mr Becaglia was owner and sole employee which (it was agreed) would invoice the Appellant each month for services provided by Mr Becaglia. The amounts paid to Mr Becaglia (the Tribunal noted that although invoices were made out in the name of P3/Propaganda, the sums were paid directly to Mr Becaglia) were in respect of the services described in the statement of Mrs Jones. The Appellant contends that Mr Becaglia’s status should be as self-employed Consultant. Mrs Jones on behalf of the Appellant succinctly summarised the Appellant’s argument, submitting that the various documents placed before the Tribunal show that Mr Becaglia advertised his role within the Appellant Company as a Consultant. Furthermore the Appellant Company was invoiced each month and the invoices included a provision for payment of VAT which, the Appellant submitted, is indicative of self employed status. Mrs Jones accepted that when Mr Becaglia commenced work at the Appellant Company, the PAYE system had not been set up and the Company did not have a bank account. The final submission made by Mrs Jones on behalf of the Appellant relates to the document signed by the Company’s Solicitor, Thomas Eggar, dated 25.01.05, headed “Agreement in respect of Application made to the Employment Tribunal” which agreed a settlement between the Appellant and Mr Becaglia in respect of his claim for unfair dismissal. The document states that Mr Becaglia was an employee of the Appellant from 7 July 2003 and as such, the Appellant undertook to pay income tax and national insurance contributions as required. Mrs Jones explained to the Tribunal that the settlement was reached on advice from the Appellant’s solicitor, and that due to illness Mrs Jones was not present when the document was drawn up. It was approved by Mr Baylis the Managing Director of the Appellant Company. Mrs Jones explained that had she been present, the term “employee” would not have been given her approval. Mrs Jones stated that the settlement agreed was a commercial decision taken by the Appellant to bring costly legal proceedings to an end. Mrs Jones accepted that in isolation the document did not support the Appellant’s case, but asked the Tribunal to consider the surrounding circumstances in which the settlement was reached.
7.	HMRC submit that the settlement document is a legal agreement which although not binding on this Tribunal, should be afforded significant weight. HMRC submit that in the absence of any evidence from the Appellant to establish that the document was signed under duress or that the Appellant made attempts to resile from the agreement, the issue as to Mr Becaglia’s employment status is determined as set out in the document. HMRC further contend that the fact that Mr Becaglia invoiced the Appellant for his services is not determinative of the issue as to his status, particularly given that the amount of each invoice was predetermined by an agreement as to the annual amount to be paid to Mr Becaglia, namely £25,000 in twelve equal instalments. HMRC point to the fact that there was no potential risk of loss to Mr Becaglia in providing services, he being reimbursed for any expenditure made on behalf of the Company is an indication of his status as an employee. HMRC assert that Mr Becaglia’s other business interests of a self employed nature, do not prohibit his being an employee of the Appellant. HMRC submit that in looking at Mr Becaglia’s relationship with the Appellant, it is clear that he was “part and parcel” of the Company, working under the control of its management structure.
8.	In reaching its decision, the Tribunal carefully considered the skeleton arguments, bundle of documents and case law contained therein. Whilst the Tribunal found Mrs Jones a compelling witness who made forceful submissions on behalf of the Appellant, the Tribunal was not persuaded that Mr Becaglia was a self employed Consultant of the Athenaeum Club at the relevant time. 
9.	The Tribunal took the view that the settlement document signed by the Appellant’s solicitor in the Employment Tribunal proceedings, whilst not binding on this Tribunal, does carry significant weight, and it was accepted by Mrs Jones that the Appellant’s Solicitor acted upon instructions from Mr Baylis, the Managing Director of the Appellant Company. In those circumstances, the Tribunal found that whilst these proceedings were not in contemplation at the time the settlement was reached, the terms of the document explicitly set out the tax liabilities of the Appellant arising from the agreement and make it clear that the status of Mr Becaglia was as employee of the Appellant (and could hardly have been otherwise in order to bring proceedings for unfair dismissal as distinct from a claim for damages for breach of contract.) The Tribunal however did not find this document sufficient in itself to determine the issue of Mr Becaglia’s status, and in the interests of justice went on to consider the wider indications of Mr Becaglia’s role.
10.	The Tribunal found that the role of Mr Becaglia within the Company entrusted Mr Becaglia to advise on projects and areas of potential growth, but under supervision. The Appellant retained ultimate control to decide upon the tasks and duties undertaken by Mr Becaglia, which the Tribunal found established a relationship of employer/employee. The Tribunal found that Mr Becaglia’s work, in the main, being carried out daily at the Appellant’s premises, notwithstanding Mr Becaglia’s discretion as to the hours of work, supports the role of an employee within the Appellant Company.
11.	The Tribunal bore in mind the fact that Mr Becaglia invoiced the Appellant each month, inclusive of VAT, but the Tribunal found that this administrative agreement  was not sufficient, in itself, to indicate self employment on the basis that, balanced against the invoices being issued, is the fact that Mr Becaglia’s annual payment was set at £25,000, split into twelve equal monthly instalments, which the Tribunal found was equivalent to fixed remuneration for an employee working defined hours within the Company premises under supervision in a defined activities. In making the finding, the Tribunal also found that the agreed amount of £25,000 also established the relationship of employer/employee because there was no potential risk of financial loss to Mr Becaglia personally which could be possible in the course of self employment. 
12.	The Tribunal accepted the evidence within the bundle that Mr Becaglia conducted other businesses outside of his role at the Athenaeum Club, however, the Tribunal find it is entirely possible for an individual to be employed in one capacity whilst simultaneously self employed in separate ventures outside of the fixed role and hours of employment within the Appellant Company. 
13.	In the absence of a contract of employment, the Tribunal looked at the surrounding circumstances of the engagement of Mr Becaglia and finds that Mr Becaglia was an employee of the Appellant. It must be said that the Tribunal reached this decision with reluctance, as it seemed to the Tribunal that the Appellant’s employee had deliberately manipulated the situation to his advantage, leaving the Appellant in the invidious position of bearing financial costs in circumstances in which it had only ever acted in good faith.
14.	The appeals are dismissed and sums due confirmed.

15.	The Appellant has a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Rules.   The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

TRIBUNAL JUDGE
RELEASE DATE: 13 January 2010