I’m the King of the Castle.. The relatively recently reported Special Commissioners case of Castle Construction (Chesterfield) Ltd v Revenue & Customs Commissioners (SPC00723 – 3 October 2008) makes interesting reading, not least for the bloody nose given to the Revenue in this status case. It’s been said before that most status cases, although generally raised from a taxation perspective, have far greater financial issues for deemed employers in respect of the alleged liability to employer’s and employee’s National Insurance Contributions. In this instance, the Revenue assessment of the amount at stake was about £500,000 in the tax year, 2006/07. The Revenue had not sought to collect for earlier years as it had considered the status of the workers previously and originally determined that everyone was correctly categorised as self employed. Apparently, the Revenue felt obliged to stick with that decision but suggested that the position had changed by the time of the further reviews in 2006 on which this Hearing was based. It was recognised that part of the above liability related to PAYE Tax which, it would be hoped, could be offset by the tax either deducted at source under the Construction Industry Scheme rules or paid through SelfAssessment. Accordingly, the outcome of the revised legislation concerning the transfer of employment status PAYE liabilities following the decision in the Demibourne case (Demibourne Ltd v Revenue and Customs UKSPC SPC00486 (23 June 2005)) may have also impacted on Castle Construction had the decision gone in favour of the Revenue.
A third interesting point is that the case was taken up by the alleged employer rather than the Revenue. Clearly, the Directors of the company felt sufficiently strongly about it’s status as a contractor rather than employer to pursue this line through to the Commissioners. I suspect that many other businesses would have succumbed to the overwhelming might of the Revenue and have given in well before any Hearing. Perhaps in part, the feelings of the Directors were strengthened by the actions of many of the subcontractors when they were advised of the Revenue’s decision to recategorise the subcontractors as employees. As noted by the Inspector of Taxes in June 2006, “Since I visited the company 130 have left and the remaining 70 are due to walk out on Monday”. The consequences of this would be that there was, effectively, no business. Just to raise the rhetorical question, does this demonstrate a significant degree of independence, even lack of mutuality, that would suggest that the status of contractor and subcontractor is, and always was, correct? Be that as it may, the case was pursued further. As has been reported elsewhere, this case involved 321 individuals split into 8 categories of worker, 217 of whom were bricklayers. Because of this, the
Commissioner, Mr Howard Nowlan, concentrated on the bricklayers in making his judgement, which ran to some 29 pages. As you would anticipate, Mr Nowlan spent a large part of his summary looking at the traditional status aspects such as substitution, mutuality of obligations, control, business “trappings”, being part and parcel of the contractor’s business, correction of bad work, and so on. The net result was that the bricklayers, scaffolders, labourers, foremen/bricklayers, scaffolder supervisors and the two slinger/signalmen were found to be selfemployed. The minor successes for the Revenue were seven of the workers, being the forklift truck drivers and a lorry driver. A further point in this case that was drawn out by the Commissioner is that the company was conducting it’s business in a way that would seem to be very open and honest. There was no apparent intention of the company’s behalf to force self employment status on all it’s workers in order to avoid payment of PAYE Tax/NIC as, in fact, it did indeed have many employees. Apart from the Directors, there were full time head office staff employed by the company. In addition, the company also employed trainee bricklayers who, commonly, stayed on as employees for about two years after completing their training. Mr Nowlan briefly consider when and why the current status position had been reached, and by whom. His conclusion was that these were not questions that could be answered as the position will clearly have been determined long ago and would be intrinsically wrapped up in the historical practices within the construction industry. It is not that long ago that the Revenue were having to advertise that the Gross Payment CIS Certificates (since abolished in April 2007) were “Not Certificates to certify selfemployment, but certificates to work without deduction of tax”. Prior to that, there was a popularly held view – not, I hasten to add, held by accountants and tax advisors – that holding a certificate meant that the Revenue agreed you were selfemployed. The remainder of the summary related to the issues surrounding the bringing of the case in the first place and, in my opinion, the misguided views of the Revenue. In terms of preparation, the Revenue does not appear to have acquitted itself very well and, perhaps, picked the wrong business to have a fight with! Even in reaching his decision, Mr Nowlan noted that he only heard evidence from five individuals on behalf of the company, including two of the bricklayers, and the Revenue only bought notes taken in meetings with from the 15 workers interviewed by it prior to the Hearing. This was no major criticism of the Revenue as one would not necessarily expect the Revenue to call on individuals to give verbal evidence in a status case. However, it does imply a lack of documentary evidence to support the contention for employment status and Mr Nowlan specifically mentioned that the Inspector in the case appeared to have already decided that the workers were employees before interviewing a single bricklayer! In the end, I am convinced that the correct opinion was given, although time will tell if the Revenue will return for another round in the Courts. One hopes that the decision will stand, particularly as Mr Nowlan expressly stated that this was NOT a test case, and his decision rested on the particular facts of the case.
Even so, I wonder how many other contractors will look at this case and seek similarities with their workforce, and take heart that David did beat Goliath? or, in this instance, linking to the title of this article, the rascal was the Revenue! Ken Voller FFTA ATT is a tax and business adviser and can be contacted by telephone on 0845 130 6380 or by email: ken@taxbusiness.co.uk