IR35 Case: Marlen Ltd v HMRC [2011] UK FTT 411


    Accountax Consulting successfully defended Marlen Ltd against HMRC's contentions that IR35 applied. 
    Marlen Limited was set up by Gary Hughes (director and shareholder) in 1989, since which time it provided engineering services to its clients.
    Marlen was registered with numerous agencies, registering with DDC in 2002.  DDC first offered Marlen a contract to provide services to JCB in 2003.
    Marlen had written witness statements from Gary Hughes and from one of the project managers from the second engagement.  It became apparent several months before the hearing that the project manager would be unable to attend the hearing as he had relocated to India.  With this in mind and as HMRC had decided not to call any witnesses Accountax Consulting sought to get HMRC to withdraw knowing the Tribunal’s preference to hear end client evidence.  This obviously did not happen.
    The case was heard in January and March 2011 by Judge Lady Mitting.


    The engagements under appeal involved two divisions of JCB for which Marlen provided services via DDC.
    The first engagement was to provide engineering services to JBD Compact Products, based in Cheadle, on Mini Tracked excavators. The second engagement was to provide engineering services to JCB in Rochester on the Backhoe machine.
    There was a period of approximately 2 weeks between the contracts, each engagement being under a series of contracts.
    Having suggested they would object to the admittance of the written witness statement of JCB’s project manager, as he was not present to be cross examined, we explained the circumstances and the fact that HMRC intended to refer to the same individual's previous written correspondence with them.  The Judge asked HMRC if the written witness statement was unchallenged to which they replied yes.
    HMRC also attempted to refer to a contract between JCB and DDC which only came into effect after the end of the period under appeal.
    The evidence on substitution was confused.  The contract between Marlen and DDC obliged Marlen to provide a suitably qualified replacement if personnel were absent due to illness or injury and to incur any additional training costs.  A term accepted by Gary.
    In terms of working hours, employees were required to work core hours and ask permission for time off.  He expected to work a basic 39 hour week but this rarely happened and he never worked fixed hours, effectively coming and going as he wished without seeking permission.
    The only form of real control exercised over Mr Hughes was the project managers overseeing the project and checking progress.
    The first engagement was terminated early by DDC and during the second engagement the computer systems went down resulting in all contractors being sent home (does this sound familiar!) unlike the employees who had to stay.  No payment was received by the contractor during these periods.


    Starting with the seminal case of Ready Mixed Concrete, the Tribunal first assessed the case in terms of the irreducible minimum requirement, that is mutuality of obligations and control, before looking at the overall engagement.


    Pausing part way through the Judgement, Judge Lady Mitting said “We have considered two factors – mutuality of obligation and control.  These are the two factors which make up the irreducible minimum required to demonstrate a contract of employment.  Whilst we found some evidence of control, that which does exists falls short of that which is required in the terms of the test propounded by MacKenna J.  The picture in relation to mutuality even clearer.  It is our conclusion that there is no mutuality of obligation and the degree of control which would have been needed, to establish a contract of employment just did not exist.”
    While the Tribunal found as fact that Mr Hughes determined how he carried out the services, this, it was said, seemed to be similar to senior employees of JCB.  It was Mr Hughes’s flexibility in terms of hours, holidays and absences that the Tribunal found to be markedly different to employees and on which, when considered in light of all the elements within this important factor, it was concluded the degree of control was not sufficient to constitute a contract of employment.
    HMRC’s contentions that mutuality of obligations existed within each contract (having accepted there was no ongoing mutuality) bore no reflection of the facts.  Crucially, and as in the case of MBF Design Services Ltd, Mr Hughes, as all contractors, had been sent home without pay when the computers were down.  In addition to early terminations by both parties during the course of the engagements, the evidence was compelling that this was a case where no mutuality of obligations existed.
    In summarising all the factors, the Tribunal did not find one single aspect which was consistent only with a contract of employment.
    To see the full judgement click here.