Many construction workers operate through their own personal service companies (PSC), as their particular skills are needed for short periods on different construction projects. The PSC normally contracts with an agency, which in turn contracts with the company running the construction project.
This was the situation for Mr Daniels, whose company MDMC Ltd contracted with an agency, which provided his services to the construction firm STL. IR35 would apply if, had Daniels provided his services directly to STL, the hypothetical contract for that arrangement would be an employment contract rather than a contract for services.
HMRC had to prove that the indications of employment existed in the hypothetical contract and they out-weighed the indications of self-employment. The judge helpfully summarised the various factors which pointed to employment or self-employment.
- No substitution permitted
- Daniels took no financial risk
- Safety equipment was provided by STL
- Daniels was not controlled by STL any more than any other contractor
- Daniels could refuse to work on another site
- He was paid a fixed rate per day
- No notice period
- No sick pay or holiday pay
- No employment benefits
- No expenses paid for travel or accommodation
- He was not integrated into STL
Although the judge found that Daniels could not provide a substitute to work for STL, and he took no financial risk with the contract, in evaluating the situation overall Daniels was not treated as an employee and IR35 did not apply.
This case demonstrates that one factor (such as substitution) should not outweigh all other factors, and the entire relationship must be considered.
Written by the Tax Advice Network