IN THE HIGH COURT OF JUSTICE – CHANCERY DIVISION ON APPEAL FROM THE SPECIAL COMMISSIONER

Royal Courts of Justice, Strand, London – 30th January 2007

Before
THE HONOURABLE MR JUSTICE PUMFREY
Between
Hudson Contract Services Limited (The “Appellant”)
and
Her Majesty’s Revenue & Customs (The “Respondent”)

The scheme of obligations entered into in this manner is, from the practical point of view at least, efficacious. There is no question of seeking to infer a contract of employment between the client and the operative; rather, what HMRC seek to do in the present case is to imply a contract for service between the client and the operative on the footing that if such a contract subsists, then Hudson cannot be said to satisfy the requirements of the section.

Having found, therefore, that there is no obligation to be implied between the client and the operative, the Special Commissioner accordingly held that the only contract under which labour was contracted to the client was provided by the appellant, and accordingly its business consisted of or included such furnishing of labour.

In my judgement, the Special Commissioner’s approach is not to be criticised in this respect. Accordingly, I conclude that the cross-appeal (by HMRC) is unsuccessful.

CONSTRUCTION INDUSTRY SCHEME – whether the Apellant’s business “consists of or includes the…the furnishing or arranging for the furnishing of labour in carrying out construction operations” (s 566(2) Taxes Act 1988) – yes

Whether failure to inspect registration certificates was minor and technical (s 565(4)) – no

THE SPECIAL COMMISSIONERS HUDSON CONTRACT SERVICE LIMITED
- and -
HER MAJESTY’S REVENUE AND CUSTOMS

Special Commissioner: DR JOHN F. AVERY JONES CBE
23 August 2005

SUMMARY OF FINDINGS OF FACT

However strange the written contract between the Appellant and the Operative and between the Appellant and the Client may be, I find that they are valid and enforceable contracts binding the parties to what they have agreed to do.

While the Appellant may be unaware of all the terms negotiated between the Client and the Operative this does not mean they are not binding on the Appellant. One may doubt that anyone would wish to enter into such contract if the construction industry scheme did not exist but this is not avoidance of the scheme; it is the appellant being paid for taking responsibilities under the scheme that would otherwise fall on the Client.

The Client and the Operative negotiate terms, which are expressly not a contract between them.

Given all these factors it is impossible for me to find that there is an express oral contract between the Client and the Operative.

On the evidence before me I would not come to the same conclusion that the Appellant provided only a payroll facility.

Here all parties have negatived the existence of a contract between the Client and the Operative; and the Appellant-Client contract requires the Client to explain to the Operative that his contract is with the Appellant and not with the Client, which I have found the Client does explain; and the Appellant-Operative contract states that the contract is not with the Client.

I also bear in mind that we are discussing the failure to inspect a registration card (without which payment cannot be made net), rather than failure to inspect a certificate (without which payment cannot be made gross). Failure through ignorance to do this (or rather to make sure that the Client does it) does not in my view demonstrate a cavalier attitude of the taxpayer. Indeed collecting and retaining copies of the registration cards demonstrated the opposite and is quiet different from making a payment without asking about the existence of the a registration card.

My decision is:

The Appellant’s business “consists of or includes the… the furnishing or arranging for the furnishing of labour in carrying out construction operations” within s 566(2) of the Taxes Act 1988;

The Appellant’s defaults in relation to inspection of registrations cards during the qualifying period is not minor and technical but in relation to future periods there is reason to expect that the appellant will comply with s 565(8)

DATED the 30th day of August 2005

Before the general commissioners, GC 115/001
Between
Hudson Contract Services Limited
(The “Appellant”)
David Hunt (HM Inspector of taxes)
(The “Respondent”)

JUDGEMENT under Section 12, Sub-Section 4 of the SOCIAL SECURITY CONTRIBUTIONS (TRANSFER OF FUNCTION) ACT 1999 and Section 46(1) of the TAXES MANAGEMENT ACT 1970 BY THE COMMISSIONERS FOR THE GENERAL PURPOSES OF THE INCOME TAX FOR THE DIVISION OF BRIDLINGTON IN THE COUNTY OF THE EAST RIDING OF YORKSHIRE.

This is an appeal against a decision of Andrew Neal (an Officer of the board of the Inland Revenue) Dated 5th December 2000; that Mr. K Williams, Mr. S Gething, Mr D Parkin, Mr L K Smith and Mr. S Hill (the “Named Individuals”) are to be treated as “Employed Earners” in respect of their engagements with the Appellant during the period, 6th April 1997 to the 5th of April 1998 and that the Appellant is liable to pay primary and secondary Class 1 Contributions in respect of the earnings from those engagements (the “Decision”)

The decision was made pursuant to Section 8(1)(a) and (c) of the Social Security Contributions (Transfer of Functions) Act 1999 and as a result of the decision, the Apellant has an obligation to pay or deduct primary or secondary Class 1 contributions from the named individuals’ remuneration and to remit those monies to the Respondent.

In accordance the Regulation 10 of Social Security Contributions (Decisions and Appeals) Regulations 1997/1027 we therefore vary the Decision such that is reads:

That Mr. K Williams, Mr. S Gething, Mr. D Parkin, Mr. L K Smith and Mr. S B Hill are not to be treated as employed earners in respect of their engagements with Hudson Contract Services Limited during the period 6th April 1997 to 5th April 2000. That Hudson Contract Services Limited is not liable to pay primary and secondary Class 1 contributions in respect of the earnings from those engagements.

Dated this 25th day of February 2002