In MDCM v HMRC, the FTT has decided that an individual, Mr Daniels, who provided construction management services indirectly to construction companies through a company owned by himself and his wife and an intermediary company was not effectively an employee of the intermediary company and so the IR35 rules did not apply to require his company (MDCM) to operate PAYE on its fee income.
The arrangements in question involved MDCM contracting with (and supplying Mr Daniels’ services to) the construction company via an independent introductory company (STL). MDCM entered into a contract with STL and STL entered into a contract with the construction company. HMRC argued that Mr Daniels provided his services to STL and if Mr Daniels and STL had contracted directly he would have been an employee of STL.
The FTT considered that although STL had a high degree of control over how Mr Daniels conducted his work, this was dependent largely on the stage that the construction project was at and applied to all workers whether employed or self-employed and, importantly, it was common practice for construction projects to use a large number of self-employed workers. There were other factors, such as no entitlement to employee benefits or to a notice period and being paid on a daily rate, that pointed to self-employment. Weighing up all of these factors, the FTT decided that Mr Daniels was a self-employed contractor and would not have been an employee of STL had he contracted with it directly.
The case highlights the increasing difficulty in distinguishing between employed and self-employed workers where both are common and a business will require a degree of control over its self-employed contractors as well as its employees, and the difficulty that HMRC has in successfully applying the IR35 rules to many modern working practices. This is, at least in part, why the status and tax status of workers is being considered carefully following publication of the Taylor Review last July.