Tibury Consulting Ltd v HM Inspector of Taxes [2003] UKSC SPC00390 (03 November 2003)

National Insurance – Earnings of workers supplied by service companies etc – Provision of services through intermediary – Company contracting to provide services of worker to independent information technology entity – Entity under contract to provide information technology services to UK motor manufacturer – Whether, if arrangements had taken the form of a contract between worker and motor manufacturer, worker would have been regarded as gainfully employed by the motor manufacturer – No – Appeal allowed - Social Security Contribution (Intermediaries) Regulations 2000, SI 2000/727, reg 6(1)(c)

THE SPECIAL COMMISSIONERS

	TILBURY CONSULTING LTD

	- and -

             MARGARET GITTINS
	(HM INSPECTOR OF TAXES)    	Respondent

				Special Commissioner:   STEPHEN OLIVER QC

Sitting in London on 14 and 15 October 2003

David Smith LLB, FTII of Accountax  Consulting Ltd, for the Appellant

P J Death, Inspector of Taxes, for the Respondent

© CROWN COPYRIGHT 2003

DECISION

1.	Tilbury Consulting Ltd (“TCL”) appeals against the decision of Margaret Gittins, officer of the Board, made for national insurance contribution (NIC) purposes under regulation 6(4) of SI No.727 of 2000 and section 8(1)(m) of Social Security Contributions (Transfer of Functions etc) Act 1999.  (SI 2000/727 is colloquially known as the Inland Revenue 35 legislation.)  The decision was given on 28 January 2003 and reads as follows:

“1.	That the circumstances of the arrangements between Roger Tilbury and Ford Motor Company for the performance of services from 1 August 2000 to 31 January 2002 are such that, had they taken the form of a contract between Roger Tilbury and Ford Motor Company, Roger Tilbury would be regarded for the purposes of Parts I and V of the Social Security (Contributions and Benefits) Act 1992 as employed in employed earner’s employment by Ford Motor Company.

2.	That Tilbury Consulting Ltd is treated as liable to pay primary and secondary Class I contributions in respect of the worker’s attributable earnings from that engagement.”

Short summary of issues

2.	In essence the legislation referred to above cover situations of  individual workers who contract services via an intermediary to an end user client in circumstances that would amount to direct employment by that client if it were not for the interposition of that intermediary.  Where the legislation applies, its effect is to treat the worker as employed, for NIC purposes, by the intermediary.

3.	Throughout the period covered by the decision –

(i)	Mr Roger Tilbury, referred to in the decision as “the worker”, was a controlling shareholder and director of TCL (the “intermediary”);

(ii)	Mr Tilbury worked on an information technology (IT) project for Ford Motor Company (“Ford”, referred to as “the client” in the decision) and substantially all that work was done at Ford’s premises;

(iii)	a company called Compuware Ltd (Compuware) was under contract with Ford to set up, service and staff that IT project and

(iv)	TCL was engaged by Compuware to provide services and in particular to make available to Compuware Mr Tilbury’s services (with the right, subject to conditions, to provide a replacement).

4.	The issue is whether, as the Officer of the Board has decided, Mr Tilbury would have been an employee of Ford in the circumstances of the assumed contract between Ford and Mr Tilbury the terms of which are to be inferred from the circumstances. 

The statutory wording

5.	The legislation, found in regulation 6 of SI 2000 No.727, applies and a worker will be treated as in employed earner’s employment by a client (i.e. gainfully employed under a contract service: see Social Security Contributions and Benefits Act 1992 section 2(1)) where:

“(a)	an individual (“the worker”) personally performs, or is under an obligation personally to perform, services for the purposes of a business carried on by another person (“the client”),
(b)	the performance of those services by the worker is carried out, not under a contract directly between the client and the worker, but under arrangements involving an intermediary, and
(c)	the circumstances are such that, had the arrangements taken the form of a contract between the worker and the client, the worker would be regarded for the purposes of Parts I to V of the Contributions and Benefits Act as employed in employed earner’s employment by the client”.

Introduction

6.	The legislation calls for a two stage exercise.  The first is to find the facts as they existed during the period covered by the decision. The facts to be found are those that serve to identify the “arrangements” involving the intermediary and the circumstances in which those arrangements existed and the nature of the services performed by the “worker”. The second is to assume that the worker (Mr Tilbury) was contracted to perform services to the client (Ford) and to determine whether in the light of the facts as found Mr Tilbury would be regarded as Ford’s employee.  

The arrangements and the circumstances

7.	The findings of fact are drawn from the oral evidence of:

Roger Tilbury, the “worker” in the decision appealed against.

Jim O’Neill, an employee of Ford, “the client”, and, at the material time, manager in charge of Ford’s Application Management Centre (“AMC”) explained below.

Christine Ansell, an employee of Compuware with responsibility for hiring Compuware’s employed staff and for engaging Compuware’s sub-contract staff.

Mr O’Neill was called to give evidence in line with the terms of the Explanatory Leaflet issued by the Special Commissioners.  The leaflet states that since the question to be decided will be “whether the worker should be regarded as an employee of the client”, the Special Commissioners would expect to hear evidence from both the worker and from someone able to speak for the client. 

8.	Also in evidence were:

A “sub-contractor agreement” of 1 November 2000 between Compuware and TCL (referred to in this decision as “the Sub-Contractor Agreement”).

An agreement between the US parent companies of Ford and of Compuware dated 16 December 1998. It was not in dispute that the terms of this (referred to as “the Ford/Compuware Agreement”) governed the relationship between Ford and Compuware as regards the AMC project.

Background history

9.	Throughout his working life Mr Tilbury has been involved with IT.  He started as a programmer then moved into the development and writing of software.  He now specializes in computer aided software engineering.

10.	In 1994 he became a freelance contractor.  He sought engagements through an independent entity called Computer People.  Computer People made it a condition of their taking Mr Tilbury on their books that his services were provided through a limited company.  The reason for this apparently was because otherwise Computer People would, under the then Inland Revenue legislation, have had to account for income tax and NIC on the payments for his services.  Mr Tilbury caused TCL to be incorporated with himself as a director and his wife as company secretary.

11.	From then on TCL engaged Mr Tilbury as an employee, issued its own invoices, and accounted for its own tax and national insurance liabilities.  TCL effected insurances (a) to provide it with funds should Mr Tilbury be unavailable to work, (b) as PI cover and (c) to meet employer liability claims.

12.	TCL has had various contracts.  One was with Texas Instruments which in its turn was providing services to Ford.  TCL, through Computer People contracted with Texas Instruments and Texas Instruments in its turn agreed to provide services to Ford.  TCL, through Computer People, contracted with Texas Instruments which then provided the services of Mr Tilbury to Ford.  A succession of engagements, for twelve months or less, were entered into, usually through Computer People, with Ford.  In about 1998, Computer People dropped out of the chain of supply and TCL’s share of the fees paid by Ford improved correspondingly.  Changes to the chain took place in 1999.  All the time the end-user of Mr Tilbury’s services was Ford.

The AMC project

13.	In 2000, in pursuance of the Ford/Compuware Agreement, Ford engaged the IT services of CW; so far as is relevant to the present appeal CW undertook, over a twelve months period from 1 August 2000 (subsequently extended to 31 January 2002), to set up and take operational control of an application management centre at Ford’s premises in Basildon, Essex.  The AMC system, which was to belong to Ford, as designed to manage and maintain projects for Ford.  The AMC was housed in Ford’s premises, an eight floor E-shaped building, known as Trafford House.  The AMC and the personnel working on it occupied several floors at the middle limb of the E.  Those personnel were, in the main, employees of, and IT specialists contracted in by, CW.

14.	The CW organization, set up to operate the AMC, was headed by an overall director.  He worked on site at Ford’s premises.  The AMC had a number of functions to facilitate Ford’s business, e.g. finance, manufacturing and sales, accounting, purchasing, plant floor and product development.  Each function had its “application portfolio manager” under whom were “application group managers” who exercised day-to-day management of the IT staff such as analysts and development engineers.  Exceptionally some of the personal operating the AMC were Ford staff; the rest were provided by CW.  

15.	Ford liaised with the teams working on the AMC project.  In overall charge of the Ford business management side was Mr Jim O’Neill who gave evidence.  His opposite number with CW was the CW director referred to above.  Management of the projects served by the various AMC functions was conducted through business teams.  Those business teams consisted partly of Ford staff and partly of individuals contracted in by Ford from “Cap Gemini”, computer consultants.  

16.	The Ford business teams held weekly meetings with their CW counterparts.  One outcome of such weekly meetings was “change requests” made by Ford.  Another outcome was re-prioritizing of particular elements of the project.  Ford staff also liaised with the CW AMC people as and when needs arose.  While each floor of Trafford House was open plan, the AMC project personnel did not work alongside the Ford staff.  

17.	CW allocated its own workforce to meet the demands of the AMC project and the specific requirements made on CW by Ford.  On Thursday evenings CW’s management would hold an off-site meeting to deal with those demands and other management matters. Who the particular individuals were that CW provided to operate the AMC project was not a matter of concern to Ford.  CW had committed itself to Ford to provide a system that functioned to the satisfaction of Ford; the particular individuals operating the AMC were CW’s responsibility.  CW was at liberty to make its own suitable substitutions.

18.	Ford paid CW for each individual operating the AMC project, such fees being determined on an hourly basis.  Ford required that those individuals should provide cover throughout Ford’s own office hours, i.e. 8.30am to 4.45pm Monday to Friday with a 45 minute break for lunch.  Particular CW teams working on the project were free as between themselves to arrange their hours so that Ford obtained the required coverage.  CW, through its individuals or through its teams, provided time sheets; these were passed to Ford for reconsideration and Mr O’Neill authorized payment to CW on the basis of these.  No individual provided by CW was to work for more than a 37½ hour week, save in exceptional circumstances where CW was allowed to charge overtime.

19.	Ford issued passes to the CW personnel.  These were of a different colour and gave more limited access than those issued to Ford’s own staff; e.g. a contractor’s pass did not give access to the Ford gymnasium.  Ford’s medical centre is open to all including contractors needing attention while on the premises. CW personnel working at Ford are each allocated a telephone extension and it identified for this purpose as a contractor.

The circumstances of Mr Tilbury

20.	In early 2000 some previous IT contractors of Ford who had until then been engaged in TCL (via another IT company called Logica) had their contract terminated.  At the same time TCL’s hourly rates were seen to be too expensive; nonetheless TCL continued working for Logica providing services to Ford under contract until the end of July 2000.  During that period CW and Ford were arranging to set up the AMC project. TCL, on 1 November 2000, entered into the Sub-Contractor Agreement with CW for the provision of Mr Tilbury’s services at Ford’s premises at an hourly rate of £68.74. CW engaged TCL to provide “general consultancy services and technical support”. TCL was required to make Mr Tilbury available but was at liberty to provide “any named individual … as a suitably qualified replacement”, subject to a 30-day trial period during which the replacement could be rejected by CW. This substitution provision had been specially negotiated with CW and over the negotiation period, payment by CW to TCL was suspended.  (No replacement was needed throughout the course of the contract, which lasted until 31 January 2002.)  The TCL/CW Sub-Contractor Agreement provided that TCL was to invoice CW monthly, that TCL was to bear the costs of getting to the location of CW’s customers and that TCL accepted liability for death or personal injury resulting from its negligence and for damage resulting from its negligence to a maximum of £500,000.

21.	Mr Tilbury duly worked on the AMC project concentrating on the development of two systems.  One, “Volume, Mix and Rates” was a forecasting system for future sales patterns in the retail car market; it covered the demand for optional extras added to cars when sold new.  The other “Preferred Price Maintenance” was a system involving the storage of pricing information and the development of pricing strategies. Those two projects were headed up by a Ford employee (a Mr Ian Baker) who was not an IT expert.  Mr Baker in turn reported to a senior CW project team leader.  So far as the performance by Mr Tilbury of his technical work was concerned, he did this as part of a team of three experts introduced by CW. Between them they decided on hours of attendance so as to meet the 8.30-4.45 requirement on Ford’s part. They processed change requests and dealt with other requests, usually at weekly meetings with their Ford counterparts, and they discussed progress on a day-to-day basis, usually with Mr Baker who worked two floors apart from them.

22.	Mr Baker’s duties included responsibility for the team that Mr Tilbury was in; but it was, as already mentioned, no part of Mr Baker’s function to tell the members of the team how to do their work. In common with the other Ford employees involved in the AMC project, Mr Baker had no detailed knowledge of the operation of the system.  While the team’s progress was discussed with Mr Baker, the individual members of the team were left to get on with their work.  The responsibility to “deliver” the AMC project rested with CW and it was down to CW’s staff and sub-contractors to see this through.

23.	Much the greater part of Mr Tilbury’s work was done at Ford’s premises.  The work required access to Ford’s main frame computer and this could only be obtained through Ford’s internal network.  Mr Tilbury lives some way from Ford’s premises at Basildon.  His pattern of work was to start and leave earlier than normal Ford office hours.  On Fridays he tried to get back to his home base after a morning’s work.  He had a standing arrangement with the others in his team to provide coverage for the periods required by Ford.

24.	One of the rooms at Mr Tilbury’s home base was partly occupied as TCL’s office. It housed a computer and printer, the business records of TCL and various computer manuals. The office was used by Mr Tilbury when carrying out AMC business “occasionally” (Mr Tilbury’s word); at early stages of  “change requests”, for example, Mr Tilbury found that he could process these by using the laptop in the TCL office.  

25.	TCL, as already noted, had the qualified right to substitute someone else for Mr Tilbury under the TCL contract with CW. This was never exercised.  Correspondingly CW had the right to replace staff and sub-contractors working on the AMC project.  There was no document covering this latter right but the arrangement between CW and Ford, as explained to us by Christine Ansell of CW, was that Ford had the right to reject a CW replacement within a 30-day trial period.  

26.	The evidence (in paragraph 18) was that Ford paid CW an hourly rate for each individual operating the AMC project : and CW  paid TCL an hourly rate for the provision of Mr Tilbury’s services (paragraph 20).  What, if any, other relationship the payments by Ford to CW and those by CW to TCL had to each other was something about which no evidence was adduced.

Conclusion

27.	The findings of fact set out above, which identify the arrangements involving the intermediary (TCL), the circumstances in the context of which the arrangements were made and the nature of the services performed by Mr Tilbury, show that Mr Tilbury would not have been regarded as Ford’s employee (making the statutory assumption that he was contracted to perform services to Ford).  The facts show that CW and not Ford had operational control of the AMC project.  Ford had engaged CW to provide its IT services and to set up and operate the AMC project.  CW was engaged as principal and acted personally in the project.  It equipped itself with its own specialized personnel to discharge its own obligation to Ford, either by employing them directly or by engaging outside subcontractors, such as TCL which in turn provided Mr Tilbury.  Ford did not exercise control over the manner in which the CW personnel carried out their duties.  To the extent that control was exercisable over the performance of Mr Tilbury’s services, that lay with CW.  Ford accepted suitable substitutes from CW and CW was obliged to accept from TCL a suitable substitute to Mr Tilbury.   At no time was Mr Tilbury a part of Ford’s business or undertaking.  Those facts are inconsistent with an employer/employee relationship between Ford and Mr Tilbury.

28.	The findings of fact and the application of the statutory assumption to those findings do not support the decision appealed against.  I therefore allow the appeal.

STEPHEN OLIVER QC
SPECIAL COMMISSIONER

SC 3020/03

APPENDIX

Cases cited in argument

Synaptek Ltd v Young (Inspector of Taxes) [2003] EWHC 645 (Ch); [2003] STC 543
Lime-IT Limited v Michael Justin HMIT [2003] STC (SCC) 15
F S  Consulting v McCaul [2002] (SCD) 138
MacFarlane v Glasgow City Council [2001] IRLR 7 EAT
Montgomery v Johnson Underwood Ltd [2001] EWCA Civ 318
R (on the application of Professional Contractors Group Ltd and Others) v IRC [2001] STC 629
Carmichael v National Power [1999] 4 All ER 897; 1 WLR 2042; [2002] IRLR 43
Express and Echo Publications Ltd v Tanton [1999] IRLR 367
McManus v Griffiths [1997] STC 1089, 70 TC 218
Barnett v Brabyn [1996] STC 716
Hall v Lorimer [1994] STC 23, IRLR 171
Staples v Secretary of State for Social Services (1985) (unreported)
Nethermere (St Neots) Ltd v Gardiner [1984] IRLR 240, CA
O’Kelly v Trust House Forte plc [1983] 3 All ER 456
Massey v Crown Life Assurance Co [1978] 2 All ER 576; ICR 590
Market Investigations Ltd v The Minister of Social Security [1968] 3 All ER 732; 2 QB 173
Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 1 All ER 433
Morren v Swinton & Pendlebury Borough Council [1965] 2 All ER 349; 1 WLR 576