Spc00723

Income Tax and National Insurance – whether bricklayers and other construction workers engaged by the Appellant were employees or self-employed sub-contractors – Appeal allowed as regards the majority of the workers

THE SPECIAL COMMISSIONERS

	CASTLE CONSTRUCTION (CHESTERFIELD) LIMITED	Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

		

				Special Commissioner:  HOWARD M NOWLAN

Sitting in public in London on 29 September - 3 October 2008

David Yates, counsel, for the Appellant 

David Seaman and David Weissand, Appeals Cross Cutting Group of HMRC, for the Respondents

© CROWN COPYRIGHT 2008

DECISION

Introduction

1.   This has been a case on a very familiar topic, namely the issue of whether various workers are properly classed as employees or self-employed sub-contractors.   It is also a case where my decision should be relatively straightforward since there are countless authorities on the subject. In the course of the hearing many of these authorities were drawn to my attention and I have read them all. Notwithstanding this, I have found it extremely difficult to reach my decision.  In the event, my decision is that with the exception of 7 workers, all the remaining workers, that is 314 out of the total of 321, were rightly classed by the Appellant as self-employed sub-contractors. 

2.   The Appellant’s trade is to undertake building work, generally on construction projects where another company (often one of the household name building companies) is the main contractor. The Appellant’s trade was until recently confined to undertaking sub-contracted bricklaying services. It has recently sought to expand and also to provide scaffolding services, and to a lesser extent, carpentry and joinery services. Its workload varies very considerably according to the health of the building sector. On one occasion the Appellant was providing bricklaying services on 17 sites.   At the date of the hearing that number was down, not surprisingly, to 5 projects.   

3.     In common with many other building companies, the Appellant has always hired its workers on a sub-contract basis, and its only employees have been its permanent head office staff, quantity surveyors and “trainee” bricklayers and “novices” in the first two years following training. Hiring workers on a sub-contract basis in all other cases, under which workers could be hired and terminated with absolute flexibility, has suited the company and its ever-fluctuating workload. It has suited virtually all of the workers who also relish the flexibility to come and go, much as they please, and to work for different contractors when that seems more attractive. The disparity in time worked by a random sample of the 321 workers whose status is in dispute in this case is not a theoretical matter with little reflection in reality. There is considerable evidence of workers commencing and ceasing engagements with regularity. On a different level there is a great disparity in time worked in each week by the people being engaged at any one time. 

4.    One of the unchallenged statistics given by Mr. Botham, the director in charge of the Appellant’s day-to-day business, was that in one year the Appellant had engaged 450 individual bricklayers at times during the year, but would have only required 150 to do the same work, had the 150 operated as full-time employees, each working an ordinary full week.

5.     All the workers in the present case were paid only for hours worked; they were not paid if rain or frost prevented them from working; they were not paid if they took time off for holidays, illness or indeed for any reason whatsoever. For these various reasons, and because employee and employer National Insurance Contributions (NICs) did not have to be deducted and paid in respect of sub-contractors, the hourly-rate paid to the workers was considerably higher than the rate that would have been paid, had the workers been full-time employees doing the same work. This is because the extra pay had to compensate for these various disadvantages, and for the loss of state sick pay, and redundancy benefits and the absence of any State Earnings Related (SERPS) pension benefits, all of which resulted from the NIC implications of the sub-contractor status. 

6.    It is the Respondents who suggest that the workers must properly be analysed to be employees. When this was suggested and the Appellant notified its workers that pragmatically they would have to enter into employment contracts, it is said that many walked out in protest.  As a result the Appellant decided that with a few exceptions it would continue the sub-contract arrangements, and challenge the Respondents’ claims and assessments by bringing this appeal. 

7.     In the present case the Appellant company has invariably paid the workers that it has engaged under deduction of 18 or 20% tax under the Construction Industry Scheme (“the CIS scheme”) so that virtually no liability to income tax has been affected by the “status” issue or by my conclusion that almost all of the workers were indeed rightly treated as self-employed. This case is thus essentially about the fact that Class 2 and possible Class 4 National Insurance Contributions (“NICs”) payable by the self-employed, are lower than Class 1 primary and secondary contributions payable in respect of employees.

8.     In 2002 HMRC officers had considered the status of the Appellant’s workers and confirmed that they were rightly being treated as self-employed. In November 2005, HMRC notified the Appellant that it was considering a further review and intimated in June 2006 that it now believed that it was likely that it would assert that all the workers should have been ranked as employees. At this point, HMRC were unaware of their earlier review and had lost the letters that had confirmed that self-employed status was correct. In view of this, when HMRC gave their official Determination that the workers were now (apparently, according to the Appellant, on no different facts) to be classed as employees, assessments were only made for the year 2006/7, rather than any earlier years, in recognition of the earlier confirmation given to the Appellant that HMRC had forgotten about. 

9.     It is worth noting that if HMRC’s assessment of additional NICs was now to be sustained, the Appellant would face a bill for approximately £0.5 million, though to the extent that this figure included an amount in respect of PAYE income tax, it was said that this would in practice be reduced very significantly on account of a credit for the income tax already accounted for under the CIS machinery. This tax claim is calculated by reference to the payments made to people assumed to have been sub-contractors, so that the hourly rate was considerably higher than it would have been had the workers been classed as employees. I will refer in due course to one aspect of this that seems to me to be highly relevant to the merits of the case. One fact that has, and must have, no relevance to my decision, is that if the appeal was dismissed and the assessments sustained, I do not doubt for an instant the statement of Mr. Botham, the director in charge of the day-to-day affairs of the Appellant, that the Appellant would immediately become insolvent. In the light of the massive downturn in the building industry, this can hardly be surprising.

10.   This case was in no way a test case. However I was asked to determine the correct status of 8 categories of worker, there being 217 bricklayers in just the first category. It follows that, since I heard evidence from only two bricklayers, and no direct evidence at all in relation to two or three of the minor categories of worker, my decision is based on a fairly general summary of facts, rather than the specific detail as it applied to each individual.    

The evidence and the facts in more detail

11.   Evidence was given on behalf of the Appellant by Mr. Steve Botham, the Director in charge of the day-to-day affairs of the Appellant; by Mr. Stephen Barton, a labourer, by Mr. Christian Burland, a bricklayer, by Mr. James Smith, a scaffolder, by Mr. Dean Johnson, an experienced bricklayer and by Mr. Danny Kestle, previously a supervisor/labourer and now Operations Manager and thus now an employee of the Appellant.   Mr.  Kestle was related to Mr. Botham. 

12.   Evidence was given on behalf of the Respondents by Mrs. Susan Kahler, an officer of HMRC specialising in employee/self-employed status work; and by Mr. Saul McIntyre, whose role had often been to accompany Mrs. Kahler when she made visits to interview workers and former workers. 

Complaints about the lack of direct evidence produced by HMRC

13.    There was a certain amount of discussion and argument about the fact that the Respondents had called no witnesses amongst the 15 or so workers whom Mrs. Kahler had interviewed (four of whom had not been engaged in the one tax year for which assessments have, to date, been made). There was also some dispute as to whether I should pay full regard to the notes of interview in the light of the possibility that some of the workers had evidently fallen out with the Appellant and had not been called to give direct evidence, and also that some might have been asked leading questions during interviews. My conclusion in relation to these issues is that, although on one or two points there is a difference in emphasis between the general answers given to Mrs. Kahler and the direct evidence that was given to me on behalf of the Appellant, the overall picture was broadly the same. Since, as I have already said, I have got to judge the status of 321 workers when I only received direct evidence from 5 and recorded notes prepared by HMRC in relation to another 15, the minor differences in emphasis (one or two of which I find it quite easy to reconcile) are not of much significance.   

14.    I ought indeed to add that I think that any implicit criticism of the way in which Mrs. Kahler had undertaken her enquiries was not sustained, save in one minor respect. That minor respect was that her opinion letter of 15 June 2006, which initially revealed that she considered that the workers should be classed as employees, was sent after she had undertaken a number of interviews, but before she had interviewed a single bricklayer. Since the vast majority of the workers are bricklayers, the status of the labourers is somewhat likely to follow that of the bricklayers (rather than the other way round), and since I myself find it most realistic to start my decision process by looking first at the core category, I do find this to have been something of an omission. But beyond that, Mrs. Kahler’s work seems to me to have been fairly and properly conducted. 

The evidence in general

15.  Very little of the evidence was particularly contentious. Whilst I was very impressed indeed by Mr. Botham, and rather imagine that it is his firm hand that enables the Appellant to conduct an efficient business, he was perhaps inclined to put the best gloss on things in giving evidence. But he struck me to be an honest man, and I had no reason to doubt his, or indeed any other, evidence. 

The Appellant’s business

16.  As I have already said, the Appellant’s business is to contract with main contractors building domestic houses and commercial buildings, to undertake the bricklaying work. Most of its work is bricklaying work, though it has started to operate in a similar manner in providing scaffolding services, and joinery work to a much lesser extent. It undertakes the scaffolding work on about half of the projects on which it undertakes the bricklaying. It also undertakes a few developments of its own but this sounded to be a minor activity and little attention was given to it. In such cases I imagine that it sub-contracted those activities in which it had no specialisation itself to outsiders, though even this was not clarified and I do not think that it matters. 

Background matters in relation to the sub-contractor status of the Appellant’s site workers

17.  The Appellant’s full-time head office staff, including quantity surveyors, were employed, and paid under the PAYE and appropriate NIC deductions.  The Appellant also employed trainee bricklayers during their apprenticeship period. In the case of the apprentices Mr. Botham said that the apprentices often remained employees for about two years after they were trained, but his experience was that after about two years most left, in order to find work on their own, often with other contractors.    Indeed he said that he was beginning to find the costs of training bricklayers no longer worthwhile because of the very high “wastage” rate after the further two-year period.    These apprentices and newly-qualified bricklayers aside, however all of the of the remaining site workers were engaged as self-employed sub-contractors or “subbies”.  

18.   In my opinion both the Appellant and the sub-contractors thought that this categorisation was realistic and correct. In various respects it suited both. It suited the Appellant in that it gave it total flexibility to hire and fire (or rather disengage) workers precisely to match its very variable work-load. I have already said that at one point the Appellant was working on 17 different projects, but that that figure was down by the time of the hearing to 5, and this obviously made it desirable to be able to match work supply with work demand. The Appellant also avoided the employer’s liability to secondary Class 1 NICs if people were rightly classed as sub-contractors, and did not have to deduct and account for primary Class 1 NICs.   

19.   Various advantages were also enjoyed by the workers. They had the flexibility to enter into and leave engagements as they chose, and often did so for better money elsewhere or for a more convenient site. They also claimed to have, and to relish, the flexibility to work the hours that they wished. I will have to comment on a certain divergence in the evidence in this regard, but for the present purpose it is appropriate to assume that the workers regarded this as a real feature of the way in which they were engaged and as an attractive one. Since they were also paid strictly on the basis of an hourly wage for work actually undertaken, calculated in half-hour increments that they worked in full, with no holiday pay, sick pay, or pay when weather or any other factor rendered work impossible, and since the sub-contractor status was thought to eliminate NIC deductions from pay, and employers’ NIC secondary liability, they were actually paid a considerably higher gross hourly rate (and a yet higher net rate) as sub-contractors than they would have received as employees.      

20.    One can speculate as to who initiated the chosen self-employed status, and I think that the right answer is that this is a question to which there is no answer.    Many people taking work with the Appellant for the first time already had the CIS cards appropriate to sub-contractors and assumed that they would continue on that status. The flexibility and the higher pay clearly gave them an incentive to retain this status. Where new workers had not worked before (a situation unlikely in the case of bricklayers presumably) it seems that they were sometimes told by the Appellant to apply for a CIS card so that they could be paid net of the tax deduction of 18%/20% applicable at different times to sub-contractors. But then the Appellant could hardly be engaging people to do similar work on different bases. At best this would be hopelessly confusing, and at worst one or other would have to be wrong. Having regard to a widespread belief that the self-employed status was common in the industry and correct for the type of labour concerned, and understood to have been confirmed as correct in 2000 by HMRC, I think that the self-employed status arose simply because everyone expected it, and it was believed to be attractive and appropriate. Any notion (vaguely implicit in the conclusions that I might have been expected to draw from the answers given by some workers to the HMRC question of who suggested the chosen status) that the workers were “pushed” by the Appellant into the sub-contractor structure is not realistic. 

21.   Whilst there is little significance in this issue of whether the Appellant or the workers initiated the sub-contractor status, two further points are worth mentioning. 

22.    Firstly HMRC had in 1999 and 2000 reviewed and confirmed the self-employed status, as recorded in the following letter, which the Appellant had fortunately not lost, as HMRC had done:-

“I am writing following the visit by Mr. Patterson on 9 July 1999 to discuss the categorisation of sub-contract workers used by the business. 

This and similar cases have been considered at depth by both our Technical Support Section and the Status Officer.   Various factors have been taken into account including interviews with the business and individual sub-contractors D.Kestle and R. Clay.

In the case of the sub-contractors discussed on 9 July, the weight of evidence of factors in the working relationship indicates a contract for services and self-employment has therefore been accepted.

However if the working relationship that existed at that time changes, the status issue will need to be looked at again. 

Thank you for your help and co-operation in this matter.”

23.   Another factor relevant to who, if anyone, had the greater incentive in supporting the structure can be gleaned from that, when HMRC indicated in 2006 that in their revised view all sub-contractors should be re-classified as employees, it was said that when the Appellant relayed this to the workers, a substantial number walked out. I initially found this a little difficult to accept because the fact that the company was pursuing an appeal and that the status had not been changed, other than for a few supervisors, made it rather odd that people would have walked out when the remainder were still largely being engaged as self-employed sub-contractors. It is the case however that in the interview notes prepared by HMRC, following their interviews with various workers, there are indeed references to this walk-out and to the problems that the Appellant had in staffing projects. And this was not just in the exchanges with Mr. Botham, but in discussions with ordinary workers. 

24.   Mr. Botham himself had of course complained bitterly about the walk-out.  In Mrs. Kahler’s own note of 23 June 2006, she recorded a ‘phone conversation with Mr. Botham in the following terms:-

“Since I visited the company 130 have left and the remaining 70 are due to walk out on Monday.   I told him I could not believe I had had such an impact.   Mr. Botham went on that they do not want to go on the books in fact they are refusing and he did not blame them, adding that no construction company has men on the books and before I ask, no he is not telling me who he is referring to. 

This had now put the company in an awkward position as they have contracts totalling £2 million pounds and no workers, which will bankrupt the company.   So the company is going to sue me, not me personally, but the Revenue.”

25.     One or two minor initial conclusions that I reach on this marginal topic are that:

•	the Appellant thought that the basis on which it had been operating was both correct and that it had been reviewed and accepted to be correct by HMRC;
•	if anything the Appellant wished to preserve the structure more to meet the demands by workers, and seemingly to stay in line with other industry practice, rather than because it itself had any particular benefits to be derived from the arrangements. 

The 2006 HMRC enquiries

26.   As indicated above, HMRC first indicated that it was going to conduct a fresh review of the status question in November 2005. This new enquiry resulted in a letter of 15 June 2006 in which the Status Inspector indicated that she considered “the status of all workers to be one of employment”.  This letter did not give the official Determination and indeed there was a major meeting between the parties almost exactly one year after the opinion letter. That was finally followed by the Determination and Assessments, which were issued in July 2007. Once HMRC gathered that the company had been given an earlier status confirmation back in 2000, copies of which they had lost, HMRC accepted that they could not back-date assessments to any earlier point than the date when the opinion was first written to the company in June 2006, but nevertheless the assessment just for the year 2006/7, including interest as at 13 August 2007, was for £597,081.14. I was told that this would in practice be significantly reduced in the light of a credit that would be given for the income tax already deducted under the CIS machinery. I can only assume however that if the assessment were to be upheld by me, there would be a further assessment for the following year. Beyond that, and I accept that this factor cannot influence me, I was told, and I do not doubt, that if it is found that tax and NICs are properly due as claimed by HMRC, then the Appellant will become insolvent.  

The contracts

27.   Whilst some of the workers may not have signed a contract at all, it was certainly clear that all had provided CIS certificates to the Appellant. Whilst the HMRC publication on the subject makes it clear that workers can only be paid net under the CIS provisions, rather than paid as employees under the PAYE machinery and subject to the further NIC deductions and liabilities if it is first clear that they are not employees, it nevertheless seems that the very fact of payment under that machinery suggests that both parties considered the sub-contractor status to be agreed between them and to be correct, even when the written contract was not signed. 

28.    Whilst I have no information as to how many workers did and did not sign the contracts, where contracts were signed, they read as follows:-

“CIS Card Number                                NI Number

CSCS Reg No

THIS AGREEMENT is made the      day of       200 BETWEEN

1.	Castle Construction (Chesterfield) Ltd of Unit M1 Bolsover Business Park Station Road Bolsover Chesterfield S44 6BD (the Employer) and … of…(the sub-contractor)
2.	The Employer has engaged the Sub-Contractor to carry out work as a Bricklayer/Labourer from the …day of … 200 .
3.	The hourly rate agreed between the parties for the work will be £  per hour.
4.	It is expressly agreed between the parties that 7.5% of the hourly rate is holiday pay.
5.	The Sub-contractor will accrue holiday pay at a weekly rate in accordance with the Working Time Regulations 1998.
6.	The contractual provision in paragraph 4 as to the payment of holiday pay will count towards the Employer’s payment of holiday pay pursuant to the Working Time Regulations 1998 in discharge thereof.
7.	The Employer and the Sub-Contractor agree that the Sub-Contractor will take holidays at a time and date reasonably convenient to the Employer and agreed by him on at least one week’s notice.
8.	In all other respects, the Sub-Contractor confirms that he is self employed and remains liable for all payments of tax and National Insurance save for the Employer’s statutory duty to retain tax pursuant to the CIS scheme operated by the Inland Revenue. 
9.	A substitute worker can be sent at the discretion of Castle Construction (Chesterfield) Limited. 

SIGNED etc

29.    I have the following observations to make in relation to those few provisions, which seem to me clearly to contemplate that as between the parties, the worker is meant to be a self-employed sub-contractor.    

30.    The Respondents referred to the fact that the Appellant had been defined to be “the employer”, and suggested that this was significant. I do not agree with that, first because it was merely the term used to denote the Appellant, and secondly and more significantly because there is actually no, non-legalistic, word to describe the principal in a principal/sub-contractor relationship. It is perhaps worth noting that even Lord Denning used the term “employer” in precisely the same way in the extract that I have quoted in paragraph 81 below. It accordingly seems clear to me that this contract was designed to create a principal and sub-contractor relationship. The terms of clauses 4,5 and 6 talk about holiday pay, and reflect some legal provision dealing with holiday pay. My understanding is that their purpose was to indicate that sub-contractors had automatically been paid, as part of their hourly wage, their “holiday pay”, so that if they then took a holiday they would not be entitled to be paid at that time. The contract refers to the hourly rate “for the work”, and it was either these words or otherwise the clear understanding between the parties that rendered it clear that the sub-contractors would only be paid whilst actually working. Thus they were not paid if they were ill, if they chose to take a holiday, if weather made it impossible to work, or they were unable to work for any other reason.  Thus, to take the example of one of the actual witnesses, Mr. Burland, he was not paid when he had to take his son to various hospitals for physiotherapy sessions, and did not need to obtain the Appellant’s permission to take time off for this, or indeed, for any other reason.   

31.   Once one ignores the virtually irrelevant three clauses that deal with holiday pay, or rather the implicit inability to claim to be able to take paid holidays, there are few remaining clauses. Understandably sub-contractors were expected to give a week’s notice of their intention to take time off for holidays, and clause 8 perfectly accurately reflected the joint expectations as regards taxation on the assumption (confirmed by HMRC in 2000) that the sub-contractors were indeed properly classified as sub-contractors.

32.   I might just mention in passing that, for those few people who I consider should have been classified as employees, and indeed for all (should this decision largely in favour of the Appellant be over-turned on appeal), the Appellant might have an argument, available against those individuals who signed these written contracts, that clause 8 gave the Appellant a right to recover the tax and NICs charged on it from the people eventually ranked as employees.  That is currently no concern of mine, and I obviously accept that the practical chance of the Appellant claiming reimbursement from the workers and former workers, is non-existent, though in common sense terms and ignoring the feature that it would be hopelessly impractical, it would actually be both fair and coherent for the Appellant to recover in this manner.  For the higher pay that the workers received was all based on this assumption as regards the liability for tax and NICs.

Notice periods

33.    Once I dismiss the substitution clause, clause 9, as I shall do in my decision on the ground that it is broadly nonsense, it becomes clear that this contract did little more than specify the hourly rate, and indicate (not terribly clearly, if indeed at all) that sub-contractors were only paid for time worked. It thus failed to indicate anything about notice periods for termination of the contract, or working hours. 

34.   As regards these two matters there was a certain divergence of evidence as between that given by the witnesses who appeared before me, and just some of the workers interviewed by Mrs. Kahaler. Those giving evidence before me said that there was, on their understanding, no required notice period on either side of the engagement, and also no stipulation as to the working week or the periods to be worked. Some of the people interviewed by Mrs. Kahler appeared to confirm the same, whilst others thought that there was a one-week notice period, and that there was a fairly rigid working week from 7.30 a.m. to 4.30 p.m., with two half-hour breaks, mid-morning and for lunch.

34.    My conclusion in relation to the issue of whether there was any notice period required by either side to terminate the relationship was that there was not. There appeared to have been a number of instances where the relationship had been terminated on one side or the other with no notice, and there was no reference to this having been questioned. On the reasoning thus that absence of any notice requirement suited both parties, most confirmed that this was the position and no-one appeared to have challenged this position, this conclusion seems realistic. 

The length of time sub-contractors worked for the Appellant

35.    It is interesting to look at the Schedules that illustrate the start and finish dates of the various workers engaged as sub-contractors. Were I to see from these Schedules that the claim that people could come and go as they chose was purely theoretical because most worked for long periods, it would obviously be tempting to regard the claimed flexibility as rather a weak point. However, by picking six utterly random points in the very long schedule of workers, and calculating the weeks worked by the 10 workers at the points chosen and by the next 9 in the list, the numbers of weeks worked over total periods of engagement were as follows:

•	9, ½, ½, 9, 12, 44,7, 26, 6 and 6
•	10, 8, 30, 21, 1½ , 4, 6, 1½, 7 and 7;
•	24, 22, 8, 56, 3, 7, 7, 8, 47 and 8;
•	1, 55, 3, 38, 4, ½, 2, 188, 30 and 235;
•	20, 50, 5, 20, 8, 9, 2, 7, 40 and 7; and
•	7, 39, 5, 3, 1, 22, 60, 7, 10 and 75.

Having listed the times worked by 60 workers chosen at random, it is noteworthy how these figures show no pattern, and many workers worked for relatively short periods.  Out of 60, only 6 worked for periods of longer than one year, and only two of those worked for significantly longer than a year. 

36.    It is also worth recording that of the few workers who gave evidence before me, there were examples of people who worked intermittently for others and for the Appellant. For instance, Mr. Johnson referred to work that be had done in 2007 for both Castle and Ian Cooke Builders in Barnsley.

The working hours per week

37.   I turn now to the other question on flexibility, which is whether it really was credible that bricklayers could work the times that they pleased, knocking off early if they wished, albeit of course only being paid their hourly rate for each half-hour worked in full. Again there was a divergence of evidence in this regard in that whilst the witnesses who gave evidence personally all said that they were free to work the hours that they chose, several of the workers interviewed by Mrs. Kahler emphasised how Mr. Botham required them to work from 7.30 a.m. to 4.30 p.m. The evidence given by Mr. Botham had stressed that people with different motivations worked for very different periods. Those with families and responsibilities naturally worked fairly standard hours, whilst others were said to cease work as soon as they had earned enough money to pay for their beer and modest living expenses. There seemed a fairly general practice that people often ceased work an hour early on Friday, and in winter work usually stopped at 4.00 p.m. rather than 4.30 p.m.  

38.   One factor that is reasonably clear is that even if the hours were flexible, Mr. Botham ran the Appellant company with a firm hand. There were a number of references to people being aggrieved at not being paid for a particular half-hour of work if they arrived for work a few minutes late. It seems that the understanding of the terms was that people had to work the totality of each half-hour in order to be entitled to payment for that period, so that if they arrived late or took too long for a lunch break, they suffered a reduction in pay. 

39.    I have to say that my initial reaction was that the claimed flexibility in hours to be worked seemed rather improbable, in that for numerous reasons it would seem very difficult to run an efficient building business if workers could virtually come and go as they pleased and in practice quite regularly did so. One of the obvious points is that where there were several bricklayers working together, with the correct support of labourers, it would be terribly inefficient to find either that a couple of the bricklayers had disappeared, leaving the labourers with insufficient to do, and probably worse still if the labourers disappeared and ceased to feed bricks and mortar to the bricklayers.    Also, it was often emphasised how great the time pressures were on sites, with various sections of wall often needing to be completed by given times in order that work between the various trades on site could be properly co-ordinated. This would again, one supposed, make it critical to have a reasonably reliable work pattern that would not be disrupted by unscheduled absences. Another reasonable assumption was that most workers would need and wish to work full weeks in order to earn good money.    It was generally said that the Appellant’s hourly rate of pay was good or at least competitive, but it seemed improbable that it was at the level that would enable many people to reckon that they could work short hours.

40.  In practice I imagine that the vast majority of good workers would have indicated when they would wish or need to leave the site, and it was certainly stipulated that workers were meant to give one week’s notice of intended holidays.

41.  Having initially supposed that the vast majority of workers would have worked full weeks, and that the time sheets would regularly indicate that on most sites most workers worked 40-hour weeks, I was again astonished at the variation in hours shown to have been worked on the numerous weekly time sheets shown to me.   These were compiled on a site-by-site basis with the result that disparities in time worked by the various workers engaged on a site cannot have been explained by such matters as different weather patterns on different sites, or the feature that some projects might have been completed. 

42.   Again taking random samples, and ignoring the odd figures that I could not read, I list the hours worked by various listed workers working on particular sites:-

•	41½, 24, 39, 37, 39, 23, 37, 29, 16, 34½ 39, 28 and 39;
•	this particular week seemingly having a Monday bank holiday, 42, 22½, 13½, 15½. 21, 21, 13, 13, 40½, 39, 31, 24, 30, 30½, 30½, 28, 30½, 38½, 31, 33½ and 30½;
•	23, 8, 8, 32, 39, 39, 39, 8, 23, 31, 31, 31, 36, 39, 33 and 39; and
•	53½, 47, 52, 52, 39, 52, 47, 8, 52, 32, and 19½.

There is clearly enormous variety in these figures. It is possible that, had the witnesses been asked to dissect these statistics, and explain why some of the hours worked varied, the answer might quite often not have been based on workers choosing to come and go as they pleased.  There is however far too much divergence between the figures in all of the time sheets for me to reach any conclusion other than that there must be credibility to the Appellant’s claim that the sub-contractors liked flexible working hours; some worked very long hours; and others were happier to stop work when they chose and when they either had some alternative demand on their time, or had earned sufficient for the week. 

Annual income figures

43.     I was also given a Schedule that listed the annual earnings in the tax year 2006/7 of the workers who had been interviewed by Mrs. Kahler.  The two marked * should be somewhat discounted, because the figures for Mr. Green were distorted by the fact that he became a full-time employee part way through the year, and his earnings paid under PAYE have been ignored, and Mr. Burland only started with Castle in January 2007.    Subject to that, the figures are as follows:

	R.Yeardley			£23,025
	P. O’Neill			£21,365
	J Green  *			 £3,284
	JG Pearson			£25,505
	T Smith			 £1,275
	R Holliday			 £1,680
	J Webb			£19,960
	A Allcock			 £1,035
	W Dixon			£25,805
	J White			 £1,382
	S Lee				    £633
	C Greig			 £5,265
	S Barton			£18,230
	C Burland  *			 £4,814
	D Johnson 			£17,918

44.   The conclusion that I reach is that these various statistics, which are genuinely random, do appear to illustrate precisely the point claimed on behalf of the Appellant, namely that people came and went with extraordinary rapidity, and when they were engaged their working hours showed very great fluctuations. I end up with a greater feeling of astonishment that Mr. Botham and the Appellant managed to get walls built efficiently, rather than a feeling that the claimed evidence in relation to working patterns was exaggerated.   On this subject thus I repeat the point that I recorded in the Introduction where I referred to the claim by Mr. Botham that in one year he had engaged 450 bricklayers when, had they been full-time, 150 would have been sufficient.    

45.   Some of the reported authorities on status disputes and in particular on IR 35 disputes have periodically involved claims that individual workers were said to be able to work at the times they chose, but that in practice the relevant appellants had generally worked conventional working weeks, along-side other people who were indeed conventional full-time staff.    This is unquestionably not such a case.

Who provided the tools, and visibility vests etc

46.  There was a clear distinction between those few bricklayers who were employed, namely the apprentices and the newly qualified who remained employees for two years after completing their training, and the sub-contractors. As regards the former, their hand tools, and their visibility vests with the Castle logo on them, were all provided by the Appellant. The Appellant also provided transport to and from site for the employees. In contrast the sub-contractors all provided their own hand tools, and although they had to wear Castle visibility vests, they had to buy these. They also had to provide their own transport to site. 

47.   So far as the tools were concerned, there may be no or little significance in the fact that the sub-contractors provided their own tools since it has long been recognised that the provision of a few hand tools does not preclude some workers from being employees. It is, however, worth providing the list of the hand tools that had to be used and provided by the sub-contractor bricklayers because they were more extensive than the trowel that might otherwise be assumed to be all that was involved.    According to Mr. Burling’s evidence, he provided “lines and pins, corner blocks, chisels, brick hammers, a scotch hammer, a lump hammer, a bolster chisel, a pointing trowel, 600 and 1200 mm levels, trowels, thin pointing trowels (narrow gauge), a tape measure and a set square”. According to whether sub-contractors purchased cheaper or best quality tools, the cost of these tools was in the range from £500 to £1000.     Two tools that the sub-contractors did not provide were a Hilti gun and a Stihl saw.    Only one of each of these tools was needed on a site, so that it was inappropriate for bricklayers, of whom there might be many on a large site, to own and provide these tools. The Hilti gun was a powered gun with the amazing and somewhat alarming capacity to fire staples, designed to tie brickwork to rolled steel joists, up to 10 mm into the RSJs. The Stihl saw was a petrol-powered brick-cutting saw. Whilst these were provided on site by the Appellant, there was a site rule that if either went missing and it was not known who had taken them or failed to secure them at the end of a shift, then all the sub-contractors on the particular site would be charged between them with the replacement cost of the missing item. 

48.    It seems to me that whilst the hand tools provided by the sub-contractors were not so major as to be particularly compelling, or indeed so as to influence the description of the service provided by the sub-contractors in the manner considered by Mr. Justice MacKenna in one of the decisions to which I will refer extensively in due course, the tools provided do have some significance, particular as they had to be provided by the sub-contractors whilst they were provided for the employees.     

49.     It is apparently a health and safety rule that all workers on site nowadays have to wear visibility jackets and, in appropriate circumstances, hard hats. Again, these were provided to employees, and had to be purchased by sub-contractors. In order that main contractors knew who was engaging the various workers on site, it was a further rule that safety clothing had to bear the sub-contractor’s (i.e. Castle’s) logo. It followed, somewhat to the irritation of sub-contractors who already owned their own high visibility clothing, that they nevertheless had to buy a Castle jacket when working on a site where Castle were sub-contractors.  

50.     In a similar way, site passes were required for security purposes and these had to be held by anyone working on a site in any capacity for the Appellant. 

The exercise of “control”

51.     A number of aspects of the control exercised over the bricklayers in particular, were mentioned during the hearing. The two most fundamental aspects of control related to where, and in what sequence, walls should be built; and secondly the quality and method of bricklaying.   

52.     I was told that there were never bricklayer/foremen on small sites, that is sites with up to only five or ten bricklayers working. On larger sites, there were generally foremen/bricklayers. Their prime function was to attend site meetings with the main contractors in order to clarify where walls were to be built, and in what sequence they were to be built. The foremen also worked as bricklayers when not attending to their coordination work. Mr. Botham described foremen/bricklayers as being the most intelligent bricklayers.

53.     There was obviously complete control over where, and in what sequence, walls should be built. This was almost entirely dictated of course by the principal contractor, in that the principal contractor was naturally working to plans, and also as overall manager of the site, specified the order in which the various trades, bricklayers, scaffolders, plasterers, electricians, plumbers and others, were needed, and naturally these calculations often dictated the order in which walls would be built.     I might observe at this point that I find it difficult to discern too much significance from this aspect of control. After all, if the brickwork had been sub-contracted to a team of brickies who provided all the equipment, and the bricks and mortar, and priced the job in one single quote for all the brickwork on the whole site (in other words to a team that would plainly have been sub-contractors on any test), the main contractor would have still had to ensure that the walls were built in accordance with the plans, and would still have needed to coordinate the bricklaying with the different trades being undertaken by others. 

54.     The more relevant aspect of control, it seems to me, is the issue of whether the Appellant or perhaps even the main contractors exercised control as to how bricks were actually laid. All of the Appellant’s own witnesses consistently suggested that they knew how to lay bricks, and that no-one ever gave them any instructions as to how to exercise their craft. And had anyone done so, such instructions would not have been welcomed. 

55.    One of the former workers, who was interviewed by Mrs. Kahler, had clearly fallen out with the Appellant company, and was volunteering to provide HMRC with any assistance that they might require in preparing their case against the Appellant.   Somewhat perversely, this witness made the following comments about his status and the issue of “control”.   He said:-

“I am self employed.    I provided own tools.

There was a foreman on the jobs but don’t need people to tell me how to lay bricks  -  I’ve done it 20 years”.

This was, it seems the common attitude amongst all the workers. These remarks however, coming from a man whose other remarks indicated that he had seriously fallen out with the Appellant, are very relevant. They indicate first a conviction, derived presumably from considerable other experience with other contractors (this man only being engaged for about five weeks) that his status was “a given”, and that it was at least influenced by his provision of his own tools.  This of course tallied with the industry expressions of “on the tools” and “on the books” to denote who was self-employed and who was employed. Finally however the contempt with which this worker described the academic possibility that someone might indicate to him how to lay bricks seems to provide very helpful evidence, contrary to his intentions, in favour of the Appellant. 

56.     I should say, in order to give a complete picture, that whilst none of the actual witnesses referred to any inspection of work by Castle head-office staff, either in their evidence in chief, or under cross-examination, there were some references in the statements made by the people interviewed by HMRC to someone from head office periodically visiting sites and inspecting things. This did not however derogate from the general impression that these inspections would have been more geared to seeing that the cooperation between the main contractor and Castle’s foremen, who would be passing on the main contractor’s instructions to the workers, and the workers was all operating smoothly, and there was no indication that anyone was ever told how to do his job. Consistently the job description of the “foreman/bricklayers” indicated that their prime function, as well as laying bricks, was to interpret the architect’s plans, and to see that walls were built in the right place, rather than to instruct the bricklayers on how to lay bricks. 

57.     A number of site rules were required by health and safety legislation, and it was indeed said by Mr. Botham and others that the Appellant enforced all such rules rigorously. There had been a tragic accident where a worker had been killed in an incident with a fork-lift truck where the blame was laid on someone who had been using a mobile phone. As a result of this the Appellant banned the use of mobile phones on site, and I was told that numerous contractors had followed this example, and that such a ban was now common. It seems to me that the enforcement of safety rules, required by legislation, and sensible steps introduced after the tragic accident, are hardly indications of whether the Appellant is exercising the sort of control that would indicate that the people indisputably working for it were employees, as distinct from independent contractors. 

58.     Another matter referred to in the context of “control” was whether the Appellant could control the place where the sub-contractors worked. In practice, since they could obviously only work on sites where the Appellant was providing bricklaying or scaffolding services, this question became one of whether the Appellant could direct workers to cease working on one site and move to another.      In this context there were several examples of workers having been asked to switch sites. This is not remotely surprising of course because there would doubtless be occasions when workers on one site would fall below the required numbers on account of people terminating, and if another site was ahead of schedule with ample workers, it would make sense to try to move some workers from the one site to the other. Again I can attach little significance to this. Those wanting to work fairly consistently would have every incentive to be cooperative and if the other site was no less convenient than the one they were previously working on, it would seem entirely natural that they would be prepared to work on the other site. There was no question that they were engaged on a site-by-site basis; they were engaged until either party wished to terminate the arrangement, and since self-evidently the worker could not be required to work at all, or to work on the other site, the fact that in most cases there was no objection to moving from one site to another does not indicate any particular element of “control”. Amongst the few workers who gave evidence in person, Mr. Johnson indeed mentioned that in February 2007 he had rejected a move of job to Nottingham with Castle because it was too far to travel, and presumably that was when he obtained work with Ian Cooke Builders 

Rectifying bad work

59.     One of the distinctions drawn to my attention in relation to the working terms for the sub-contractors and the employed trainee bricklayers, and those still employed in the early years after training was that if mistakes were made, the sub-contractors had to correct them themselves in their own, unpaid, time. The employees on the other hand would not lose pay in this situation and would still be paid if they remedied whatever mistakes had been made.  The notion that mistakes might need to be corrected indicates that some sort of control was exercised.  Again it seems that this was not control usually geared to the quality or method of bricklaying, but rather to cases where a wall had been built in the wrong place, or for instance with the wrong materials.  Again the interview note of the discussion with the man referred to in paragraph 55 above referred to this sort of situation, in the following extract:-

“During last 2 days we were building with stone and we said we could not do it to their specifications.  They said just do it.   We did and they wouldn’t pay us as they said work was bad – but I’ve looked since and that work was kept  -  so they ripped us off”.  

The method of calculating payments

60.    As already mentioned, all the Appellant’s workers were paid on the basis of an hourly rate, it being understood that in order to claim pay for each half-hour interval, workers had to be on site and working for the whole of the half hour.  

61    It was said by Mr. Botham that the reason why workers, and in particular bricklayers, were paid on an hourly basis rather than on a piece-work basis (of so much for 1000 bricks, or so much for a completed wall), was that on large sites it was impossible to calculate how much work had been done by each bricklayer, and that rushing brickwork, when working on a piece-work basis, generally resulted in poorer quality brickwork. I was also told that, contrary to the normal position for employees, if sub-contractors worked at weekends, they were not paid overtime rates but were simply paid at the same hourly rate. I was also told that very occasionally workers were paid on a piece-work basis and that when there was a particular urgency for work to be completed by a given date, a gang might be promised a particular amount for finishing the work on schedule.  

Insurance

62.    The Appellant itself carried insurance in respect of injuries and damage inflicted by both employees and by sub-contractors. It was suggested by the Respondents that this indicated that the Appellant was thereby accepting that it regarded the sub-contractors as employees for whom it was responsible. In this regard, I accept the alternative contention by the Appellants that there are circumstances where the Appellant could be liable for damage and injury inflicted by both employees and sub-contractors, quite apart from the further possible claim directly against the Appellant that it had initially been at fault in engaging the wrong person. Accordingly I attach no significance to the cover taken out by the Appellant. I was told that some of the workers, indeed including those who gave evidence in person, themselves took out PII cover. Mr. Burland for instance paid an annual premium of £70 for cover up to £2 million. It was also said in the HMRC interview notes that other workers did not take out their own insurance. Some asserted that they assumed that they were covered by Castle’s policy, and indeed Mr. Botham confirmed not only that the Appellant’s policy extended to cover the Appellant for its own liabilities incurred through the activity of sub-contractors, but that the policy would also cover the sub-contractors themselves, which is why they were not positively required to take out their own insurance. Those that did presumably took the view that the same might well not apply when working for other organisations so that it would be prudent to take out their own policies.    

“Part and parcel” of the organisation

63.     Reference was made to the fact that whilst full-time employees were taken to the races periodically and occasionally entertained in other ways, such as by having a Christmas party, these trips and entertainment were not extended to any of the sub-contractors. In general I got the impression that the relationship with the sub-contractors was a very arm’s length relationship, subsisting just during working hours for the benefit of both parties, and no particular effort seems to have been made to foster any spirit that the sub-contractors were “part and parcel” of the Appellant’s business. 
  
The law

64.   There is no statute law that calls for any interpretation in this case. It was common ground that everything, in relation to both Income Tax and NICs, hinged on whether the workers were employees or independent sub-contractors. Naturally there is very considerable case law authority on that issue, and I will deal with that in the first part of the Decision below. 

The contentions on behalf of the parties. 

65.     This is a case where I consider it unnecessary to list contentions advanced by either of the parties.  In any case of this nature, the dispute requires me to look at all of the facts that I have listed above, and to refer to the reported cases to gain what assistance I can in judging whether, on balance, the workers in this case were employees or, as the Appellant contended, sub-contractors.  There was relatively little actual dispute as to the law and the authorities, and in giving my decision I will endeavour to give, and explain, my decision by reference to the relevant tests to be extracted from the authorities.

My decision

The relevant tests according to the authorities

66.  There are six slightly different lines of authority designed to clarify the distinction between the status of employees and that of self-employed sub-contractors.      Many of the cases are employment cases and many others are tax cases where both Income Tax and NIC considerations can make the distinction important.   Some of the employment cases are concerned with the presently irrelevant situation of there being several contracts at different periods of time, perhaps themselves employment contracts, where the critical point for employment purposes is whether there is an “umbrella contract” linking all the individual contracts together, and that can lead to the question of whether that umbrella contract creates one overall employment contract, or whether it influences the status of the numerous separate engagements.   Those points seem to me not to be relevant in this case. 

The various different tests or “ pointers”

 67.   The six different lines of authority, or “material pointers” which I will deal with in turn, are:-

•	the so-called  “mutuality of obligation” requirement, or “touchstone”;

•	the famous and often quoted three tests set out by Mr. Justice MacKenna in Ready Mixed Concrete (South East) Ltd v. Minister of Pensions and National Insurance 1 QBD [1968]  433;

•	the “substitution” point;

•	the authorities that concentrate on the issue of whether the worker is in business on his own account;

•	the intentions of the parties;  and finally 

•	the approach based on balancing numerous pointers in each direction and standing back and looking at the overall picture.

“The want of mutuality” test

68.    The so-called “mutuality of obligation” requirement is asserted to mean that for a relationship to be one of employment, there must not only be a contract and an obligation on one party to work and the other to pay (all of which is manifestly obvious) but something more. An obligation to provide work has been suggested to be an additional requirement, and it has been asserted that the “mutuality of obligation” requirement is an absolute prerequisite to establishing that there is a contract of employment. For present purposes, I accept that these suggestions go too far, and I agree with the conclusions on this point reached by Mr. Justice Park and Special Commissioner Mr. Hellier in the respective cases of Usetech Ltd v. Young (HMIT) (2004) 76 TC 811 and Dragonfly Consulting Ltd v. HMRC [2008] STC (SCD) 430.    I think that a fair summary of the conclusions that they reached is that:-

•	it is not clear, within the confines of one contract, that anything more is required to establish a contract of employment than the obligation to work and the obligation to pay;
•	when considering whether the umbrella contract that links various separate employment contracts constitutes one continuous employment contract, there must then be some obligation to provide work or to offer work for the umbrella contract to constitute a continuing contract of employment; and
•	an obligation on the employer to provide work, or in the absence of available work to pay, whilst not a precondition to a single contract ranking as an employment contract, is nevertheless a “touchstone” or a feature that one would expect to find in an employment contract.

Without wishing to explain my decision at this stage, I might just comment at this point that this case seems to me to be one where contractual provisions that one would normally expect to find in an employment contract are very notably, deliberately and genuinely (rather than speciously) absent. 

Mr. Justice MacKenna’s three tests

69.       The three tests set out by Mr. Justice MacKenna are as follows.

“I must now consider what is meant by a contract of service.   A contract of service exists if the following three conditions are fulfilled:  (i) The servant agrees that in consideration of a wage or other remuneration he will provide his own work and skill in the performance of some service for his master.   (ii)   He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master.   (iii)  The other provisions of the contract are consistent with its being a contract of service.”

70.   The first of those tests has often been taken to be a reference to the “want of mutuality requirement” that I have just summarised, though I am not convinced that that is right. As worded by Mr. Justice MacKenna, the first test initially seems to be a strange test for distinguishing between employment relationships and the contracts between principals and independent contractors, first because it appears to beg the question by referring to the terms “master” and “servant”, and secondly because there will self-evidently be obligations on both sides of both relationships, on the one side to do something and on the other to pay. In the context of the case before Mr. Justice MacKenna, it seems to me that the point which he was actually stressing was the nature of the obligation, namely the obligation on the employee or contractor “to provide his own work and skill”. In the relevant case, individuals who had previously been employed as drivers of Ready-Mixed’s concrete delivery lorries had entered into a different relationship under which they leased the lorries themselves under one contract and then agreed to convey ready-mixed concrete for the company. Thus their obligation became the wider obligation of delivering concrete in their own lorries, to be distinguished from that of just providing work and skill by driving the company’s lorries, as before.  

71.    That feature of the provision of the wider service is of course the foundation of what I have described in paragraph 67 above as the test of whether the individual is rightly regarded as being “in business on his own account”. Whilst I will deal with that below, it would be wrong to leave the remarks of Mr. Justice MacKenna on this issue without referring to very relevant examples that he gives (ostensibly as an illustration of his third and not his first point), shortly after the passage that I have quoted above. These two examples illustrate precisely the point that I have just assumed that Mr. Justice MacKenna was addressing, and they sound decidedly relevant to the facts of this case, so that it would be misleading not to mention them. The two contrasted examples are these:-

“A contract obliges one party to build for the other, providing at his own expense the necessary plant and materials.   This is not a contract of service, even though the builder may be obliged to use his own labour only and to accept a high degree of control:  it is a building contract.    It is not a contract to serve another for a wage, but a contract to produce a thing (or a result) for a price.”

“A contract obliges a labourer to work for a builder, providing some simple tools, and to accept the builder’s control.  Notwithstanding the obligation to provide the tools, the contract is one of service. That obligation is not inconsistent with the nature of a contract of service.   It is not a sufficiently important matter to affect the substance of the contract”.

I will return in due course to the second of those examples and explain why I do not consider that it concludes the issue in this case in favour of the Respondents. For present purposes I simply suggest that Mr. Justice MacKenna was concentrating, in his first test, on the nature of the supply and not in trying to articulate the “want of mutuality requirement”. 

The “control” test

72.   Mr. Justice MacKenna’s second test, that of “control”, is clearly a vital one, albeit one that has been said in more recent decisions to have diminished in importance, and one that can also be quite difficult to apply. The various aspects of control are what make the “control” test difficult to apply, and these are readily indicated by the following extract from Mr. Justice MacKenna’s decision:-

“Control includes the power of deciding the thing to be done, the way in which it shall be done, the means to be employed in doing it, the time when, and the place where, it shall be done.   All these aspects of control must be considered in deciding whether the right exists in a sufficient degree to make one party the master and the other his servant. The right need not be unrestricted.”

In explaining my decision I shall obviously refer to this control test. 

The influence of the surrounding terms

73.   Although there has been criticism of the third of the requirements that Mr. Justice MacKenna listed, this test seems essentially to be making the realistic point that one must finally look to all the terms, or indeed the notable absence of terms, in order to judge whether these reinforce or undermine the initial conclusions reached by applying the first two tests. Again I shall place some stress on this aspect in explaining my decision.

“The substitution point”

74.     One of the additional points that Mr. Justice MacKinnon makes in his judgment is that employment is a contract for providing personal services, so that if a contract requires a person to undertake a service or to procure that someone else performs the service, that cannot be a personal service, and so cannot be an “employment” contract.    In the light of this observation, which is obviously right, it is quite common for advisers to insert “substitution” clauses into contracts, or into the final contract with the client in IR35 (“intermediary”) cases, obviously in an effort to diminish the impression that the relationship is one of employment, or that it would be one of employment on applying the IR35 fictions. In many cases, the substitution clauses inserted have been qualified by the requirement that the counter-party must consent to the choice of substitute. And as I have already noted, the short contracts in this case had substitution clauses, and indeed ones that required the Appellant to consent to a choice of substitute. 

75.      In this case, and to his credit, counsel for the Appellant said that he was placing little reliance on the existence of the substitution clause. On the evidence given to me, I believe that there was no example of anyone having used the clause.   Since the existence of the clause forms no part of my decision in favour of the Appellant, I will immediately say why I dismiss it in this case as being irrelevant, if not counter-productive. It first seems to me that if there is to be nothing “personal” in the nature of the identity of the provider of the service, it should logically be irrelevant for the recipient of the service to have to consent to the service being rendered by a substitute. It might be acceptable for a service that requires the provider to have some qualification, to make the substitution right dependent on the substitute also having the required qualification, but beyond that the feature that the recipient of the service must consent to the identity of the substitute seems to erode the logic of the “substitution” point. For it demonstrates that the counter-party does require a personal service, or alternatively another personal service to which the counter-party consents.    Whether a veto right would always be fatal to the claimed effect of a substitution clause is not presently particularly vital, because I consider that in the present case the clause was broadly nonsense, with no attention to reality.  I do not know the answer to this point, but it certainly occurs to me that when people are meant to pay non-employee workers under the CIS scheme under deduction of 20% tax, it may well be the case that if one bricklayer satisfied his obligations through a substitute, then both the Appellant and the worker in question would each have to deduct 20% tax, and I am not immediately clear that the bricklayer could credit his 20% tax deduction against his obligation to deduct from the payment made to the substitute.    As I say, I do not know the answer to that question, but I do know that no-one else gave it any thought, in other words any thought to whether the structure of substitution was even practical in this case. It was also, of course, rather irrelevant because the Appellant itself was the very entity that specialised in engaging part-time “brickies”, and since many worked erratic hours, the Appellant was often having to supply replacements.  It seems surprisingly unlikely therefore that it would ever occur to anyone that a bricklayer might approach the Appellant for consent to the approval of a particular substitute, when the Appellant had a list of its own contacts that it could easily access in order to replace someone who had left work. 

76.    In all the circumstances of this case, it seems to me that the substitution clause was a fiction, designed by an adviser, or the draftsman of some precedent document, to enhance the “non-employee” case, and that on the facts of this case, that endeavour fails, and is if anything (by suggesting the need to resort to such artificiality) counter-productive.  

The supplier’s own business test  

77.    An often-quoted summary of the test that concentrates on whether the person rendering the services is doing so in the course of a business conducted by him on his own account is that given by Mr. Justice Cooke in Market Investigations Ltd v. Minister of Social Security [1968] 3 All ER 732 at 740.  This summary was quoted with approval by Lord Widgery in Global Plant Ltd v. Secretary of State for Social Security [1971] 3 All ER 385, and was itself referring to remarks by Lord Wright in Montreal Locomotive Works Ltd v. Montreal and A-G for Canada (1947) 1 DLR 161 at 169 and by Lord Denning in Bank voor handle en Scheepvaart NV v. Slatford [1952] 2 All ER 956 at 971.    It is as follows:-

“The observations of Lord Wright, of Denning LJ, and of the judges of the Supreme Court of the USA suggest that the fundamental test to be applied is this:  “Is the person who has engaged himself to perform these services performing them as a person in business on his own account?”.   If the answer to that question is “Yes”, then the contract is a contract for services.   If the answer is “No”, then the contract is a contract of service.   No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of considerations which are relevant in determining that question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases.  The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors, which may be of importance, are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk he takes, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task”.     

It is thus perfectly clear that if a gang of plasterers, who provided their own plaster, and finish plaster, their own electric mixers and hand tools, very likely trestles and planks and almost certainly their own van, were engaged to plaster all the walls in a house, or indeed to undertake plastering work at a price per day or per hour, they would not be employees. By virtue of plainly needing to draw up their own profit and loss account, and by virtue of the short engagements, they would clearly be traders in business on their own account. Whilst it is not presently relevant, I consider that that conclusion would not change even if they were engaged for long periods by one building company. The bricklayers in this case are undoubtedly a more borderline category but I shall refer to this business test at some length in explaining my decision. 

78.      Prior to leaving the general summary of this test however it is worth just quoting the following paragraph from Mr. Justice Cooke’s decision in Market Investigations, which confirms that the business test has its limitations.    He said:-

“The application of the general test may be easier in a case where the person who engages himself to perform the services does so in the course of an already-established business of his own; but this factor is not decisive, and a person who engages himself to perform services for another may well be an independent contractor even though he has not entered into the contract in the course of an existing business carried on by him.” 
The intentions of the parties
79.    Whilst the status issue of whether particular individuals are employees or self-employed is to be determined by all of the facts, and certainly cannot be resolved just because the parties declare, possibly in their contract, that the relationship is one or the other, the intentions of the parties can nevertheless be very important. 
80.   Mr. Justice MacKenna confirmed this at the very start of his decision in the Ready-Mixed case by saying that “such a declaration was not necessarily ineffective, for if it were doubtful for what rights and duties the parties wished to provide, such a declaration might help in resolving the doubt and in fixing them in the sense required to give effect to the expressed intention”.
81.   More significantly, Lord Denning made further and presently relevant reference to the significance of the intentions of the parties in the case, Massey v. Crown Life Insurance Co [1978] 2 All ER 576, where an insurance agent had deliberately agreed to change status from employee to self-employed, and then sought later to claim that he was genuinely an employee.  Having quoted the remarks of Mr. Justice MacKenna that I have just quoted, Lord Denning made the following observations:-
“So the way in which they draw up their agreement and express it may be a very important factor in defining what the true relation was between them.    If they declare that he is self-employed, that may be decisive. 
Coming back to this case, for myself I have considerable doubt whether Mr. Massey was really a servant from 1971 to 1973.    It looks to me much more as if he was even in that time a commission agent.    He could take on other work.    He did in fact work for another insurance broker. He was paid on commission.  He received a minimum sum but over and above that he was paid on commission as many commission agents are.  So I think it is very doubtful whether he was under a contract of service from 1971 to 1973.  But I am perfectly clear that afterwards in 1973, when this agreement was drawn up and recast, although the same work was done under it, the relation was no longer a master and servant relationship. It was an employer and independent contractor relationship.  The change to “John L Massey and Associates” was an unnecessary complication.   It is significant that the tribunal found that both sides agreed that the agreement was, and was intended to be, a genuine transaction and not something which was done solely for the purpose of deceiving the inspector of taxes.   They said:  “Had we thought otherwise, we would have held the agreement to be tainted with illegality with the consequence that it would have been void”. 
……
In most of these cases, I expect that it will be found that the parties do deliberately agree for the man to be “self-employed” or “on the lump”.   It is done especially so as to obtain the tax benefits.   When such an agreement is made, it affords strong evidence that that is the real relationship.   If it is so found, the man must accept it.   He cannot afterwards assert that he was only a servant. 
In the present case there is a perfectly genuine agreement entered into at the instance of Mr. Massey on the footing that he is “self-employed”.   He gets the benefit of it by avoiding tax deductions and getting his pension contributions returned.  I do not see that he can come along afterwards and say it is something else in order to claim that he has been unfairly dismissed.    Having made his bed as being “self-employed”, he must lie on it.   He is not under a contract of service.” 

Standing back and looking at the whole picture
82.     Several of the cases have referred to the fact that one cannot (certainly in all situations) just apply one test. Rather one must consider all points, and then stand back and look at the overall picture. Several passages are worth quoting in this context from the excellent decision of Mr. Justice Mummery in Hall (HMIT) v. Lorimer  (1993) 66 TC 349. The decision includes the following remarks at pages 366 and 367:-
“It is clear from these cases that there is no single satisfactory test governing the question whether a person is an employee or is self-employed.”
He then refers to the great significance of the “own business” test, well summarised by Mr. Justice Cooke in Market Investigations.   He then continues:-
“In order to decide whether a person carries on business on his own account, it is necessary to consider many different aspects of that person’s work activity. This is not a mechanical exercise of running through items on a check-list to see whether they are present in, or absent from, a given situation.    The object of the exercise is to paint a picture from the accumulation of detail.    The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole.   It is a matter of evaluation of the overall effect of the detail, which is not necessarily the same as the sum total of the individual details.  Not all details are of equal weight or importance in any given situation.  The details may also vary in importance from one situation to another. 
The process involves painting a picture in each individual case.   As Vinelott J said in Walls v. Sinnett 60 TC 150, at 164:
“It is, in my judgment, quite impossible in a field where a very large number of factors have to be weighed to gain any real assistance by looking at the facts of another case and comparing them one by one to see what facts are common, what are different and what particular weight is given by another tribunal to the common facts.   The facts as a whole must be looked at, and what may be compelling in one case in the light of all the facts may not be compelling in the context of another case.”
The decided cases give clear guidance in identifying the detailed elements or aspect of a person’s work, which should be examined for this purpose.   There is no complete exhaustive list of relevant elements. The list includes the express or implied rights and duties of the parties; the degree of control exercised over the person doing the work; whether the person doing the work provides his own equipment and the nature of the equipment involved in the work; whether the person doing the work hires any staff to help him; the degree of financial risk that he takes, for example, as a result of delays in the performance of the services agreed; the degree of responsibility for investment and management; how far the person providing the services has an opportunity to profit from sound management in the performance of his task.    It may be relevant to consider the understanding or intentions of the parties; whether the person performing the services has set up a business-like organisation of his own; the degree of continuity in the relationship between the person performing the services and the person for whom he performs them; how many engagements he performs and whether they are performed mainly for one person or for a number of different people.    It may also be relevant to ask whether the person performing the services is accessory to the business of the person to whom the services are provided or is “part and parcel” of the latter’s organisation”. 
Those passages seem to me to be an excellent indication of the factors that I should consider; a correct observation that the facts that are significant in one case may be minor or irrelevant in another, and a strong support for the notion of considering all the detail, and then standing back and looking at the overall picture. 
Industry practice
83.    Without suggesting that I should consider a seventh material test of employed and self-employed status, beyond the six that I listed in paragraph 65 above, it is perhaps finally material to note that Lord Denning did allude to the consideration of “industry practice” and tradition. Thus there were common assumptions as to how insurance agents might be engaged, and in the building industry it is known that many people have worked “on the lump”, in other words as independent contractors.     Indeed it was partly because of that feature that the CIS provisions were introduced so that people who were not employees, subject to the PAYE machinery provisions would still be paid subject to deduction of 18% and now 20% tax in respect of the work content of the payments made to them. Currently there are two expressions in the building industry denoting whether people are employees or self-employed, the first being referred to as those “on the books”, and the latter as those “on the tools”.      I simply observe at this point that industry practice may or may not be right, but that at the very least it is common-place for many people working in the building industry to be “on the tools”, in other words to be, or to claim to be, self-employed sub-contractors.
The application of the various tests to the facts in the present case
84.   Since the vast majority of the workers whose status is in dispute were bricklayers, or “brickies”, I will concentrate initially just on the bricklayers, and then subsequently address whether and when my conclusions are different for the other categories of worker. 
The want of mutuality requirement
85.   Were it the case that the “want of mutuality” requirement required something more than the respective obligations to work and to pay, to sustain an employer and employee relationship, and were such additional requirements absolute prerequisites to establishing the relevant status, this case would be concluded on that point. For it appears that the clear intention of both parties to these contracts was that there were to be just the bare obligations to work when, and only when, work was provided, and when work could be done, (weather, holidays and illness permitting), and to pay for work done satisfactorily on the basis of payment for every half-hour worked in full.  
86.   I consider that the absence in this case of any notice requirement, plus the features that working times were also entirely flexible, both in reality as well as in theory, and the feature that workers were only paid when they in fact worked, weather and illness permitting, are all features that are inconsistent with any normal employment contract. Whether this point is what is contemplated by the notion of the “want of mutuality” I do not know, but I still say that it seems to me that the engagements in this case were very different from those in normal employment contracts. In the normal cases, at least some element of loyalty and responsibility to the other party is required and is common, and possibly expected on both sides  That loyalty may be for the employer to show a concern to struggle for work in an effort to keep workers in their jobs, and on the other side a loyalty in serving the employer.   It would be unusual for an employee’s pay to be stopped because he was genuinely ill or because he had to take an ill son to hospital. In this case the deal was quite clearly that if the Appellant had work, and workers were ready to work, then they would be engaged. And for the half-hour periods that they worked, they would be paid, and they would be paid in no other circumstances. And if the project ceased, and there was no replacement, then everyone knew that that was the end of the engagement. 
87.   Thus two minor conclusions that I reach at this stage are that if there is any substance in the “want of mutuality” requirement, then, whatever it is, it was absent in this case; and secondly the stark “in or out” terms of the engagement in this case would, at least, be most unusual in an employment situation. This observation is relevant to the “touchstone” notion in the “mutuality” test, and also to Mr. Justice MacKenna’s exhortation to consider the other terms of the arrangement, and of course to the issue of the parties’ intentions. 
Mr. Justice MacKenna’s example in relation to building labourers
88.     I now turn to the tests set out by Mr. Justice MacKenna, and should first refer to the example that I quoted in paragraph 71 above, where he indicated that in his view a contract that obliged a labourer to work for a builder, providing some simple tools, and accepting the builder’s control, would be a contract of employment. I entirely accept that that would indeed often be the result. In the cases of small building companies with a permanent work force, or indeed in any case where the labourers and brickies were a constant feature, i.e. “part and parcel” of the firm, the labourers and the brickies would often and realistically be employees. In my judgment however the deal in the present case was quite different from that. And it is on those factors that I will dwell in order to explain my decision. I also make the point that Mr. Justice MacKenna’s comparison was really focusing on whether the service provided was just personal work, as distinct from the construction of a house or the carting of concrete from one place to another, and he was not remotely concerned to look, in giving that example, at the detailed terms of engagement. And that is what I must look at here. 
The “control” test
89.   I do not find the “control” test terribly helpful in this case.  It is of course perfectly obvious that the principal contractor’s plans alone would govern where walls were to be built, and that, whether they were actually being built by sub-contractors or employees, they would have to conform precisely to the plans. And it was made quite clear at the hearing that it was the principal contractor that would liaise with the Appellant’s “foremen/bricklayers” to pass on the instructions as to where the plans required the walls to be built, and that the Appellant had no responsibility for this aspect. I also accept that the principal contractor might have dictated the order in which different walls were to be built, but this would clearly be dictated by the coordination of the different building tasks, and not something remotely influenced by whether the workers were controlled employees or self-employed contractors. I can see no real relevance thus to the above inevitable aspect of control. I should emphasise that I reach this conclusion not because most of this aspect of control was exercised fundamentally by the main contractors (which may indeed not be relevant, on the authorities) but rather on the point that this element of control would have had to be exercised, however clear the sub-contractor status might have been, so that this factor can hardly be indicative that the workers were employees rather than sub-contractors. 
90.     The Respondents tentatively suggested that such things as working times and times for meal breaks were a feature of the exercise of control by the Appellant.   I accept that the maximum working times were governed by the “health and safety” requirements as to when the site could be open, and beyond that I accept the Appellant’s evidence that workers could work shorter hours if they pleased than the full hours that would have doubtless best suited the Appellant. As to meal breaks, since it is a well known-tradition in the building industry that there is a mid-morning break at 10.30, and a half-hour break for lunch at around 1.00 p.m., I cannot think that these common aspects can be attributed to any exercise of control by the Appellant.   Beyond that, I also accept the Appellant’s evidence that there were occasions when the principal contractors insisted that some workers would have their lunch break at say 12.30 p.m. and others at 1.00 p.m. where the canteen or covered area was too small to house all the workers on site at one single time. This represented again an element of common-sense administration on the part of the principal contractor, and not an example of any exercise of control that can coherently have any influence on the question before me. 
91.   On the perhaps more critical question of whether the Appellant, or indeed the principal contractors, told the bricklayers how to lay bricks, it was never suggested that they did. Since many of the workers were, I understand, highly skilled and experienced, I imagine that they needed no control in this regard and would most certainly not have welcomed it. Rather as Special Commissioner Mr. Williams concluded in MAL Scaffolding v. HMRC SPC 527 in 2006, the bricklayers were probably as fiercely independent as the scaffolders were in the MAL Scaffolding case, and would have been reluctant to accept control from anyone as to how they actually did their job. 
92.  Beyond the fact therefore that the principal contractors ensured that the architect’s plans were followed, and rather obviously that walls were not put in the wrong place or built in the wrong sequence, there seems to have been little relevant exercise of control that can have much influence on my decision.
Mr. Justice MacKenna’s third test
93.   Mr. Justice MacKenna’s third test geared to whether the other terms of the contract, or the absence of terms, was consistent with employment raises the same sort of issues as the issue of the intention of the parties, which I deal with below. 
The test of “being in business on their own account”
94.   I turn now to the very important question of whether the bricklayers were “in business on their own account”.  

95.   It was argued on behalf of the Appellant that there were respects in which the bricklayers incurred risks and could make more profit. For if it rained constantly, they would earn no money, and if on the other hand they worked all available hours, they would earn more money.  
96.  I accept, with the Respondents, that these features do little to satisfy the “own business” test. I certainly accept that it is unusual for employees not to be paid if it rains or if they are ill, but I think that this is relevant to tests such as the “mutuality requirement”, the intentions of the parties, and the issue of whether all the contractual provisions are consistent with employment or not.  
97.   On the easiest of fact-patterns, the business test is most obviously satisfied where the individual has significant items of his own business apparatus, and where his conventional method of pricing jobs might occasion the risk of real loss or the opportunity to make greater profit. Thus plasterers who might be very good or bad at judging the amount of plaster to mix, how to price a job, whether to buy one or another type of plaster or to obtain it from one or another supplier, are obviously managing their business and making more or less profit in many cases according to their efficiency.  That is the sort of risk and opportunity to make loss and profit that is fundamentally relevant in the context of the “own business” test. And that seems notably absent in the case of the present bricklayers.  
98.   There are, however, still some differences between the bricklayers whose status is in dispute in this case and the apprentice bricklayers who were employees. The Appellant paid for and owned the hand tools used by the apprentices, it provided their safety clothing, and paid for their training days. By contrast the bricklayers engaged as self-employed owned their own hand tools. These were, as described, more extensive than just the bricklayer’s trowel. They paid for any courses that they attended, and were of course not paid when doing so.  They had to pay for their high-visibility vests. The employees were given transport to site, whilst the sub-contractors drove themselves or shared transport. Admittedly their Hilti guns and Stihl saws were owned or hired by the Appellant but this resulted from the obvious point that on a large site only one of each was required so that it was quite unnecessary for each bricklayer to buy a Hilti gun or Stihl saw. 
99.    It is also worth dwelling for a moment on the crucial differences between the bricklayers and the plasterers that put the latter clearly on the self-employed side of the dividing line. Those differences are the possession of more tools and the common provision of plaster by the plasterers, and the feature that plasterers will often be paid (though not always) by reference to rooms plastered for instance, and not necessarily on an hourly or daily rate. Most of these differences result however from obvious considerations that are not particularly fundamental to any difference in nature between the two trades. On a large site there were often, I was told, numerous bricklayers. They could hardly all select their bricks, or indeed buy and transport the bricks individually to site. Equally even the mortar, “muck” or “gobbo”, is no longer mixed on site in cement mixers but is delivered by trucks on a “ready-mixed” basis.     Bricklayers could be paid, and I was told were indeed occasionally paid on the small sites, on the basis of a fee for a given quantity of bricks, but I accept that there were two good reasons why this was impossible on a large site.  It was first impossible to undertake calculations of how much of each wall each bricklayer had built, and bricklaying is something that cannot and should not be over-rushed. In all these respects plastering is different, even down to the fact that it must be done quickly.  But these differences are in a sense secondary to the common fact that both trades will be working side by side, both engaged on identical terms, exercising their very real respective skills and under identical “control” or lack of control.     
100.   In my judgment however the bricklayers go yet further to satisfying the business requirement in a different respect. Bricklayers have all undergone a considerable training, and a period of apprenticeship. Many are experienced and many are very good indeed at their trade. They often have great pride in their work. One of the remarks made by Mr. Botham that somewhat illustrated this was his remark that if you blind-folded the bricklayers, they would all be able to identify their own hand-tools by feel.  The point that I make from this pride and respect for their trade is that “brickies” do have their trade, and that trade is likely to remain their trade whoever they happen to work for. Thus if in conversation with a bricklayer you asked him his job, I suggest that he would say “I am a brickie”, rather than refer to any firm for which he was currently working. If he worked, man and boy, in the one firm, the answer might be different, but when the Appellant in this case is somewhat akin to a bricklayer’s agency for delivering services on numerous sites to numerous main contractors (possibly Wimpey, Barratts and others) I very much doubt whether a brickie would say “I work for Castle Construction”.  Illustrating the same point, if you asked a brickie how he viewed the prospect of the severe contraction in work in the building industry at present, I suggest that he would say, with concern, that “work will be hard to come by”.  He would not say that he was in fear of losing his job with Castle Construction. 
101.     The two bricklayers who gave evidence did not, I understand, work in a gang, though one very often worked with a particular colleague. I was told however that quite a number of the bricklayers worked in gangs together, and had a very marked preference to work together. Where thus they moved together from one engagement to another, I think that this adds further colour to the claim that their trade is the constant thread between the engagements that merely enable them to ply their trade.     
102.   It thus seems to me that the brickies do in a real sense have a trade and a business that is broader than their individual engagements. This argument is not the sort of “knock-out” blow that would result from a full business with management, risk and a profit and loss account, but it is more real than the Respondents credited, and when supported by other strong pointers in support of the self-employed status, contributes to this appeal being allowed. 
The nature of Castle’s role
103.   It has apparently become more common in the building industry for the main contractors (often the household-name building companies) to sub-contract many of the trades on the building site to other specialist companies. This would often have been common for scaffolding, but the practice now apparently extends to bricklaying, tiling, joinery, electrical installation, plumbing, kitchen fitting, so that the main contractor almost becomes just a project manager. The result of this practice is that the Appellant has a slightly unusual trade in that while it engages all the bricklayers, labourers and scaffolders, they all work on sites operated by a main contractor. I understand that in a very few cases, the Appellant has undertaken its “own developments”, where I imagine that it may sub-contract to others those trades in which it has no specialisation, but its main activity by far is just to undertake sub-contract work. 
104.   There does appear to me to be some significance in this feature of the Appellant’s general role where it undertakes sub-contract work for main contractors, and does so with a casual work-force. This is that this feature inherently means that any control that is exercised is almost invariably exercised by others than the Appellant.  That control is then geared to the coordination of work activity on a site, and compliance with architect’s plans, which will apply to all trades on site.    Although it has been stated that the Appellant’s workers had to correct any bad work in their own time and not on a paid basis, there was never a reference in any of the first-hand evidence, or cross-examination to the Appellant inspecting work standards.    There was assumed to be little need for that with experienced bricklayers, and what inspection was done was presumably done by the main contractors. 
105.    Another consequence of the nature of the Appellant’s role was that the workers would be less “part and parcel” of any establishment of the Appellant. Whilst working on a Wimpey site, albeit wearing a high-visibility Castle jacket, the bricklayers would presumably consider themselves to be building Wimpey homes, and their work standard would reflect on Wimpey. It is wrong to say that Castle was almost a booking agent for bricklayers, but had it in fact acted as an agent, with a responsibility to administer and pay the workers provided through its agency, no-one would have thought of contending that the workers were employees of the principal. While I accept that there was not an agency structure, and that there was a sub-contracting contract between the main contractor and the Appellant, and then contracts between the Appellant and its workers, the affinity with the booking agency parallel does tend to undermine the reality of the employment argument. 
The intention of the parties
106.  Whilst attaching unrealistic labels to contracts will not change the properly analysed status of employees or independent contractors, several of the decisions, including in particular Massey v. Crown Life Insurance do confirm that the intentions of the parties can be very important, certainly influencing the analysis of the status in borderline cases, and possibly having a greater effect in some respects. 
107.      The notable points in the present case in relation to intentions are that:
•	both parties consistently said in evidence that they wanted the relationship to be one of self-employment, genuinely understood it to be one of principal and sub-contractor, and the Appellant knew that this had been extensively reviewed by HMRC in 1999 to 2000 and confirmed to be correct;
•	when the Appellant had broached the subject of a forced change of status on its workers, following the contentions advanced by HMRC, it was said and not disputed that many workers had left in protest, and that the Appellant had had to reduce its main contracts to match its reduced labour force, and apparently it thus abandoned the proposed change, save for one category of head-office supervisors;
•	from the perspective of the Appellant, the advantage of the preferred arrangement was that it provided the flexibility to match its demand for labour to its available work load;
•	 additionally it reflected the fact that many of the people it would wish to engage had CIS cards, and regarded themselves as self-employed and expected to be engaged on that basis;
•	from the perspective of the workers, the self-employment status gave them two important flexibilities. It enabled them to switch engagements for more money, given the opportunity. It also enabled them to work the hours they wished.  I was told that those with families and responsibilities would thus often take the opportunity to work full hours and take few holidays and breaks. Those who were only interested in earning enough for beer money at the weekend would work much shorter hours, once they had enough money for the beer and living expense.  In contrast to many of the reported cases, consideration of the weekly time-sheets shows that these flexible terms were the essence of the arrangement here, rather than merely some technical right to choose work times that was never exercised in practice; 
•	an additional major advantage to the workers was that their hourly rate was considerably higher than their hourly rate would have been as full-time employees. Leaving the tax and NIC considerations to paragraphs 108 to 111 below, a major contributory factor to the higher hourly rate was the fact that the workers were only paid for hours worked, and were not paid when on holiday, when ill, or when work was impossible either because of weather, or the completion of the project. Whilst this approach would even itself out for the worker who took traditional holidays and suffered average illness, for the worker who was prepared to work all hours, it obviously produced more money for the worker, and more work for the Appellant. 
108.   In the Massey case it was implicit that the reason for the agreed change of status (albeit in itself regarded as realistic) was to derive tax advantages, and that did not remotely stop Lord Denning and the two Lords Justice from respecting the change. In the present case the factors that I have listed above were genuine and not related to any tax advantage. So far as tax was concerned in this case, all workers were paid net under the CIS machinery and the Respondents did not suggest that any significant Income Tax had been lost or affected by the self-employed status. The case was thus about the loss of Class 1 primary NICs, required to be deducted from employees’ pay, and Class 1 secondary NICs required to be paid by the employer, as employer contributions, on top of pay. Three observations are relevant in relation to these NIC considerations. 
109.    First, NICs are slightly different than normal tax in that whilst they in no way fund benefits available to employees, and the SERPS pension is in no way actually funded, there is nevertheless some correlation between the contributions that an employee has made and the benefits that he might get when unemployed, sick, and certainly in retirement. I do not suggest that employee and employer can eliminate a liability to NICs merely because they may think the SERPS pension and other benefits a poor return for the contributions paid. Indeed there was no suggestion in this case that that equation had been considered.  But it is nevertheless a fact that the self-employed man knows that he is “on his own” as regards pension, and some other benefits. He can and often will contribute to a private pension, and obtain an Income Tax deduction on doing so. Or he may simply assume that in later life he will have pensioned employment. But he will not earn a SERPS pension whilst being self-employed.    
110.    The second consideration is the corollary of the avoidance of the NIC costs, which is that the Appellant can afford to increase the hourly rate, because it will not have to pay secondary Class 1 contributions, and the employee will also avoid the primary NIC deductions. It was not quite proven that all the savings in this regard were enjoyed by the worker, rather than pocketed by the Appellant, but there is certainly every indication that that was the result. That may partly, or even largely, account for why the workers were so incensed at the proposed forced change of status, because it would certainly have been the case that the wages as employees would have been considerably lower. This would have reflected all the additional risks encountered by the employer, holiday pay, sick pay, as well as employers’ NIC etc. But in the meantime it is the workers who have taken the higher wages, reflecting the status agreed between the parties. A consequence thus of the clear intentions of the parties in this case is that the workers have been paid very considerably more than they would have been paid had the parties intended the relationship to be one of employment. And no-one can now change that clear result of those clear intentions.
111.   The third point is thus the incongruous, though perhaps irrelevant, one that the bill would fall somewhat unfairly in this case on the wrong party were the appeal to be allowed. Lord Denning very much made the point that once the parties had made their bed, they must lie on it.   In this case, were the appeal to be allowed, both parties would still be consistently supporting the structure that they had adopted, whilst the Appellant would become liable for both the employee and employer NICs, one of which at least should have been suffered by the workers. To add insult to injury both the primary and secondary NICs would all be calculated by reference to the inflated pay that it could afford to pay to sub-contractors, and which was very considerably higher than the wages that would have been paid to employees.  There does seem to me to be some relevance to this fact in that the level of payments has all reflected the joint intentions of the parties, based on a structure jointly intended by the parties for a number of perfectly valid reasons, and having considerable reality. And if a third party now undermines that structure, the tax bill, measured on the wrong amount, would fall, in a realistic sense, on the wrong party. And, as a final completely irrelevant consideration, the Appellant would be insolvent. 
Standing back and looking at the overall picture
112.   I turn now to the key question of weighing the factors on each side of this argument, and of looking at the overall picture. At this stage, I am still just considering the status of the bricklayers. 
113.    In favour of the conclusion that the bricklayers are employees are the facts that they do only supply their skill and work; they only provide their hand tools; some or most may work fairly regular hours; some may continue under contract with the Appellant for fairly long periods; and somebody could certainly require them to correct or replace faulty work. They also fail the “own business” test in many respects, at least when that is applied in a traditional manner.
114.     In favour of the conclusion that they are self-employed are the facts that;-
•	they do genuinely have a trade and a skill that underlies any of their particular engagements from time to time. This may not be the decisive factor that it clearly would be if the workers conducted a business with real management in which they could make more profit or suffer loss, according to their skill or lack of skill in managing the business. The feature however that the brickies do genuinely have a trade that continues possibly through countless engagements, and that those engagements are the almost marginal contracts through which they conduct their continuing trade is a far more important point than the Respondents gave credit for;
•	their hand tools are more significant than merely the brickie’s trowel; 
•	the shared use of a Hilti gun and Stihl saw apart, they use no other tools than those that they provide themselves;  
•	the terms on which they are engaged as regards lack of notice, flexible working hours, basis of payment and responsibility to correct mistakes in their own time are all inconsistent with the “touchstones” of normal employment contracts.   All of these points diminish the significance of the engagements, and give further support to the first point made above;
•	 those terms are genuine and attractive to both parties for good reasons, including tax and totally non-tax considerations; 
•	they are terms deliberately agreed and terms that are reasonably common and traditional in the building industry; 
•	the level of pay has reflected the basis of the clearly agreed intention of both parties, reflecting the “work and pay” feature and the tax expectations;
•	the facts demonstrate that there is dramatically more reality and substance to the flexibility available under those terms than there has been in the bulk of the reported cases; 
•	no material control appears to have been exercised or to be exercisable over the brickies either by the Appellant or by the various main contractors;
•	whilst there was no actual evidence in relation to industry practice and tradition, it was certainly assumed and believed that countless workers in the building industry are “on the tools”, and not “on the books”, and the Appellant’s case for saying that this is realistic, certainly in its case, is a particularly good one;
•	 and finally the very nature of the Appellant’s somewhat intermediate role further erodes any bond between the brickies and the Appellant.
115.    I need now to consider whether I should draw any distinction between those bricklayers who may only work for short periods for the Appellant and those who may have worked for quite considerable periods for the Appellant. I agree with the Respondents that on appropriate facts a person can be an employee when engaged for only a short period. The converse also appears true to me. I find it inconceivable that I should place some time period on the length of contract for which a brickie might work for the Appellant to sustain and retain the status of self-employed sub-contractor. The same reality of flexibility applies to all, and all of the other factors considered in paragraph 114 above apply equally to those who work for short periods and those who work for longer periods. 
116.    My decision is that all the brickies were rightly classed by the Appellant as self-employed. 
The other categories of worker
117.    Beyond the 217 bricklayers who were engaged at some point or another in the relevant year, this case also included appeals in relation to the payments to:
•	12 scaffolders;
•	75 labourers, being labourers both for bricklayers and scaffolders;
•	6 foremen/foremen bricklayers;
•	2 supervisors (supervising the labourers);
•	6 fork-lift drivers;
•	1 driver; and
•	2 slinger signalmen (who direct crane operators either by signal or by radio).
118.    I find the status question in relation to all these workers to be more balanced than that in relation to the bricklayers. In the case of the scaffolders it seems to me that all the points made above in relation to bricklayers apply equally, save that I assume that they have fewer hand tools, and I also question whether the continuing thread of their basic trade is quite as dominant as I believe it to be in the case of the bricklayers.
119.   Much the same reservation applies to the 75 labourers.  Their main function was to ensure that bricks and mortar were always provided to the bricklayers they were working with, so that the bricklayers could work without interruption. Again everything above applies as regards their terms of engagement, flexibility and control.   But I have yet more reservation about the notion that being a labourer is quite as much a trader first and foremost, with the continuing thread of the trade predominating over the particular contract that enables the labourer to ply his trade currently. I do however accept that skills and stamina are required and that many labourers work in gangs with their brickies, and many stick to the same activity. I can, however, attach little importance to the provision of tools, being confined to a shovel, bucket and barrow. 
120.  The foremen bricklayers and the supervisor sound to be closer to the establishment of the Appellant. It was in fact illustrated in evidence, that the two categories probably spent much of their time working as bricklayers and labourers respectively, and that they were only distinguished in that they performed the role of liaising with the main contractors. I was told that they were in no way Castle supervisors, and that they were in no way more “part and parcel” of the Appellant’s establishment, or head office function, than the bricklayers and scaffolders. 
121.   The trouble that I have with the fork-lift truck drivers and the one man described as “driver”, who I believe simply drove a lorry, is that those 7 are fundamentally operating expensive plant owned or leased by the Appellant; they must logically be subject to more potential control in that it must be the case that there must be various directions as to how to operate, and care for, the equipment. Furthermore, whilst there might well be a somewhat special skill in operating a fork-lift truck, there is doubtless no difference in driving a builders’ lorry than in driving any other lorry.    
122.     My conclusions in relation to these other categories of worker are as follows.
123.   Partially in reliance on the MAL Scaffolding case, but also because their casual terms of engagement were identical to those of the bricklayers, and that to some real extent, they also conduct “their trade”, regardless of the particular business for which they currently work, I consider that the scaffolders were self-employed.
124.     Although for the reason given above, I consider the case of the labourers, both those for the bricklayers and for the scaffolders to be more finely balanced than the case of the bricklayers and scaffolders, when they work side by side with the bricklayers and scaffolders, and work on identical terms, I consider that their status is the same as that of the bricklayers and scaffolders, as self-employed.  
125.    I accept the evidence that the foremen/bricklayers and the supervisors of the scaffolders  both worked as bricklayers and scaffolders and that their only distinction is that they were effectively the “team-leaders” who also performed the role of interpreting and passing on the instructions of the main contractors. Whilst this factor mildly suggests that they are being incorporated into the establishment of the Appellant, they nevertheless entirely remained site-workers, engaged on precisely the same terms as the main categories, and I reach, with some reservation, the same conclusion in relation to them.   They were also self-employed. 
126.    I consider that the fork-lift truck drivers and the lorry driver fall into a different category. Partially in reliance on the authority of Lord Widgery CJ’s decision in Global Plant Ltd v. Secretary of State for Health and Social Security, but also because these men were operating expensive plant owned or hired by the Appellant and must have therefore been subject to more control in the use of that equipment than the bricklayers and scaffolders, I consider that notwithstanding their casual terms of engagement, they should rank as employees.  In the case of the lorry driver, I find it difficult, the casual terms of engagement apart (and they are indeed important), to distinguish the lorry driver from the men driving countless other building and non-building lorries, and I cannot think that they, as a general rule, are self-employed. 
127.   The two slinger/signalmen appear to me to have spent part of their time as labourers and not to be operating the plant that swayed my decision in relation to the fork-lift truck drivers and the lorry driver, and I consider that they were thus self-employed. 
Closing remarks
128.   It is of course possible that either party may appeal against this decision and that the decision may be over-turned on appeal. 
129.   In the event that no appeal is brought or that the appeal is dismissed, the consequence of this decision will be that some tax and NICs, in respect of the two small categories where I have decided that on balance the workers were employees, will be due by the Appellant.  I can quite understand that HMRC cannot challenge cases of this nature, and concede that where they succeed, the employee analysis will only have future effect from the date of the final decision. Were that the practice, then countless businesses could advance feeble arguments that workers were self-employed and there would be no disincentive to this practice.

130.    In this case, however, it seems to me to be particularly unfair that the change of status should apply to the period prior to the date of any final decision.   This is not a case where the Appellant has advanced a weak argument on the status issue, in conflict with industry practice. The Appellant appears to have had a particularly casual basis of engaging its workers, and so appears to have been on the stronger side of a difficult dividing line than others in the industry, who I am led to believe, and do believe, have operated similar practices. The Appellant was also relying on a ruling given by HMRC in 2000, given, it was said, after great consideration was given to “various factors”. I am certainly not convinced that the Appellant’s practice had changed in the intervening years.   I have also found the case to be very difficult, and in particular I have agonised about whether the minor categories should fall on one or other side of the line. 
131.     In view of all these factors, and of the crucial fact, based on the intentions and expectations of both parties, that considerably higher pay has been paid to the men who I now say should be classed as employees, it would seem to me to be fair and appropriate that this status should apply only in future, and not for past periods.   Of course I understand that I have no jurisdiction in relation to this suggestion, and I understand that the effect of this decision in relation to the 7 specified workers is that tax and NICs will strictly be due from the Appellant in respect of the year 2006/7, and presumably 2007/8.

HOWARD M NOWLAN
SPECIAL COMMISSIONER

RELEASED: 3 December 2008

SC 3207/2007