The case of Demibourne Ltd v Her Majesty’s Revenue and Customs, heard at appeal in April 2005, provides useful insight on this much debated area of employment law. The question considered was whether a Mr Rodney Bone was a self-employed person working under a contract for services or an employee, working under a contract of employment.
Having been employed for 15 years to undertake all general maintenance work at an hotel, Mr Bone, when he reached the age of 65 in 1993, was told that he could only continue if he was self employed. He agreed to this. The Employment Appeal Tribunal (EAT) found that whilst he no longer received holiday pay and submitted invoices he was nonetheless an employee on the basis that his hours did not change, he worked under the direction of the business, he could not bring in helpers or substitutes and sought reimbursement from the hotel for any goods he purchased. He was also paid for the hours he worked and he was accepted as part of the hotel’s team. Taking all the factors together, the EAT held that Mr Bone was an employee of Demibourne.
An important tax implication emerged from this decision in that the hotel was now deemed to be responsible for employee PAYE and National Insurance Contributions (NICs). As they failed to agree the amount owing, HMRC demanded the full amount of tax and NICs without any credit being given for payments made by Mr Bone on his own behalf. This resulted in the tax being paid twice!
Although the Special Commissioner suggested that a negotiated settlement which gave credit for the tax paid would be the most desirable outcome, he stated that this was a matter for the parties and not within the jurisdiction of the tribunal.
This is a clear warning that contractual status should be clearly set out in writing to avoid any costly misunderstandings!