In Slush Puppie Limited v HMRC [2012] UKFTT 356 (TC), the First-tier Tribunal (‘FTT’) has confirmed the process that it should go through in determining whether a person is employed or self-employment.

The facts

Slush Puppie Limited (‘SPL’), the well-known makers of the frozen drink, agreed in 2001 to buy the business of one of its distributors, Cambusnethan Confectionery Company Limited (‘CCC’). A draft Sale Agreement was put in evidence at the hearing before the FTT, although a final version was not produced. From the draft agreement it appeared that SPL wanted to keep the business running under their new ownership and wished the transition to be as smooth as possible. All staff became members of SPL except for Mr Sandford, a director and shareholder in CCC. The reason for this was that SPL’s service engineers were all self-employed and SPL wanted Mr Sandford to follow this practice. Although no formal contract was drawn up and no notice period agreed, Mr Sandford was paid a daily rate of £120, together with a monthly “consultancy fee” of £236.58 plus VAT. Mr Sandford did not, however, receive holiday or sick pay.

The key elements of Mr Sandford’s conditions of work were:

  • Mr Sandford set up an unincorporated consultancy business which invoiced SPL for the agreed daily rate and his monthly consultancy fee.
  • SPL was in practice Mr Sandford’s new business’ only customer.
  • Work requiring Mr Sandford’s type of skills were offered to SPL’s service providers, such as Mr Sandford, who were treated as independent service providers. The offers of work could then either be accepted or rejected by them.
  • Mr Sandford accepted the offers of work within his area of expertise if it was possible to undertake the work, taking into account the distance that might be involved in getting to the place where the work was to be carried out. He would only reject jobs if they were out of his area.
  • The process of offering jobs to service providers was computerised and involved little or no human intervention on the part of SPL, so that if the nearest service provider rejected the offer of a job it would automatically be offered to another and SPL could not oblige a supplier to take the job on.

SPL’s supervision of Mr Sandford was restricted to ensuring compliance with public law obligations. SPL also provided Mr Sandford with a vehicle but he paid for the petrol and insurance himself. After five years Mr Sandford stopped working for SPL.

HMRC’s view

HMRC issued a notice to the appellant under section 8 of the Social Security Contributions (Transfer of Functions etc) Act 1999, on the grounds that Mr Sandford was one of its “employed earners” between 6 April 2002 and 5 April 2007 and that it was liable for primary and Class 1 National Insurance Contributions (‘NIC’s') amounting to £32,312.23. HMRC also issued a determination under Regulation 80 of the Income Tax (Pay As You Earn) Regulations 2003, SI2003/2682, that SPL was liable for £6,309 income tax. SPL appealed contending that Mr Sandford was self-employed.

The FTT’s decision

The FTT analysed the relevant case law as set out in authorities such as Hall v Lorrimer [1994] 1 All ER 250 and Express & Echo Publications Limited v Tanton [1999] IRLR 367. It is clear from case law that:

  • The FTT should establish the terms of the agreement between the parties which is a question of fact.
  • The FTT should then consider whether any of the terms of the agreement are inherently inconsistent with the existence of a contract of employment, which is a question of law.
  • If there are no inherently inconsistent terms, the FTT should determine whether the contract is a contract of service or a contract for services, having regard to all the terms. This is a mixed question of law and fact.

Applying the above criteria, the FTT was in no doubt that Mr Sandford was not an employed earner but was self-employed. The relationship between Mr Sandford and SPL was essentially flexible and pragmatic, and the fact that neither party insisted on having a written contract was a further pointer to the essentially ad hoc nature of the relationship. The FTT said:

29. … both Mr Sandford and SPL intended that, in his particular case, the transition would take the form of self-employment as a service provider to SPL, on terms as to payment and benefits which were very much more favourable to Mr Sandford than they were to other service providers. Mr Sandford was well accomplished in his work, and he was trusted to ensure the jobs were carried out, whether by him or by another…

31. The circumstances of his financial and organisational independence of SPL point strongly away from employment. That Mr Sandford chose not to undertake any other business during the five years from the sale by CCC is clearly attributable to his financial interest in profiting from the sale being a success; immediately when that ceased to be the case, he was quick enough to move into the same type of activity through the setting up of Cambusnethan Slush Limited. The relationship lasted exactly as long as it was profitable for Mr Sandford for it to last, and no longer.

Comment

Employment status cases will inevitably turn on their individual facts. It is, however, noteworthy that the taxpayers evidence was accepted by the FTT and all the witnesses, including Mr Sandford, were adjudged by the FTT to be honest. The case demonstrates the importance of proper case preparation when conducting a contested appeal hearing before the FTT.