How does the tribunal determine employment status?
When deciding on employment status, it is sometimes necessary for a Tribunal to judge whether work is done under a ‘contract for service’ as opposed to an employment contract ('contract of service').
The test for this ‘contract of service’ was set out in the well-known case of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance back in 1968. It is a three-part test which states that such a relationship exists where:
- Work is done in exchange for remuneration (pay, in effect)
- The individual is subject to a degree of control (such as to the how, when and where work is done); and
- The provisions of the contract suggest it is a contract of service
Unsurprisingly, there is often a lot of debate around point 3 and the relevant factors to be taken into consideration. This is always the problem when a legal test includes the very phrase it is trying to define.
Can employment status differ for tax purposes?
Since the introduction of the IR35 regime, there has also been increasing confusion between those deemed subject to IR35 (and therefore ‘workers’ for tax purposes) and their employment status for the purposes of employment law.
Strictly speaking, the two jurisdictions are separate and yet very similar tests are used by the courts in making determinations. Unhelpfully, being classed as a ‘deemed employee’ for tax purposes does not necessarily mean that the individual is an employee or worker for the purposes of employment rights.
What this means is that decisions of the senior courts about the interpretation of certain tests will sometimes have an impact on how the lower courts (including Tribunals) should apply them.
HMRC v Atholl House Productions Ltd
The recent case of HMRC v Atholl House Productions Ltd reached the Court of Appeal on the question of status for tax purposes.
It concerned the IR35 status of a BBC Radio Scotland presenter and therefore would impact on the tax liabilities of both the presenter, Kaye Adams, and her employer.
Applying the Ready Mixed Concrete test
From an employment law perspective, the decision clarifies the correct application of part three of the Ready Mixed Concrete test.
The Court of Appeal was asked the extent to which factors could be considered other than those which were either express or implied in the contract itself.
The Court’s conclusion was that “[the] intention [of the parties] is to be judged by the contract and the circumstances in which it was made[…]”.
What are the employment law takeaways of this case?
This helpfully makes it clear that Ready Mixed Concrete is not a separate test from the one implied in Uber, for example, and that the question of worker status should not change depending on which test is used.
However, the Court did also make it clear that the Autocleanz test (the precursor to Uber) is only relevant when the issue is the statutory rights of a worker/employee.
Who does this decision affect?
HMRC had sought to argue that looking outside the contract was the wrong approach in applying the legal test and that work done for others on a contract basis should be ignored.
The Court of Appeal disagreed and said that the wider context can be relevant in this kind of determination.
Takeaways for freelancers
Chris continues: “Freelancers doing portfolio work are now more likely to be able to successfully argue that they fall outside the IR35 regime and HMRC will almost certainly have to re-evaluate their stance on employment status.”
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