Income Tax PAYE Determinations Whether Individual an Employee No

SPC00599

Income tax – PAYE determinations – whether individual an employee – no

National insurance – status decision – whether individual an employed earner – no

THE SPECIAL COMMISSIONERS

PARADE PARK HOTEL (1)

PAUL MAY (2)Appellants

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMSRespondents

Special Commissioner: JOHN CLARK

Sitting in public in London on 14 December 2006

Dave Smith, Chartered Tax Adviser, Accountax Consulting Ltd, for the Appellant

Chris Cumming, Appeals Unit, HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2007

1

DECISION

1. These appeals concern an employment status dispute. The first Appellant, Parade Park Hotel (“PPH”) and the Second Appellant, Paul May, contend that Mr May was an independent contractor carrying out work for PPH. The Respondents (referred to for all relevant periods as “HMRC”) contend that Mr May was employed by PPH. The dispute relates both to National Insurance Contributions (“NICs”) and income tax. A Direction was made that the appeals of PPH and Mr May should be heard together.

The facts

1. The evidence consisted of a bundle of documents, together with witness statements given by Mrs Nita Derrick and Mr May; Mrs Derrick and Mr May also gave oral evidence. The bundle contained a statement of facts not in dispute. On the basis of the evidence I have found the following facts; where there was any dispute as to the facts, I consider the disputed matters later in this decision.
2. PPH is a partnership between Mrs Nita Derrick and her husband David Derrick. Mrs Derrick had purchased the hotel business in 1996. At the time, David Derrick carried out some of the maintenance work. In 1999, PPH started an expansion project, as a result of which about 35 rooms required painting and decorating. A firm named ABC Builders was hired to carry out the decorating work. The work was initially carried out by three individuals; these were someone called Steve (who owned the business), Mr May and Paul Kain. All three of them were self-employed painters and decorators. Before the work had been completed, Steve decided to close the business down, giving PPH only a week’s notice that he would be doing so. As PPH had been “let down” and the work had not been finished, Mrs Derrick approached Mr May and Paul Kain and asked them if they would stay on until the work was complete. They agreed, and quoted an estimated price for the remainder of the work; they decided how much they could do. The whole job took about two months to complete.
3. At some time before the middle of 1999, Mr and Mrs Derrick separated. Mr Derrick moved out and Mrs Derrick continued to run the hotel by herself; Mr Derrick remained a partner in the business. Although initially she did not think that she would need any help, because all the rooms had recently been revamped, it soon became clear that help would be required. As Mr Derrick had always dealt with the maintenance, PPH did not have an employed maintenance man on its books. Mrs Derrick approached Mr May to ask him to carry out another decorating job; he agreed, and quoted a price for completion of the work. Later Mrs Derrick realised that there were various other maintenance jobs that also required attention, so she offered Mr May some of the general maintenance work, and he agreed. Initially he quoted a price for each task; he could not remember whether the quotations at the beginning had been in writing, but later quotations were given by word of mouth.
4. Subsequently Mr May stopped providing quotations to Mrs Derrick, and she agreed to pay him on the basis of a daily rate rather than pricing each job separately. (Initially the rate was £65, and in February 2002 it was increased to £70.) Mrs Derrick realised that Mr May would in her view be “unemployable” as he would often be unreliable if he had a hangover. During the period under appeal, there was no written contract governing the arrangements between PPH and Mr May.
5. Initially Mr May worked for a total of five days a week, but later this changed to three days, five days or nothing in a week. (The records of PPH’s payments to him are considered below.)
6. The maintenance jobs needing to be done were listed in a maintenance book, which was checked regularly by Mrs Derrick and Mr May. He also carried out regular checks around the hotel and identified problems needing attention, which he then mentioned to Mrs Derrick as suggested additional work. He would decide what he wanted to do, and would work through the list in the order which he decided. He had the discretion to refuse to do any of the jobs on the list. The types of work which he refused were electricians’ work, plumbing and building, and generally anything outside the category of easy or routine maintenance; he did not carry out tasks for which he did not have the knowledge or expertise. He also refused to do wallpapering. Mrs Derrick could not require him to stop one particular task and move to another; she could only ask him to do so, for example where an emergency job required Mr May’s urgent attention. She accepted any of his refusals to carry out particular maintenance tasks and would simply deal with the tasks herself or find other people to deal with them.
7. Mrs Derrick considered it her duty to make a general check of the hotel facilities, especially before the weekend, so was aware of what work Mr May had done; she accepted the description which Mr May had given of her at a meeting with HMRC, that she was “a bit of a Rottweiler”. She kept tight control over the whole hotel.
8. As well as being able to choose what work he would or would not do, Mr May could also decide which days he would come to the hotel to carry out the work. Initially he appeared to Mrs Derrick to be reliable, but after a while, she realised that he would often not arrive to deal with a particular task. He often had a hangover after consuming too much alcohol. He suited himself when he would turn up. Mrs Derrick accepted this arrangement without complaining to him and continued to use him for the work, as he was not expensive and the cost for PPH was not unreasonable.
9. Mrs Derrick accepted that it was Mr May’s decision as to whether or not he wanted work. She considered that he had the freedom to choose the hours he worked, and she did not tell him when to work or what to do.
10. As Mr May was not required to work set days or hours, he often tried to make the work fit within the days which he worked. His choice of what hours and what days to work was often influenced by his alcohol problem. The time taken to complete all the jobs on the maintenance list varied, depending on the number and size of jobs on the list. He accepted that if he did not turn up because he did not wish to do certain jobs, he would not be paid. There was a period when Mr May considered that the work for PPH had “dried up”; during this time he did work for other clients.
11. It often happened that Mr May said that he would be coming to the hotel and failed to turn up. During the relevant period there were times when he would not turn up for weeks, and other times when he would come, but not necessarily when he had said that he would.
12. Mrs Derrick gave Mr May permission to hire an assistant if he needed someone to help him carry out some of the jobs, although nothing was agreed in writing. On one occasion when wallpapering needed to be done, Mr May arranged for Paul Kain to come in and deal with the job while Mr May assisted. Mrs Derrick paid Paul Kain direct, as this was easier for Mr May’s books. There had been no occasion on which PPH had paid Mr May for work done by anyone else. Mrs Derrick would have needed to vet any person working at the hotel as a substitute for Mr May, and would need to be assured that the person was honest, as security was important in a hotel. She would have asked how Mr May knew the person. She felt that she would be able to accept a suitable substitute. Mr May stated in evidence that he would not have sent anyone whom he did not trust.
13. Mr May was not required to attend for specific hours. He attended when he wanted, normally arriving between 8 and 9 am, but sometimes not until 10.30 am, and normally left at some time between 5 and 7 pm. When he did attend, he worked until he had finished the items on the maintenance list which he had decided to deal with. He considered it advisable to complete the work, as there was a risk of Mrs Derrick deciding to stop providing any more work for him to do. She took a general global view of his hours, although she was not aware of the precise actual hours for each day. Normally he did not attend for short periods such as one hour, as fuel costs would have made this uneconomic. Mr May considered that Mrs Derrick expected a reasonable amount of work for the amount paid; what mattered was the amount of work, not the total of hours worked. For some of the work, the hours were dictated by the times when the rooms were vacant. Routine maintenance work could be fitted in between work on the rooms, or left to another day. On some occasions Mr May would split a day.
14. Mr May could decide what jobs he wished to carry out on a particular day if he wanted to finish early. If there was an emergency job which urgently required his attention, Mrs Derrick could ask him if he wanted to undertake the job but could not make him. Although his work was generally very good, there had been some occasions when she had had to ask him to put right work which was not satisfactory. Sometimes this had required him either to be at the hotel outside normal working hours or to travel back to the hotel outside working hours; this was in his own time and at his own expense. He made it clear that he was not generally paid anything extra for putting these matters right, although it had happened once in a year that he had been called out outside working hours to do extra work, and this had been added to his hours for the following week.
15. In the light of the arrangements between PPH and Mr May, Mrs Derrick did not feel obliged to offer him any work, nor did she expect him always to turn up. This flexibility worked both ways. At the beginning she telephoned Mr May to tell him about available work; later the position was that more often than not, work was available, so he would go to the hotel on the assumption that there would be work for him to do. If there was work, it was reasonable to expect that he would be paid for doing it; he would not do further work for anyone who had failed to pay him for work which he had done. He would not bill for a day’s work if he did not do anything; the way the arrangement with PPH worked was that if a job was done, it would be paid for.
16. There were some occasions when Mrs Derrick had no work for him to complete, so she would telephone him to let him know that he was not needed. Usually, however, there was work available for him to do. For his part, Mr May was very unreliable and would either unexpectedly turn up or would not turn up at all. Mrs Derrick was aware that this was a result of his serious alcohol problem. (Mr May candidly acknowledged in his oral evidence that he was a self-confessed alcoholic.) At one stage Mr May was absent about once a week on a regular basis, but this had now reduced to about once a month. Because of the nature of the arrangement Mrs Derrick did not warn him about his behaviour. He was a good worker when he turned up and was familiar with the hotel building.
17. Mr May had his own car and motor bike, and did not use Mrs Derrick’s van. He used his own tools such as steps, brushes and screwdrivers and provided his own clothes. He had his own ladder; when he had to bring in larger items, he used his car, but normally he used his motor bike to travel to the hotel. He did not use PPH’s own equipment, which was locked away. His accounts showed expenditure of £1,600 on equipment. PPH supplied the materials because this was cheaper and PPH could reclaim the VAT on such items, whereas Mr May could not do so as he was not a registered taxable person. Occasionally he purchased small items and was reimbursed the cost by PPH; Mrs Derrick either gave him cash or a cheque, depending on the amount involved. These payments were made separately from the payments for his work. Any materials left over belonged to the hotel. He did not receive holiday pay from PPH, did not have to request permission to take holidays, and was not required to inform Mrs Derrick that he was not coming in. He did not receive sick pay from PPH, and was not entitled to partake in any grievance or disciplinary procedures. During the period under appeal, he did not have his own liability insurance cover. He mentioned work done for other clients; this is considered below.
18. For the period covered by this appeal, the arrangements between PPH and Mr May were not documented in writing; the only written items relating to Mr May’s work were his invoices. These were typed up by whichever member of PPH’s staff was at the hotel reception at the time; one copy was provided for PPH, and he kept another for his accounting records.
19. Mr May explained that during periods when he was not working, he was supported by his partner Catherine. During these quiet periods he would often go fishing and did not feel particularly concerned as long as he had enough money for cigarettes and alcohol. He assumed that Mrs Derrick was happy with his work, as he was still doing work at the hotel. He indicated that if the arrangement between him and PPH were to be regarded as an employment relationship, he would immediately cease to carry out any further work for PPH.
20. Mrs Cumming provided, as an Appendix to her skeleton argument, an analysis of the payments to Mr May. As this was based on the records contained in the bundle, I accept it as a basis for reviewing the figures for the payments to him. The pattern of payments as shown in PPH’s records was that for the majority of weeks from July 1999 to 30 April 2000, he was paid for a five day week. (During this period, which included three quarters and a few additional weeks, 39 payments were made.) For some weeks the amount paid reflected four days’ work. A few of the payments were greater than an exact multiple of £65. In some cases where the total was exactly £32.50 more than the rate for an exact number of days, this may well have reflected additional half days. In other cases, the additional amount in excess of the rate for days plus any half days may have been reimbursement of expenditure or payment for extra work. However, there was no specific evidence to establish the exact reason for the additional amounts.
21. The total paid by PPH to 5 April 2000 was £11,090, whereas the accounts prepared by Mr May’s accountant showed turnover of £13,365.
22. For the quarter to 31 July 2000 the twelve payments corresponded to between four and five days a week. For the following quarter, most of the thirteen payments were either at the four day rate or the five day rate, although the payment for one week was at the rate for only two days. Again, some figures for that quarter did not correspond to the rate for a number of days (with or without a half day). The position for the nine payments in the quarter to 31 January 2001 was similar, but with two odd smaller amounts. For the ten payments made in the quarter ending on 30 April 2001, the rate was mostly that for between four and five days, with one week at the three day rate. The records produced by Mr May’s accountant were different; they showed two payments in that quarter, one at the four day rate and one at a rate corresponding to four and a half days. Mr May’s accounts for the year ended 5 April 2001 showed turnover of £12,991, which differed slightly from the cumulative total shown in PPH’s records.
23. Of the six payments made in the quarter to 31 July 2001, three were at the three day rate, one at the four day rate, one at the five day rate and one at a rate corresponding to four and a half days.
24. For the next two quarters there were differences between PPH’s records and those produced by Mr May’s accountant.