Though HMRC won its recent battle against BBC presenter Christa Ackroyd, it was back to reality with a bump after construction contractor Mark Daniels, who operated under the name MDCM, won his appeal against HMRC for a contract covering tax years 2012/13 to 2013/14.
The ruling is something of a blow to HMRC, and isn’t without controversy.
In the case of MDCM Ltd v HM Revenue & Customs, HMRC took umbrage with MDCM’s engagement with Structure Tone Limited (STL), via Solutions Recruitment Limited.
According to the notes on the ruling, HMRC argued that if the services Daniels delivered for STL via MDCM were ‘provided directly between Mr Daniels and STL then under that hypothetical contract, Mr Daniels would be regarded for income tax purposes as an employee of STL’.
Other important factors were highlighted by HMRC. These included control, with STL exercising ‘a significant degree of control over Mr Daniels’. HMRC argued that STL set ‘what work was to be done and how it was to be done.' In effect, Mr Daniels is required to carry out in each shift the tasks set by the project manager.
STL also decided where and when the work was to be done. Further, neither MDCM or Daniels incurred any financial risk from the arrangement.
Daniels highlighted reasons why the contract between MDCM and STL wasn’t akin to that of a full-time employee.
These included no notice period. Further, there was no entitlement to severance pay in the event of termination of the contract. Last, there was no entitlement to holiday pay, nor an entitlement to reimbursement of travel or accommodation expenses.
Control was a major part of the appeal. Tribunal judge Ian Hyde ruled “There was no evidence that STL controlled how Mr Daniels would carry out his role in fulfilling the work programme.” He decided that “STL did not exercise any more control on the site than they would over an independent contractor.”
It seems however that some elements of the case were given more attention than others.
When it comes to personal services and mutuality of obligation, Hyde ruled that Daniels “could not provide and STL was not required to accept a substitute for Mr Daniels.” As such, the judge did “not accept it would be a term of the hypothetical contract between Mr Daniels and STL.”
The tribunal found that the hypothetical contract between MDCM and STL “is one of personal services with no right of substitution and that there is a mutuality of obligation between STL and Mr Daniels.”
The contract Daniels signed with STL supposed a substitution clause, but this was deemed unenforceable in practice.
These last few points are indicative of some holes in this case. This only increases the likelihood of a subsequent appeal from HMRC. The case seems likely to rumble on a little longer.
The case also highlights the need to have all bases covered. HMRC is evidently willing to tackle contractors it believes are playing the system.