Agency legislation applied as workers were not found to be engaged through their PSCs
K5K Limited (K5K) operated as an employment agency in the healthcare sector, supplying healthcare workers and nurses to clients. Following a compliance check on the business, which included an employment status review, HMRC raised tax determinations and National Insurance Contributions (NIC) decisions against K5K covering the tax years 2014-15 to 2016-17.
The determinations and decisions covered those individuals whom K5K contended were engaged through their individual PSCs, whilst HMRC’s view was that the individual workers were deemed employees of K5K by virtue of the Section 44 agency legislation (s44) and the equivalent NIC provisions.
K5K appealed on two grounds; firstly, whether the determinations and decisions issued were valid as they did not refer specifically to the legislation under which they had been raised (this being s44); secondly, whether s44 did apply on payments made by K5K to those agency workers who were engaged through a PSC.
In relation to the issue of the validity of the determinations and decisions, the Tribunal concluded that “there is no statutory requirement for the Relevant Decisions to state the charging provision”. It further found that, despite the contentions made, K5K understood that the issue under consideration centred around the agency legislation in light of the numerous correspondences between both parties in the preceding months, even though HMRC’s covering letter issued with the determinations and decisions did not specifically refer to s44.
We now turn to the principal issue of whether the payments made by K5K to those agency workers who were engaged through a PSC meant that they were deemed employees within s44.
As an overview, s44 applies if the following three conditions are met:
- an individual (“the worker”) personally provides services (which are not excluded services) to another person (“the client”);
- there is a contract between (i) the client or a person connected with the client and (ii) a person other than the worker, the client or a person connected with the client (“the agency”); and
- under or in consequence of that contract, (i) the services are provided, or (ii) the client or any person connected with the client pays, or otherwise provides consideration, for the services.
However, even if these three conditions are satisfied, the application of s44 is negated if:
- it is shown that the manner in which the worker provides the services is not subject to (or subject to the right of) supervision, direction or control by any person; or
- remuneration receivable by the worker in consequence of providing the services is otherwise chargeable as employment income before the agency legislation is applied.
K5K’s main contention was that the company had not contracted with the individual worker but with their respective limited companies. Fundamental to the outcome of this case was identifying the correct contracts in place to assist the Tribunal in securing their findings of fact.
Throughout the compliance review, HMRC attempted to obtain specific copies of the relevant contracts in place between K5K and the PSCs, and between K5K and its clients, which also resulted in two separate preliminary hearings being undertaken at the Tribunal in February and July 2021 to obtain those documents.
Numerous contracts have been provided but there is doubt over which versions were in place during the relevant periods and, of those examples provided, some have not been dated or signed and the contents found to be unclear.
The Tribunal concluded that the ‘workers contract’ was the contract in place with the following findings of fact:
- The same Workers Contract applied to all Workers contracting with K5K, and there was no distinction made between workers contracting to work in their personal capacity or via their personal companies.
- K5K received the Template Worker Contract from the franchisor and inserted the name of the Worker by hand under the definition of ‘Agency Worker’. The parties to the contract were expressly stated to be K5K and the Worker.
- The document was signed by the Worker in his/her own capacity and by Mr Kooner on behalf of K5K.
- There is no reference in the Template Worker Contract to any Personal Company.
- The franchisor’s annual checks of the business of K5K included that the correct contracts had been signed by each worker.
- The contractual terms in force between K5K and each Worker were those contained in the Template Worker Contract, which included:
- The Worker agreed, in respect of any ‘Assignment’ they accepted, to perform the assignment services;
- K5K agreed to pay the Worker the agreed rate of remuneration;
- Where the Worker accepted an assignment, the Worker was placed under a number of personal obligations: fulfilling the assignment, agreeing to accept the direction, supervision and control of any responsible person in the Hirer’s organisation and observing the rules of the Hirer’s establishment.
The tribunal found that there was no contract in place between K5K and the individual PSCs but rather the contracts were between K5K and the individual worker. Accordingly, it was found that the conditions for s44 were satisfied, and the relevant workers were deemed employees of K5K.
The lesson to be learned from this case is to ensure that the contractual arrangements in place are with the correct entity and reflect the reality of the working arrangement in place.
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