27 January 2015
Contract of service or contract for services?
In EMS (Independent Accident Management Services) Limited v The Commissioners for Her Majesty's Revenue and Customs (HMRC), a tribunal provided useful guidance for employers as it sought to clarify the indistinct line between contracts of service and contracts for services and handed victory to a small company over HMRC.
The company, which specialised in recovering accident damaged vehicles on behalf of insurers, had for five years made use of the services of a driver. He was paid an hourly rate and was left to personally cover his Income Tax and National Insurance liabilities. HMRC argued that he was employed under a contract of service but the company insisted that he was an independent contractor.
In allowing the company's appeal, the First-tier Tribunal (FTT) noted that the driver operated through his own business and had expressly stated that he enjoyed the freedom that self-employed status allowed him. Although he provided his services almost exclusively to the company, he mainly used his own equipment, was assiduous in paying his tax and had made his own pension arrangements.
Although there was no 'magic formula' for distinguishing between employment and self-employment, the FTT found that the relationship between company and driver could not be viewed as that of 'master and servant'. Clearly both parties were of the opinion that they were working at arm's length and there was insufficient evidence of control to give rise to an employment relationship.
The penalties for treating, as self-employed, a worker who is later judged to be an employee for tax purposes are potentially very onerous. Contact employment law associate Chris Brazier on 01753 278658 or email firstname.lastname@example.org for advice on structuring contracts to minimise this risk.