IR35 Case: ECR Consulting Ltd v HMRC [2011] TC 01174

    Background

    Accountax Consulting successfully defended ECR Consulting Ltd (ECR) against IR35. This case was heard by Judge David Porter in February 2011.
     
    The enquiry period prior to Notices being raised in this case was relatively short – two years.
     
    ECR Consulting Limited (ECR) has been providing software development services to its clients since it was set up in 1993. Elaine Richardson set up the company having been made redundant and not wanting to be in the same position again. ECR had its own specialised computer equipment, office and had a website.
     
    During the period under appeal ECR had contracts with 3 clients and had previously refused an offer of work from Best People Ltd (Best) to provide services to Vertex Data Services (VDS).
     

    Facts

    Elaine had previously refused work offered by Best as ECR was at the time involved with another contract. Best later offered ECR work in 2002 providing services to VDS on a specific project implementing a billing system which she accepted.
     
    The initial six month contract was extended for a further four months, by agreement. Best terminated the agreement more than a month before the end date. Following the early termination of this contract there was no engagement involving VDS for 5 months until Best offered ECR work on a different project for whom VDS were the client.
     
    Elaine was apprehensive about working with Best or VDS again after the early termination of the earlier contract.  In addition the rate offered was too low and Elaine did not accept. The rate was eventually increased and due to the state of the contracting market she accepted. The second project involved converting all Powergen’s customers onto one system.
     
    In reviewing the contracts within the documents bundles the Tribunal was less than impressed that the contracts between VDS and Best (and later Spring) were unsigned and appeared to be generic.
     

    Approach

    Citing MacKenna J in Ready Mixed Concrete the Judge said these conditions are fundamental to the creation of a contract of service and if any one of them cannot be met then the contract is not a contract of service.
     
    Assessing the facts of the case against the following factors, the Tribunal found:
     
    • Substitution - VDS would have returned to Best/Spring to supply them with another contractor.  Both contracts allowed for substitution and Elaine confirmed she knew of at least 6 other people she could send.
    • Control - The team leader needed to advise Elaine of the way in which VDS worked, but she was not able to tell Elaine how to do the work or the time she should do it.
    • Financial Risk - The indemnity given in the contract and the potential impact of being sued was substantial.
    • Opportunity to profit - ECR had two other clients during the appeal period.
    • Personal Service - VDS are not concerned who did the work so long as they were suitably qualified.
    • In business on own account - Business cards, company stationary and website.
    • Intention of the parties - Has to be considered.
    • Mutuality of obligations - VDS was unconcerned who the contractor was, they were merely interested in obtaining the necessary skill. There was no mutuality of obligations.


    Conclusion

    The Tribunal found there was no real control by VDS in the way Elaine worked and as VDS were not concerned who did the work (merely that they were suitably qualified) that could not accept the work was personal to Elaine.
     
    Further acknowledging that mutuality of obligations is more than pay for services performed, they did not accept there was any mutuality of obligations.
     
    In coming to their decision, the Tribunal said “ECR is a genuine business and therefore not a target of the IR35 legislation”.