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HMRC lose employment status case

09 October 2014

In the recent case of EMS (Independent Accident Management Services) Limited v HMRC [2014] UKFTT 891 (TC), the First-tier Tribunal (Tax Chamber) ("FTT"), found in favour of the taxpayer on the question of whether or not an employment relationship existed.


The Appellant's business involves the recovery of broken down or damaged vehicles on behalf of insurance companies. From 1990, Mr Makings was employed by Mr Parker, a director of the Appellant, to work in a scrapyard. Mr Makings subsequently moved on to work for a number of other businesses, before establishing his own business called DKM Services ("DKM") in around 1996. During the relevant period, DKM provided services to the Appellant and a number of other businesses (although it was accepted that DKM gave priority to the Appellant).

Mr Makings was contacted by Mr Parker who offered him work driving for the Appellant on what Mr Parker described as an "ad-hoc basis". Mr Parker would contact Mr Makings when there was a vehicle that needed to be collected. Mr Makings was paid for this work on an hourly basis. He raised invoices in arrears which were paid in arrears by the Appellant.

HMRC was of the view that Mr Makings was an employee of the Appellant and as such the Appellant should have deducted income tax and national insurance contributions ("NICs") in respect of the payments it made to Mr Makings. The Appellant disagreed with HMRC's analysis and as agreement could not be reached on this issue HMRC issued to the Appellant Notices of Determination under Regulation 80 of Income Tax (Pay as You Earn) Regulations 2003 and Notices of Decisions under section 8 of the Social Security Contributions (Transfer of Functions) Act 1999, for the tax years 2002/03 to 2006/07 ("the Notices").

The Appellant appealed the Notices on the grounds that Mr Makings was an independent contractor and it was therefore his responsibility to submit his self-assessment returns to HMRC and to pay any income tax or NICS due in relation to his income.

FTT's decision

In arriving at its decision that there was not an employer/employee relationship between the Appellant and Mr Makings, the FTT considered the well-known case of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 1 AER, and the guidance provided therein.

The FTT confirmed that there is no "magic formula" that can be applied in determining the issue of whether an employer/employee relationship exists, and it is necessary to take into account all relevant facts when deciding the true nature of a relationship. The factors that were considered relevant by the FTT in deciding the issue before it, included the control that the Appellant had over Mr Makings (not being the control that was actually exercised, but rather the right to control his activities). In reality, Mr Parker left Mr Makings to undertake his work for the Appellant in the way that he saw fit, and thus exercised little control over him. Financial risk was also considered to be a relevant factor. The FTT noted that Mr Makings was running his own business, in which he had invested time and money. Mr Makings had purchased his own clothing and equipment and did not receive holiday pay, sick pay, a pension scheme nor a personal accident policy, in contrast with employees of the Appellant. In addition, Mr Makings' invoicing arrangements with the Appellant meant that he also carried the risk of customer default.

Perhaps not surprisingly, the FTT was of the view that these facts were inconsistent with an employer/employee relationship and concluded that Mr Makings was an independent contractor. The Appellant's appeal was therefore allowed.


This is yet another case where HMRC have sought to argue that there is an employer/employee relationship when the facts clearly indicate the contrary. It is regrettable that the taxpayer was put to the inconvenience and expense of having to take its appeal to the FTT in order to be vindicated.

The divide between employment and self-employment has been a source of uncertainty and complexity for businesses for some considerable time. On 25 July 2014, the Office of Tax Simplification announced that it will undertake a review of the current rules determining this area of the law with a view to reporting in time for the 2015 Budget. It is to be hoped that the position will be simplified following publication of its report, although given HMRC's preoccupation with this issue, that seems unlikely.