HM Revenue & Customs (HMRC) raised assessments to PAYE and NIC’s for the years 1998/99 to 2006/07 totalling £3.6m on the basis that the consultants were employees of the taxpayer.

The taxpayer supplied individuals for counter and promotional work to major cosmetic companies at duty free shops at airports. It had a database of 100 individuals (consultants) upon which to call upon. The taxpayer was under no obligation to offer the consultants work and the consultants were under no obligation to accept work offered. In addition there were no formal contracts between the taxpayer and the cosmetic company or consultants.

Talentcore Ltd successfully appealed HMRC’s assessment to the First Tier Tribunal (FTT). HMRC then appealed to the Upper Tier Tribunal (UTT) challenging the FTT’s application of ITEPA 2003 s.44.

The rules state that the consultants would not be deemed to be employed by the taxpayer for Income Tax and NIC’s, if the individual was not:

 (a) Providing, or under an obligation to provide personal services; or

 (b) Subject to (or to the right of) supervision, direction or control.

The Tribunal found the consultants had complete freedom to arrange for substitutes if they wished. This amounted to an unfettered right to substitution. Therefore condition (a) was met as the consultant was not obliged to perform the services personally.

 The Judge dismissed HMRC’s appeal saying “Since the First Tier Triubunal held, correctly in my judgment, that the terms of the contract did not oblige the consultant to provide the services personally, it is not an ‘agency contract’”.

The case shows if it is possible to structure contracts so that either or both of the conditions (personal service and supervision) are not met, then PAYE and NIC obligations can be avoided when providing temporary workers.

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