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Is “control” the key to employment status?

20 May 15 | By: Jas Jhooty

tax cases

Control, and the right of control, has been the focus of several recent employment status tax cases in which the taxpayer has won against HMRC. What are the key points from these cases?

Employed or self-employed?

The question of whether a worker is an employee or self-employed is a constant source of disagreement between businesses and HMRC. Countless arguments have been made on both sides, but in two recent tax cases a key factor was whether the business for whom the work is being done has the “right of control” over how the worker carries out the job.

What is “right of control”?

For the relationship to be deemed one of employment the engager must have the right of control. However, there’s no need for the engager to exercise such a right. For example, where individuals have a particular specialism they will often be employed with minimal supervision.

Case 1 – is the worker an employee?

In EMS (Independent Accident Management Services) Ltd v HMRC , EMS recovered immobilised motor vehicles from around the country on behalf of insurance companies and engaged Mr Makings (M), trading as DKM Services, to help in this process. DKM sometimes used its own van and trailer, and on other occasions used a recovery vehicle belonging to EMS. For the three tax years in question DKM worked exclusively for EMS, but before and after that time performed services for other customers as well.

HMRC said that M was an employee of EMS, which ought to deduct PAYE and NI from any payments to him. EMS claimed that M was an independent contractor so he was responsible for any tax and NIC due on his income).

Tribunal decision
The tribunal decided that M was self-employed as EMS had no right to control how M carried out his job after having agreed what needed to be done – EMS left M to undertake the work as he saw fit. Financial risk was also considered to be a relevant factor – M had purchased his own van and trailer, had to arrange his own insurance and did not receive holiday pay, sick pay or other benefits such as a pension from EMS. M also had the right to send a substitute to collect vehicles for EMS, should he have wished to do so.

Case 2 – Agency Workers

In Gabriel Oziegbe v HMRC Mr Oziegbe (O), a qualified security guard, provided services to a number of construction companies on a self-employed basis. Where he was unable to undertake assignments himself, he subcontracted these to other similarly qualified guards and each person he engaged had to provide their own uniforms etc. O retained no control or right to control how the workers undertook the services, but he did retain the right to specify quality standards to be observed. HMRC tried to argue that O was liable to PAYE and NIC for the other security guards under the agency workers legislation.

Tribunal decision
The tribunal said that the control requirement of the agency worker provisions would be satisfied if the worker does the same job as the end client’s employed workforce. It gave the example of secretaries being provided by an agency who perform an identical function to secretaries that the client directly employs. In this case, the tribunal judges presumed that the end clients would be unable to tell the security guards how to do their jobs because there was no evidence that the clients had the in-house expertise to do this. Therefore, there was no right of control over how the work was actually performed so the guards were self-employed.

How emTax can help

Evidence that the business has little right of control over the worker will be a strong indicator of self-employment but other key factors such as the right of substitution still need to be taken into account. For more advice about employment status or any other employment tax matter, please do not hesitate to contact us.


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