[2011] UKFTT 388 (TC)

TC01243

Appeal number TC/2010/05199

Income Tax and NIC – whether individual an employee of Appellant – No – Appeal allowed

FIRST-TIER TRIBUNAL

TAX 

	BRIAN TURNBULL	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

				TRIBUNAL: JOHN BROOKS (TRIBUNAL JUDGE)
						JAMES MIDGLEY (TRIBUNAL MEMBER) 

Sitting in public at 45 Bedford Square, London WC1 on 10 May 2011

Mr Kenneth Saunders of Simpson Wreford & Co, Chartered Accountants for the Appellant

Miss Helen Thorn of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.	On 23 March 2010 the following determinations and decisions were issued to Mr Brian Turnbull by HM Revenue and Customs (“HMRC”) under Regulation 80 of the Income Tax (PAYE) Regulations and s 8 Social Security (Transfer of Functions, etc.) Act 1999:
(1)	a determination of tax in the sum of £5,095.21 due in respect of Mr Gurdeep Singh Bhangal for 2004-05.
(2)	a determination of tax in the sum of £1,381.43 due in respect of Mr Bhangal for 2005-06; and 
(3)	a decision that Mr Bhangal is an employed earner in respect of his engagement with Mr Turnbull for the period 28 June 2004 to 3 July 2005 and that Mr Turnbull, who should have operated a PAYE scheme, is liable to pay £6,401.76 in respect of primary and secondary Class 1 contributions and should have deducted and paid to HMRC 5,095.21 for 2004-05 and £1,381.43 for 2005-06. 
2.	Mr Turnball appeals against the decision and the determinations on the grounds that Mr Bhangal was engaged by him not as an employee but as a self-employed contractor.
Evidence and Facts
3.	We heard from Mr Turnbull and Mr Bhangal and were provided with a bundle of documents from each party. On the basis of this evidence we make the following findings of fact: 
(1)	Mr Turnbull is a haulage contractor who, under the terms of a franchise agreement with Hanson Quarry Products Europe Ltd, dated 1 July 2004, delivers materials such as aggregates, concrete blocks and tarmac for Hanson Aggregates (“Hanson”) using a Scania 8x4 insulated tipper lorry which he owns and which is kept overnight at Hanson’s yard in Dagenham along with some 30 other similar lorries. A set of keys for the lorry is kept in the yard. 
(2)	Contractors undertaking deliveries for Hanson would arrive at the yard at 6:00 am, the time from which loading of the lorries commenced, collect their load and deliver it as directed by Hanson before returning to the yard for further loads until there was no more work that day. However, even though Hanson would decide the composition of each load and where it was to be delivered it was for the contractor, not Hanson, to decide whether or not to he would work any particular day and how long he would work during the day. 
(3)	In the summer of 2004 Mr Turnbull was offered the opportunity to acquire another lorry from a fellow contractor for Hanson, known as Sid, who also operated out of the Dagenham yard. Mr Turnbull agreed to purchase the lorry for £39,950 with the assistance of a hire purchase agreement with Hanson dated 1 July 2004. 
(4)	Mr Turnbull, who understood that Mr Bhangal had been driving the lorry for Sid, agreed with Mr Bhangal that he could continue to do so following his acquisition of the lorry provided there was no objection form Hanson. 
(5)	Although there was no written contract between them the terms agreed were believed by Mr Turnbull to be a continuation of the arrangement Mr Bhangal had previously had with Sid. These were that Mr Bhangal would not be paid a fixed amount but receive 25% of what the lorry earned or £40-£50 if there was not any work. This was described by Mr Bhangal as an “incentive to do as much work as I could.” 
(6)	Mr Bhangal completed and signed a “Hanson Alternative Driver Notification Form” on 22 July 2004. On this form, which was also signed by Mr Turnbull, as the contracted haulier, and a representative of Hanson’s Transport Department and which contained a declaration that the information is “correct”, Mr Bhangal giving details of his previous driving experience wrote:
“I have driven a HGV Class 2 Tipper Truck for the past 2 years for Hansons, based in Dagenham.” 
However, this was not true. Although he had had a HGV licence since 2001 Mr Bhangal said he was told to write this by Sid who had not paid him for driving the lorry but had “been doing me a favour” letting by him drive the lorry to gain experience. Mr Bhangal had been unemployed before driving the lorry for Sid but could not remember how long he was unemployed or any details of his previous job.
(7)	From July 2004 Mr Bhangal delivered loads for Hanson driving Mr Turnbull’s lorry. Mr Turnbull was responsible for the costs of fuel and the upkeep of lorry as well as insurance. Mr Bhangal made no contribution towards these costs. Mr Bhangal was paid cash by Mr Turnbull (who was paid by Hanson) on the basis agreed between them (see above) with the amount being determined by the number of deliveries made. This was shown on invoices which were made out in Mr Bhangal’s name but prepared by Mr Turnbull. 
(8)	As with his other lorry a set of keys was left at Hanson’s yard in Dagenham in addition to Mr Bhangal having the keys for the lorry. 
4.	In his evidence before us Mr Bhangal said that he was told by Mr Turnbull that he was to turn up for work at 6:00 am and take as many loads as he could each day. He also told us that he was required to work on weekends and that he had received holiday pay from Mr Turnbull. Mr Turnbull did not accept that he had ever given Mr Bhangal holiday pay or that he had told him that he was required to work at weekends or when to start work, 6:00 am was the time from which lorries were loaded by Hanson and that it was not his but Hanson’s decision as to the type of load and location of the delivery. Mr Turnbull said that it was up to Mr Bhangal to decide when and for how long he worked and was free, with Hanson’s agreement, to accept other work in the lorry.
Law
5.	The issue of whether a person is an employee, under a contract of service, or a self-employed contractor, under a contract for services, is one that has arisen on previous occasions before the Courts, this Tribunal and its predecessors. 
6.	In Ready Mixed Concrete (South East) Ltd v Minister for Pensions and National Insurance [1968] 1 All ER 433 MacKenna J said, at 439 – 440:
“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.”
MacKenna J added at 440: 
“Control includes the power of deciding the thing to be done, the way in which it shall be done, the means to be employed in doing it, the time when and the place where it shall be done.”
7.	In Market Investigations Ltd v Minister of Social Security [1968] 3 All ER 732 Cooke J said, at 737, that the fundamental test was whether a person performed services as a person in business on his own account and that no exhaustive list could be compiled of the considerations which are relevant in determining that question. Although he said that control was relevant it was not the sole determining factor. Factors which may be of importance were such matters as whether the man performing the services provides his own equipment; whether he hires in own helpers; the degree of financial risk undertaken; the degree of responsibility for investment and management; and the opportunity of profiting from sound management in the performance of his task.
8.	In Hall v Lorimer [1994] STC 23 Nolan LJ (as he then was) giving the judgment of the Court of Appeal said that there was no single path to a correct decision and agreed with the views expressed by Mummery J in the High Court in that case ([1992] STC 599 at 612) where he had said:
“In order to decide whether a person carries on business on his own account it is necessary to consider many different aspects of that person's work activity. This is not a mechanical exercise of running through items on a check list to see whether they are present in, or absent from, a given situation. The object of the exercise is to paint a picture from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed considered qualitative appreciation of the whole. It is a matter of evaluation of the overall effect of the detail, which is not necessarily the same as the sum total of the individual details. Not all details are of equal importance in any given situation. The details may also vary in importance from one situation to another. The process involves painting a picture in each individual case.”
9.	Buckley J, with whom the other members of the Court of Appeal agreed, said in Montgomery v Johnson Underwood Ltd [2001] IRLR 269, at [23]:
“For my part, I regard the quoted passage from Ready Mixed Concrete as still the best guide and as containing the irreducible minimum by way of legal requirement for a contract of employment to exist. It permits Tribunals appropriate latitude in considering the nature and extent of "mutual obligations" in respect of the work in question and the "control" an employer has over the individual. It does not permit those concepts to be dispensed with altogether. As several recent cases have illustrated, it directs Tribunals to consider the whole picture to see whether a contract of employment emerges. It is though important that "mutual obligation" and "control" to a sufficient extent are first identified before looking at the whole.”
Submissions
10.	Miss Thorn, for HMRC, submitted that control remains a determinative test. If there is no control under a particular contract it cannot be a contract of service for tax and NIC purposes. She contended that there was sufficient evidence that Mr Turnbull had the right of control over Mr Bhangal with regards to where, when and how the work was done. In particular she referred to Mr Bhangal being told by Mr Turnbull when and how he was required to work including on weekends pointing out that Mr Bhangal did not have any choice in the he hours worked. She also referred to the lack of any financial risk to Mr Bhangal who was not required to pay for the use of the lorry or its running costs which, Miss Thorn contended, was consistent with his being employed by Mr Turnbull as was the lack of invoices provided by Mr Bhangal. As Nolan LJ had said in Hall v Lorimer (at 29) “the risk of bad debts and outstanding invoices is certainly not one which is normally associated with employment.”
11.	For Mr Turnbull, Mr Saunders pointed out that the lack of provision of equipment in Hall v Lorimer had not prevented a finding a contract for services existed in that case. He contended that, in the absence of specific legislation, the parties were free to make whatever arrangement suited their purposes and in this case Mr Bhangal had been engaged as a self-employed contractor. Mr Saunders suggested that an employee would have been entitled to more than £40 to £50 a day and submitted that, in this case, the real control was with Hanson not Mr Turnbull. He referred to the fact that Mr Bhangal, who obtained his HGV licence in 2001, was a skilled driver who could choose when and how often he worked and said that if the work had been carried out incorrectly Hanson would not have paid Mr Turnbull who, in turn, would not have paid Mr Bhangal. 
Discussion and Conclusion
12.	The issue for us to determine is whether or not Mr Bhangal was an employee of Mr Turnbull. 
13.	It is clear from Hall v Lorimer that in reaching our conclusion we should not undertake the “mechanical exercise” of running through items on a check list to see whether they are present or absent in this case but “paint a picture” from the accumulation of detail and have regard to the circumstances of the case in the round. However, as the Special Commissioner (John Clark) noted in Parade Park Hotel v HMRC [2007] UKSC SPC 599 at [79]:
“… the questions of mutuality of obligation and control must be considered first before looking at the question whether the person engaged to perform the services is doing so as a person in business on his own account (Cooke J in Market Investigations), and before standing back and considering the overall effect of all factors relating to the engagement (Hall v Lorimer).” 
14.	In Propertycare Ltd v Gower [2003] UK EAT/0547/03/GT at paragraph 9(3), His Honour Judge Peter Clark said: 
“The cases starting with Ready Mixed Concrete show that mutuality of obligations means more than a simple obligation on the employer to pay for work done; there must generally be an obligation on the employer to provide work and the employee to do the work.”
15.	In considering this issue, where there was a conflict we preferred the evidence of Mr Turnbull to that of Mr Bhangal who we did not find to be an impressive witness. 
16.	Although Mr Turnbull was obliged to pay Mr Bhangal for work he had done he had no obligation to provide work for Mr Bhangal who was not required to drive the lorry if he chose not to. In our view this is supported by Mr Bhangal’s description of the payment of 25% of the earnings from the lorry as an “incentive” to do as much work as he could. In the circumstances we therefore find that there can be no mutuality of obligation. 
17.	As Buckley J in Montgomery v Johnson Underwood Ltd  (at [28]) considered a mutuality of obligation to be an “irreducible minimum” for a contract of employment to exist it must follow that the relationship between Mr Turnbull and Mr Bhangal cannot amount to a contract of service and as such Mr Turnbull’s appeal succeeds.
18.	However, even if this were not the case, having regard to the facts of the present case it appears to us that any control over Mr Bhangal was exercised by Hanson not Mr Turnbull. It was Hanson that decided what material would be loaded onto the lorry and where it should be delivered. However, once a load had been delivered we find that it was up to Mr Bhangal, not Mr Turnbull, to decide whether to return to the yard to collect a new load as it was equally his choice to decide what days he worked. 
19.	Taking all the factors in the round in this case we consider that, despite the fact that he did not provide any equipment and made no contribution to the running cost of the lorry thus limiting his financial risk, Mr Bhangal was not an employee of Mr Turnbull. 
20.	We find support from the decision in Barnett v Brabyn [1996] STC 716 where it was successfully contended for HMRC before the General Commissioners that it was quite possible for a person to be in business on his own account when all he supplied was his own services without providing any equipment or having any risk of loss of prospective profit.
21.	We therefore allow the appeal  
22.	This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  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.

JOHN BROOKS

TRIBUNAL JUDGE
RELEASE DATE: 10 JUNE 2011

Authorities referred to by the parties and not referred to in the Decision
Dragonfly Consultancy v HMRC [2008] STC 3030
Massey v Crown Life [1978] 1 WLR 676
Express and Echo Publications Limited v Tanton [1999] ICR 693
MBF Design Services Limited v HMRC [2011] UKFTT 35 (TC)