Background
Mr David Armitage is an electrical control and instrumentation designer with over 25 years’ experience of providing services within the nuclear industry. He is also the Director of Armitage Technical Design Services Limited (“ATDSL”).
Mr Armitage was contracted through ATDSL and two different agencies to provide his services to Diamond Light Source Ltd (DLS).
During the period in question period Mr Armitage completed several separate projects for DLS and also provided his services to other clients.
HMRC asserted that the work undertaken by Mr Armitage providing services to DLS between 2009 and 2014 fell within the scope of IR35. They had reached this conclusion on the basis that, in their opinion, mutuality of obligation was present, there was an excessive degree of supervision and control being exerted over Mr Armitage, his personal services were required as he was unable to provide a substitute, and there was no real risk of Mr Armitage making a loss on the contract.
IR35 Indicators
Substitution
There was a theoretical and limited right of substitution for Mr Armitage although it was not exercised in practice. The contract stated: “the Supplier is obliged to provide suitably qualified resources of its choice but is not obliged to provide any named individual.” HMRC’s assumption that a substitute would not have been accepted by DLS was never tested to determine whether it was correct.
Control
Control refers to how, when and where the contractor provides their services, but the most important element is “how” – i.e. can the contractor decide how they provide their services or are they receiving detailed instructions.
How – There was a reasonable degree of control over how Mr Armitage worked but it was not to such an extent that would indicate an employment relationship. On balance, the Tribunal considered the appellant’s case to be on a similar footing to that in Marlen Ltd v HMRC 2011.
When – DLS’ employees in Didcot were required to work core hours until 3.00pm and, although Mr Armitage was required to work a fixed number of hours per week, he usually finished at lunchtime on Fridays unlike the DLS employees.
Where – Mr Armitage provided his services from a site in Daresbury, Warrington, rather than at the DLS headquarters in Didcot. The reason Mr Armitage worked there was due to the practical realities of the job specification.
The Tribunal stated that there was a fair degree of control by DLS over Mr Armitage, but the control exerted was not to the same extent as an employee working in the Didcot office and it was not necessarily consistent with him being subject to a contract of service.
Mutuality of Obligations
The Tribunal considered that the mere offer and acceptance of a piece of work does not amount to mutuality of obligations in the context of employment status.
Other Considerations
Equipment – the Tribunal took the view that DLS provided Mr Armitage with the essential tools, including hardware and software required to complete the work.
Financial Risk/Opportunity to profit – It was accepted that there were limited opportunities for Mr Armitage to profit further under the contracts in question. However, in this instance, the Tribunal accepted that the absence of financial risk/opportunity to profit does not point to an employment relationship, whereas its presence does point to self-employment, making the lack of potential for profit was deemed a neutral factor.
The basis of payment was also found to be a neutral factor.
Benefits – Mr Armitage received no employee benefits – no holiday pay, no sick pay and could not partake in any grievance procedures. In addition, he was not provided with a locker at his location.
Part and Parcel – Mr Armitage was never regarded as part of the DLS organisation and worked in a location solely made up of contractors. Mr Armitage did not attend or make use of the wider company activities and facilities, nor was he included on team and division organograms. From this, the Tribunal considered Mr Armitage’s working arrangements indicated that he was not completely integrated into the DLS business structure.
The Right to Terminate the Contract was considered as a neutral factor.
Exclusivity – It was found that there was no exclusivity as Mr Armitage worked for other clients and the contracts supported this position.
Intention – The intention of the parties was said to be clear; in all the contracts it was stated that the services were being provided under contracts for services and not contracts of service.
Conclusion
In this case, whilst there were some factors in support of Mr Armitage being a true independent contractor, and other factors going against this position, the Tribunal determined that there were more factors to suggest that the notional contract between Mr Armitage and DLS was indeed a contract for services.
This case demonstrated the Tribunal’s willingness to consider other factors outside of Substitution, Mutuality of Obligations and Control in detail when determining Employment Status. Whilst Control was a strong indicator, the Tribunal chose to consider other factors beyond this to ensure that the true relationship between the parties was interpreted as accurately as possible.