Employment Status – Whether bricklayers are “employees” for tax purposesMonday, December 22nd, 2008
We have reported numerous cases where bricklayers and gangs of bricklayers were rules to be “workers” for the purpose of employment benefits. The case Castle Construction v HMRC highlights an entirely different aspect of employment status, namely the employment status of bricklayers for tax and NICs purposes.
On 3 December 2008, the Special Commissioners of Income Tax ruled that 314 out of 321 workers engaged by Castle Construction were self-employed subcontractors, thereby allowing the employer’s appeal against a Determination by HMRC that they were all employees. Castle Construction’s principal business is the subcontracting of bricklaying services to the principal contractors of construction projects.
In 2002, HMRC officers had considered the status of Castle Construction’s workers and had confirmed that were being correctly treated as self-employed. However, four years later, HMRC indicated that it now believed that they should be viewed as employees and subsequently issued a formal Determination to that effect. As a result, Castle Construction indicated to its workers, most of whom are bricklayers, that they would have to enter into employment contracts. As a result, many of them walked out in protest. This left Castle Construction in the position of being unable to complete its current projects and facing bankruptcy. It decided therefore to continue the self-employment arrangements with all of its workers and appealed against the Determination.
The Special Commissioner handling the appeal accepted that Castle Construction’s employment arrangements are common in the construction industry. Workers have the flexibility of moving from one engagement to another and the employer can readily increase or decrease the workforce in order to handle current projects. To illustrate, in one year Castle Construction had engaged 450 different bricklayers but would have required only 150 full-time workers to have performed the same amount of work as that done by the 450.
(The Special Commissioner commented on the way that Castle Construction described itself in contract documents as the “employer”, despite the workers being self-employed. He said that there is no non-legalistic word to describe the principal in a principal/subcontractor relationship and attached no significance to it, noting that the term had been used in other court decisions in that way.)
All of the bricklayers held HMRC registration documents that required tax to be deducted from payments made to the bricklayers on account of their self-employed tax liabilities. The rates paid to the bricklayers were higher than would otherwise have been paid to employees as there were no employee or employer Class 1 NICs to pay, and payments were only made at an hourly rate for time actually worked. There was no entitlement to sick pay and no payments were made when no work could be performed due to bad weather. Castle Construction appears to have treated the bricklayers as “workers” for employment benefits, however, as they were paid holiday pay under the provisions of the Working Time Regulations, albeit “rolled up” in the hourly rate. There was, in theory, a one-week notice period but, in practice, both parties accepted that workers could leave without notice.
After a detailed consideration of the factors that distinguish employment and self-employment from each other, in particular the provision of hand tools, the exercise of control, rectifying bad work, mutuality of obligation, in business on their own account, substitution and the intentions of the parties, the Special Commissioner ruled that, looking at the factors as a whole, they were self-employed for tax and NICs purposes.
The only workers that he decided were correctly designated “employee” were a number of fork-lift truck drivers and a lorry driver, principally because their jobs involved the operation of operating expensive plant owned or hired by Castle Construction.
Castle Construction (Chesterfield) Ltd v Commissioners for HM Revenue & Customs
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