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Jon Bessell was the director of, and owner of 50 per cent of the shares of Dragonfly Consulting Ltd. Operating through an agency, he provided his services from April 2000 to January 2003 to the AA as an IT system tester.
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In finding for HMRC in January, Special Commissioner, Charles Hellier, said: "Overall I find nothing which points strongly to the conclusion that Mr Bessell would have been in business on his own account; by contrast when I stand back and look at the overall picture I see someone who worked fairly regular hours during each engagement, who worked on parts of a project which were allocated to him as part of the AA's teams, who was integrated into the AA's business, and who had a role similar to that of a professional employee."
Mr Bessell appealed the decision to the High Court, supported by the Professional Contractors Group (PCG), who fear that a defeat at this stage 'could undermine much of the successful defence against IR35'.
Observations from court
Mr Justice Henderson precided over the four hour hearing in the High Court. He didn’t find for either side on the day. He needed to consider a number of points raised in the submissions from Ms Susan Chan, acting for HMRC, and Mr Paul Stafford acting for Dragonfly Consulting. Ms Chan placed greater weight than Mr Stafford did on the oral evidence given at the SCs. A written judgement will follow, possibly in the summer.
Hypothetical contract
Mr Stafford (for Dragonfly) claimed Mr Hellier (Special Commissioner) had insufficiently appreciated that there were three contracts under consideration, and he had only constructed one hypothetical contract to cover all three.
Ms Chan (for HMRC) claimed that Mr Hellier had considered the three contracts separately but found no significant distinctions between them.
Intentions of the Parties in the T&Cs:
Mr Stafford claimed that Mr Hellier had given insufficient weight to the intentions of the parties – that AA (the client) and DPP International Ltd (DPP) (the agency) never intended Mr Bessell to be an employee, and this was clear by the narrowness of the terms disavowing AA from employing Mr Bessell. Therefore, the context of all the submissions needed to be understood in this light.
Ms Chan claimed that Mr Hellier had decided that the intention of the parties was subordinate to the actual working arrangements of the engagement because they were less relevant, not because they had been ill considered.
Direction and Control
Mr Stafford agreed that Dragonfly was under the control of AA, but disagreed that this constituted ‘employee’ type control. It was only confined to the normal protections that would be granted to any company representative working on a client’s premises – not smoking on the premises etc. Control was confined to the work required, as would be the case with other suppliers. Mr Hellier had taken a too ‘fish or fowl’ intepretation of worker status to determine conclusively that Mr Bessell was under the control of AA as an employee.
Ms Chan submitted that although, DPP International Ltd (DPP) had some control over Mr Bessell, AA had sufficient control too. Control wasn’t mutually exlusive (either DPP or AA). For example, AA could trigger a direct complaint against Mr Bessell’s conduct and work if they wanted to, even if his engagement was terminated through DPP.
Right of Substitution
Mr Stafford said that Mr Bessell had a broad RoS and any changes to the T&Cs in subsequent contracts simply calibrated AA’s original intention to allow a subsitute. He compared Mr Bessell’s RoS with employees that also have a RoS. Employees could offer a substitute but only if they were ‘unable’ to carry out the work, not if they were simply ‘unwilling’ to, as in Mr Bessell’s case. AA did not have a right to refuse provided these conditions were met. The fettered part of the RoS was simply inserted to prevent Mr Bessell from ‘taking the mickey by sending in his mother-in-law.’ DPP could also send in a replacement too, not just Mr Bessell. Mr Bessell’s worker status, therefore, did not rest on whether AA wanted Mr Bessell not to provide a substitute, but on whether the engagement could survive with Mr Bessell’s absence. If it couldn’t then Mr Bessell would be like an employee. This was not the case.
Ms Chan said that Mr Bessell needed AA’s consent to exercise a RoS, even after the wording was altered, whether the substitute was qualfied or not. The RoS was sufficiently fettered to give no substance to a genuine RoS.
Technicalities
Ms Chan suggested that there was insufficient challenges to factual findings, particularly on the issues of RoS, before the Special Commissioners that would give grounds for an appeal.
Mr Justice Henderson: Interrupted both sets of submissions with a number of key concerns:
- The intentions of the parties needed to be given sufficient weight. He seemed unpersuaded by Ms Chan’s submission to disregard them because Mr Bessell himself was not contracted to work to either DPP or AA (only Dragonfly).
- He also seemed unimpressed by Mr Hellier’s understanding of Mr Bessell’s work status. He agreed that work status could be ‘a grey area’ and so didn’t resemble architypical ‘self employed’ or employees in the black and white fashion Mr Hellier had adopted. Mr Bessell’s work status may not be conclusively ‘that of an employee.’
- He placed particular weight on the meaning of ‘intermediary.’ The wording of the Income Tax part of the IR35 statute is different to the NICs part, so that the process by which the meaning of "intermediary" is derived is subtly different in each case. Was it Dragonfly or DPP?
- He felt that that the terms should have set out other employee style control characteristics: disciplinary procedures (written warnings etc.) and relations with other employees. Both were absent in Mr Bessell’s engagement with AA.
- Was Mr Bessell’s RoS simply ‘window dressing’, questioning whether it was possible for a one-man band operation to exercise a RoS. Perhaps AA really ‘wanted’ Mr Bessell personally because he couldn’t realistically send anyone else? (To which Mr Stafford re-iterated the importance of the contract terms – that it didn’t matter what AA ‘wanted’ it was what AA were obliged to accept).
I am grateful for these observations from people who attended the court hearing.
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