Keith Shepherd was an IT consultant who worked for credit insurer Gerling NCM through his company, Alternative Book Company Ltd, and recruitment agency Computer People.
Shepherd started at Gerling in February 1998 and remained there for several years. HMRC later challenged the arrangement for the 2000/01 and 2001/02 tax years and argued that he would have been an employee if he had contracted with Gerling directly.
Alternative Book Company appealed, but Special Commissioner Michael Tildesley OBE dismissed the case.
Shepherd joined Gerling in 1998
Alternative Book Company was incorporated in April 1997, with Shepherd as its sole director and shareholder.
He found the Gerling role through Computer People. The agency arranged an interview and Gerling assessed Shepherd’s own technical ability before taking him on.
Shepherd specialised in Oracle databases and programming languages including COBOL and Visual Basic. During the years covered by the appeal, he worked around 35 hours a week for Gerling.
A succession of short contracts
The work was covered by a series of contracts, generally lasting between three and six months.
There was no guarantee that another contract would follow when one ended. On one occasion in 2000, Gerling indicated that Shepherd might not be renewed, but later kept him on because it could not find employees to take over the work.
Shepherd also accepted that Alternative Book Company did not normally line up other work before a Gerling contract expired. He generally waited to see whether another contract would be offered.
Most of the company’s income came from Gerling
Alternative Book Company’s turnover for the two years under appeal was estimated at £180,549 including VAT.
Only £6,803 came from work outside Gerling.
There was little evidence that the company was building a wider consultancy business during those years. Its fixed assets were mainly modest amounts of computer equipment.
Shepherd later developed a computer game called Pen’em, but that did not help the appeal because the work fell outside the tax years being considered and involved a different company.
Gerling hired Shepherd himself
The contracts named Shepherd as the consultant who would provide the services.
Gerling had interviewed him personally and selected him for his own IT skills. It had not engaged Alternative Book Company because the company could supply any one of several consultants.
Shepherd usually worked as part of a Gerling project team alongside employees.
The substitution clause did not amount to a free right
A substitution clause was added to the contracts in October 2000.
Alternative Book Company could propose a replacement, but Gerling could reject that person on reasonable grounds. Any replacement would also have needed to go through Gerling’s recruitment process.
Shepherd never actually sent a substitute during the years he worked there.
Michael Tildesley found that the clause did not reflect a genuine right for Alternative Book Company to send somebody else in Shepherd’s place.
Read more about the right of substitution.
Gerling left the technical work to him
Shepherd was an experienced IT consultant and Gerling did not tell him how to write code or solve technical problems.
It still controlled much of the way the work was organised. Gerling could assign Shepherd to particular projects and teams, required regular progress reports and put his work through the same quality-assurance process used for employees working on IT projects.
He was required to attend Gerling’s Cardiff offices because much of the work involved its mainframe computer.
Shepherd had some flexibility over start and finish times, but he was expected to be present during core hours. He also needed approval for leave and extra hours.
Tildesley found that Gerling exercised enough control over the work for those arrangements to fit within an employment relationship.
He worked inside Gerling’s IT operation
Shepherd worked alongside Gerling employees, used the client’s equipment and followed the same reporting and quality-control arrangements as other people working on its IT projects.
After several years, he had become closely integrated into Gerling’s IT department.
That level of integration counted against Alternative Book Company.
No staff benefits, but little financial risk
Shepherd did not receive sick pay, holiday pay, pension rights or other employee benefits.
His fee was significantly higher than the salary of an equivalent Gerling employee, and Tildesley treated that as compensation for the lack of benefits rather than strong evidence of self-employment.
There was also little financial risk.
Shepherd did not have significant capital tied up in the work, did not quote a fixed price for delivering a project and was not exposed to making a loss if the work took longer than expected.
The written label did not decide the case
The contracts said that the parties did not intend to create an employment relationship.
Tildesley gave that wording little weight because it did not match the way Shepherd actually worked.
He worked regular hours, had been selected personally, attended Gerling’s offices, worked in its project teams and followed reporting and quality-control arrangements similar to those used for employees.
The Special Commissioner concluded that the relationship was overwhelmingly one of employment.
Alternative Book Company’s appeal was dismissed.
Judgment
Alternative Book Company Ltd v Revenue & Customs [2008] UKSPC SPC00685.
Special Commissioner Michael Tildesley OBE released the decision on 19 May 2008.
Read the full Alternative Book Company decision on BAILII.
See also our IR35 case law guide.