Court quashes self-employed status at Autoclenz

In their successful case against Autoclenz, car valets won convinced the Supreme Court they were not self-employed and helped set a new precedent that working practices could trump contract terms, reports Nick Huber.

The recent Supreme Court judgment in Autoclenz Ltd v Belcher and Others (UKSC 41) backed a group of self-employed car valets who worked for Autoclenz and argued that clauses in their contracts did not reflect their actual working arrangements. In spite of clauses on mutuality and substitution, the court ruled that they were obliged to provide the services personally. The legal dispute started in 2007.

The Supreme Court decision establishes a precedent that the conduct of the contractual parties could “trump” the written terms, according to IR35 specialist Matt Boddington of Accountax.

In its ruling the Court said decided that the contracts did not reflect the true agreement between the parties and that in reality “four essential contractual terms were agreed: (1) that the valeters would perform the services defined in the contract for Autoclenz within a reasonable time and in a good and workmanlike manner; (2) that the valeters would be paid for that work; (3) that the valeters were obliged to carry out the work offered to them and Autoclenz undertook to offer work; and (4) that the valeters must personally do the work and could not provide a substitute to do so.”

Tax experts said that that the ruling it had important lessons for tax advisers and contractors.

Continued...

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Comments
Locutus's picture

Has anything really changed?

Locutus | | Permalink

Hasn't it always been the case that the written contract should reflect reality?  I thought that "sticking in a substitution clause" to the contract, when it was evident that no one else would be acceptable for the contractor, would rarely carry much weight.

completely agree..this is nothing new....

justsotax | | Permalink

when IR35 was introduced this is what was being advised at the time in the practice that I worked....

Court quashes self-employed status at Autoclenz

skip1701 | | Permalink

Not new but clarified. This gives HMRC more confidence to go after this class of "workers".

billgilcom's picture

Look out

billgilcom | | Permalink

The next HMRC "initiative" will be the disclosure of PAYE irregularities for car valeting engagers

Paula Sparrow's picture

I don't think the list of tests is correct

Paula Sparrow | | Permalink

A valid substitution clause has been missed off Richard Mannion's list of tests.  It has not been taken out of the tests by Autoclenz, merely clarified as to what is valid, as a previous poster has mentioned.  Although there was a substitution clause in the contract, both worker and contractor were effectively over-riding it with prevailing practices.  The correct advice has always been to make sure that reality reflects what is written in the contracts and review the position on a regular basis. 

What are the important issues here?

silverghost | | Permalink

The issue of self-employment has not suddenly been shifted on its axis by this case. Substitution has always been difficult to argue or to enact with any substance.

It's mutuality of obligation that this case failed on. By the sound of it, the valeters turned up same time every day, and those that were not given enough paid work or were told they were no longer needed, fancied the idea of some compensation. The engager/employer - as can often happen - became complacent, possibly having had to get rid of underperforming valeters in the past and reducing the workforce to a regular few. Interesting to know who drew up the relied-upon contract and advised as to its efficacy.

Not sure about the judge's comments as reported, maybe missing some context, but providing equipment or numbers of clients DOES NOT MATTER. Hall v Lorimer, anyone? oh, and that case that turned on needing to have different clients - my mistake, there hasn't been one.  

johnjenkins's picture

spot on

johnjenkins | | Permalink

silverghost.

It doesn't matter what is stated in a contract if the workforce say different then employer won't have a leg to stand on.

So we could have liquidation, or agency supplying labour???????

follow the money

silverghost | | Permalink

Johnjenkins,

re the first point, not necessarily. The pattern of payments is important; if they vary, and if the workforce are providing invoices and declaring self-employed income, then those workers will struggle to claim employment. If the payments are broadly constant, then the employer needs to demonstrate that the hours vary or that there is something else significant to justify self-employment.

Re the second point...not sure what you mean.

 

 

 

This is nothing new to the contractor sector

davechaplin | | Permalink

In the early days of IR35 substitution clauses in the contract were seen as the silver bullet to kill off any IR35 attack by HMRC. The defence being that the right to substitute was the key, not whether it actually happened in practice.

That strategy worked for a while until HMRC changed strategy to focus on the notional contract - i.e. throw the existing contracts away and construct one that would exist based on the actual working practices and relationships. It therefore, unfairly in some observers view, became irrelevant what two parties had contractually/legally entered into. If the client suddenly decided that actually the contractor couldn't substitute then the contractor could become subject to IR35 despite what they had originally agreed.

Whilst reference to the actual contracts is made in IR35 cases, it is the notional contract (what actually happens in practice) that is used to determine the real relationship in these tax cases. It's been like that for years in the contracting sector - hence the phrase "Passing IR35 is not a paper exercise."

For contractors/freelancers the whole issue stems around the fact that it's more tax efficient to be a contractor than someone under PAYE - as we made clear in our white paper on IR35 .

Dave Chaplin

CEO, www.ContractorCalculator.co.uk

 

 

 

 

johnjenkins's picture

Liquidation or Agency suppliers of labour

johnjenkins | | Permalink

If an employer cannot afford to have employees (ie pay employers nic, holiday pay etc.) then most certainly a contract of services will be worked out. If HMRC or workers suddenly say this contract should be on PAYE where does the extra money for employers nic come from? So you could get a liquidation, alternatively Autoclenz might use a labour agency to avoid the extra charge in the future. Either way the workers won't get what they thought they might.

To me self-employed or employed should be a matter for the two parties and nothing to do with HMRC. The only reason they stuck their noses in under GB was to create more income for the government and look at the problems it has caused.

Different work similar circumstances

school63 | | Permalink

I have clients working for local authorities through agencies. to the best of my knowledge, the only time they saw a contract was when they were first engaged, by the agency. All subsquent renewals have been done automatically, without any new contracts being written.

This thing about substitution is only on paper, and would never be allowed by the local authorities.

Who is the employer. The agency or the Local authority.