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Primary Path wins IR35 appeal

5th Aug 2011
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First Tier Tribunal judge Edward Sadler disagreed with HMRC’s assessment of an IT contractor’s employment status and upheld his appeal in the Primary Path v HMRC case (TC 01306) last month. John Stokdyk reports.

The appeal involved Philip Winfield, the sole shareholder and director of Primary Path, who worked on two database interface projects for GlaxoSmithKlein under contracts arranged by two separate agencies. The two assignments were carried under series of sequential contracts during 2001-03.

HMRC decided that despite his contractual arrangements with intermediary agencies, Whinfield was caught by the IR35 regime. The tax department informed him in October 2007 that £25,000 was due in income tax and National Insurance Contributions because he was effectively in an employee relationship with GSK.

Both the taxpayer and HMRC cited some of the defining cases on employment status and IR35 - including Dragonfly Consultancy, Usetech Ltd and Express Echo Publications - but at the heart of the tribunal decision were the criteria laid down by Judge McKenna in the 1968 Ready Mixed Concrete case:

  • The existence of a “master-servant” relationship and its more politically correct variant “mutuality of obligation”
  • The degree of direct, personal control exercised
  • Other conditions that might indicate a contract of service.

As is customary in these cases, the tribunal judge considered the contacts signed by Primary Path, the agencies and GSK as well as the practices and conditions surrounding the work to create a hypothetical contract that would have defined the nature of the engagement.

Here is what the tribunal decided on key points:

  • Mutality of obligation - HMRC’s lawyer argued that the obligation on the worker to provide his work and skill and an obligation on the employer to pay for the work done represented the “irreducible minimum of obligation” on each side in order to create a contract of employment. Ominously for HMRC, the judge noted that his submission that went no further than that. He concluded, “M r Winfield was paid only for the hours he worked, and should at any time his strand of work within the overall project have suffered a hiatus for any reason, we cannot see that he had any contractual basis for demanding other work or payment whilst he waited for his work to resume. Nor is there anything to suggest that GSK had it in mind to offer work beyond the specific project for which Mr Winfield’s services were engaged. This feature of his hypothetical contract we see as calling into question whether it is an employment contract – it is a feature which is more indicative of a contract for services.”
  • Control - Because of his specialist programming skills, Winfield was subject little supervision other than that to ensure his work fitted the larger project spec and timetable - as might be expected from an independent contractor. “He was left to do the work as he saw fit,” the judge noted. “Whilst we take note that the question of control should not be given too much significance in the case of a specialist worker, in so far as it is brought into the balance in this case it points away from a contract of employment.”
  • Other criteria - There were clear substitution clauses in Winfield’s contracts which tilted the hypothetical relationship away from being an employment contract, but HMRC introduced a couple of other factors including the fact that the contractor was paid on an hourly basis, and the apparent lack of commercial risk for him in taking up the work with GSK as a sign that he was not carrying out a business on his own account.
    Remuneration - HMRC’s argument about Winfield’s hourly pay rates and 37.5-hour week got short shrift from the tribunal judges. “In the context of professional skills, remuneration by reference to hours worked at an hourly rate is, in the present world, a feature… of the fee charging structure of professional service firms (and, for that matter, plumbers, electricians and other skilled technicians and craftsmen). Therefore, in so far as the nature of the remuneration in Mr Winfield’s hypothetical contract points in any direction, it does so away from employment.” It did not help HMRC’s case that he enjoyed no pension rights or holiday entitlement during his engagement.
    Carrying on business on his own account - One of the weaknesses of HMRC’s case was that not only did the hypothetical contract permit Winfield to undertake assignments for other parties, he actually did so - doing speculative work during his first engagement with another supplier that led to his second project with GSK. The second tranche of work was less specialised and paid less that the first project - another indication that while Winfield was exposed to an element of commercial risk in his work with GSK. “We are of the view that the Appellant was exposed to financial risk in a manner 40 and to an extent that Mr Winfield would not have been exposed to had he been an employee. Those risks are essentially the risks which are run by a self-employed worker,” the tribunal concluded.

The evidence was compelling, they added. “We are clear that the picture we have of the relationship between GSK and Mr Winfield is one of an independent and self-employed contractor, and not that of employer and employee… We therefore allow the Appelant’s appeal.”

Matt Boddington from Accountax represented Winfield at the hearing on 12 April and racked up his fourth successful IR35 appeal on the trot. “Despite the series of defeats that we have inflicted on HMRC in recent months do not be fooled into thinking that HMRC will change tactics.” Although HMRC still holds the upper hand in most IR35 cases, tribunals are beginning to endorse the Accountax interpretation of employment status rather than HMRC's overly simplistic approach to mutuality.

In Boddington's view, “the tide does seem to have turned” since the new tribunal system started in 2009 and he anticipated that the recent decisions would influence the Office of Tax Simplification review of how IR35 is administered.

STOP PRESS: Accountax also reports that the recent Supreme Court judgment in Autoclenz Ltd v Belcher and Others (UKSC 41) may shift the balance in some employment status cases. A group of self-employed car valets who worked for Autoclenz argued that clauses in their contracts did not reflect their actual working arrangements and that they were obliged to provide the services personally in spite of contractual substitation and mutuality clauses. The Supreme Court agreed, establishing a precedent that the conduct of the contractual parties could trump the written terms. “This is the most significant employment status judgment since Express and Echo Publications and… Ready Mixed Concrete. It is not an overstatement to say that the foundations of employment status have been rocked to their very core,” Accountax commented. These cases will be covered in a series of autumn update seminars the firm is running. More coverage of this case follows shortly.

Replies (8)

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Should Be Working ... not playing with the car
By should_be_working
05th Aug 2011 11:38

IR35 - Flatlined?

Yeah, OK, HMRC, you can stop now. I think you've broken the ribs now you've overdone the CPR. It's just as well the patient's dead, I suppose.

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Replying to Asma:
John Stokdyk, AccountingWEB head of insight
By John Stokdyk
05th Aug 2011 12:00

Not quite so sure...

You posted your comment before I added the "Stop Press" about the Autoclenz decision. I haven't had time to read the decision yet, but wonder if it will work in HMRC's favour in some IR35 cases. My source for this, Matt Boddington, is out of the office today - are there any employment status experts out there who are ahead of me on this and can help?

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By anzanijohn
05th Aug 2011 12:38 expert as I can be


In answer to your call for assistance I will chip in this much.  Firstly I advise SMEs on HR issues so the question of employees cf using contractors is one that often crops up in my work.  I have also read the Supreme Court judgement [and indeed the judgements at previous stages of this case] as I feel I gain more from working through the logic and salient points of the actual text [perhaps I should get out more :)].

I do not think that Autoclenz would alter Primary Path.  I say that because in Autoclenz the facts of the situation [especially the evidence of the Autoclenz site manager] showed that the practice was completely different to the written contract.  Conversely it appears [based solely on the precis given in the article above] that the evidence of actual practice in Primary Path all supported the contractual agreement for the provision of services [as opposed to "..of service"].

I suppose in lay terms [that's me] I would say that peppering a text with references to an individual being "self-employed" will not now hide an actual practice of treating them as an employee.

However, it should also be remembered that lawyers remind us that each case turns on its own facts for a good reason.  The Supreme court was rejecting an appeal.  It made it clear that the ET had made findings of fact "These are findings of fact which Autoclenz cannot sensibly challenge in this Court. In short, they are findings which were open to the ET" and that "...the ET was entitled to hold that the documents did not reflect the true agreement between the parties and that, on the basis of the ET's findings, four essential contractual terms were agreed.." [both from the judgement which can be read here ]

Hope this helps


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By aburt01
08th Aug 2011 13:22

My reading of recent cases...

When I read certain cases they seem bizarre.  How could they have thought that, I ponder.

Sometimes you might say "workers were treated like dirt" and I might agree with you.

Consider our local hairdresser... the proposition goes something like this:- Paperwork states "self-employed" hairdresser will hire the chair, the equipment, and pays for the water they use plus all other materials.  They can turn-up when they feel like it and leave when they wish.  No pension provision, no national min. wage, it's up to the worker to arrange their own compliance.  If you take a contract for service/position like that then fair enough, perhaps you wanted the flexibility.

Let's say, it often appears the reality is somewhat different.  Well, someone has to be there when the boss, sorry, owner of premises, is on holiday, right?!  And who does the boss/owner call when running late, to kindly open-up at 9am?

All cases should stand own their own merits - I read Autoclenz’s argument last week and it seems the judges felt it clearly collapsed on it's own merit without any help from anyone. 


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By johnjenkins
08th Aug 2011 14:51


The two cases seem very clear. Contractual and actual have to go hand in hand and where an unscrupulous employer tries it on they will get caught.

Sometimes however the boot is on the other foot where the self-employed try to get employees rights at the expense of the employer.

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By frustratedwithhmrc
08th Aug 2011 18:32

The real problem with IR35...

HMRC and its predecessor organisation, the Inland Revenue (and no they are not the same) have suffered more at the hands of IR35 than anyone else.

The original premise of IR35 was that the 'deemed employer' (if that term can meaningfully be used) would be responsible for the determination of whether IR35 was applicable or not and the deduction of the necessary taxes when it was. If the determination was wrong, then the 'deemed employer' would be the one in the firing line.

However, the major consultancy organisations recognised from day one that this would be a contentious nightmare and pushed the liability back to the party least able to be able to pay / afford the bill if it came knocking.

This crippled legislation, was a political stitch-up, serving the interests of no-one. The only reason that it has survived this long was that repealing the legislation without an effective replacement was considered unacceptable.

The only organisations that seem to be 'winning' in the IR35 battle appears to be the companies selling tax investigation insurance.

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By Sherlock
10th Aug 2011 18:00

Self-employment and employment

Isn't it about time that there was a legal definition of employment and self-employment, both for tax and employment law purposes? 

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Replying to thomas34:
By anzanijohn
11th Aug 2011 12:15

Not so elementary?

Dear Sherlock

The Autoclenz case was an example of an attempt to use a document to legally define a situation, as self employment, which was held to not reflect the real facts of the arrangements.  As soon as any other definition were to be written, actually probably before the metaphorical ink was dry, some of the finest legal brains would be trying to find ways to show that the definition didn't apply.  In some instances their efforts would relate to genuine situations where it did not apply.  Others would be like the Autoclenz case, an attempt to say one thing and do another.

Whilst one common definition across all legislation might be helpful IMHO it would be fanciful to believe that that would end all controversy or tribunal/court cases on the matter.



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