Michael Ansell provided specialist computer software engineering services to Marconi and BAE Systems through his company, Ansell Computer Services Ltd.
Ansell worked on highly sensitive defence projects as part of teams containing both employees and contractors. He had to carry out the work on secure premises using the clients’ computer systems and equipment, but he retained considerable freedom over his hours and when he took time off.
The Inland Revenue argued that the engagements fell within IR35. Ansell Computer Services successfully appealed, with the Special Commissioner finding that the hypothetical contracts would have been contracts for services rather than employment.
Software engineering for Marconi and BAE
Michael Ansell was a director and shareholder of Ansell Computer Services Ltd (ACSL), which had been trading since 1986.
He was an experienced computer software engineer specialising in the defence sector, working on the software used in weapons and other defence systems.
The appeal covered two periods. Ansell worked for Alenia Marconi Systems Ltd from 1 July to 30 September 2000 and for BAE Systems Avionics Ltd from 2 October 2000 to 30 March 2001.
Both contracts were arranged through Centre Dynamics Ltd. ACSL contracted with the agency, which in turn supplied Ansell’s services to the end client.
For the Marconi engagement, ACSL was paid £40.20 an hour, and the schedule stated that the work was not expected to exceed 550 hours. The later BAE agreement used the same hourly rate, with the number of hours not expected to exceed 1,000.
Ansell had already been working on successive stages of the Marconi project for around two years before the period covered by the appeal. Contractors joined project teams where additional specialist expertise was required and could be released when that requirement ended.
Freedom over working hours
Ansell generally worked conventional hours, but the tribunal heard that he was not obliged to work a particular number of hours on any given day or week.
He could also take time off when he chose without asking a project manager for permission. He would tell them that he was going to be absent as a matter of courtesy.
One of the Marconi managers believed he had greater authority over Ansell’s attendance, but the Special Commissioner preferred Ansell’s evidence. It was also consistent with the evidence given by BAE’s project software manager.
There were practical reasons why Ansell usually worked at the same time as everyone else. He was part of a wider project team and his work had to fit with that being carried out by other specialists.
More importantly, the defence work was secret. It had to be carried out on a secure computer system at designated premises, while some of the equipment being used was both extremely expensive and potentially dangerous.
The Special Commissioner did not treat those restrictions as evidence that Marconi or BAE controlled Ansell in the way an employer might control an employee.
See our guide to control and IR35.
Could the clients stop providing work?
Marconi and BAE engaged contractors when their specialist skills were needed for particular stages of a project.
There was no commitment to keep Ansell working throughout the full expected period if that work disappeared.
The Marconi project manager believed contractors could be released on very short notice if their contribution was no longer required. BAE followed a similar policy, hiring contractors for relatively short periods and extending their engagements only if further work justified it.
Ansell himself had no right to expect another stage of work when a project phase ended, even though in practice his engagements were repeatedly extended.
The Special Commissioner regarded the absence of an obligation on the clients to keep Ansell in work, together with the absence of any obligation on Ansell to perform a particular amount of work, as significant factors.
The company argued that this also meant there was insufficient mutuality of obligation for employment.
Graham Aaronson QC accepted that the argument had considerable force, referring to Carmichael v National Power and Montgomery v Johnson Underwood. However, having already concluded from the evidence as a whole that Ansell would not have been an employee, he did not need to decide the mutuality point separately.
Substitution
The contract between ACSL and Centre Dynamics allowed the company to withdraw from part of the work, subject to reasonable notice and the requirements of the project. Where appropriate, ACSL would offer a suitably qualified substitute.
The agreement also required Centre Dynamics to reflect that substitution provision in its contract with the end client.
There was little documentary evidence showing exactly what Centre Dynamics had agreed with Marconi and BAE. The Special Commissioner nevertheless found that both clients recognised substitution as a genuine possibility.
At BAE, the contracts manager had confirmed that a substitute would be acceptable in principle if a suitable person could be found.
Security made that difficult because anyone replacing Ansell would need the necessary expertise and clearance, but it was not impossible.
No substitute was actually used, but the ability to withdraw and suggest a suitably qualified replacement was one of the factors supporting ACSL’s appeal.
Read more about substitution and IR35.
Working within a project team
Ansell worked alongside permanent employees and other contractors. His work had to be coordinated with the other members of the project and was overseen by a project manager.
His specialist experience meant he needed little instruction about how to perform the technical work itself, although the tribunal recognised that a highly skilled employee might also work with limited supervision.
Ansell was expected to take part in technical discussions with colleagues and did so.
The fact that he worked on the client’s premises and within a team therefore formed part of the overall picture, but the tribunal also had evidence of clear differences between contractors and employees.
No employee benefits
Ansell did not receive sick pay or holiday pay and had no entitlement to the clients’ pension arrangements, share options, bonuses, healthcare or company cars.
He could not use employee parking facilities or join the employee social club.
There was also no redundancy entitlement if his work was brought to an end.
The Special Commissioner found that these differences reflected the commercial arrangement which both sides had chosen. Marconi obtained flexibility by using contractors who could be released as projects changed, while Ansell accepted the loss of employee protections in return for greater independence.
Business on own account
The Inland Revenue relied on some of the factors identified in Market Investigations Ltd v Minister of Social Security.
Ansell did not employ helpers, take significant financial risk or have much opportunity to increase his profit through the way the work was managed. Nor could he provide the equipment needed to perform the defence work.
The Special Commissioner did not give those factors decisive weight.
The secure nature of the projects meant Ansell could not operate in the same way as a software consultant working in a less restricted environment. The actual programming had to be performed on secure client systems, using equipment which in some cases cost more than £1 million.
Ansell did spend up to five hours a week at home keeping up with developments in his specialist field. He was not paid for that time and bought relevant books and journals himself.
The judgment therefore looked beyond a checklist of equipment, helpers and financial risk and considered the arrangements as a whole.
Read our guide to being in business on your own account.
Why Ansell Computer Services won
The Special Commissioner considered the relationship that would have existed if Ansell had contracted directly with Marconi and BAE.
Ansell was not obliged to perform a fixed amount of work and could take time off without seeking permission. The clients did not have to keep him working for the whole expected period and regarded contractors as people whose services could be dispensed with when a project no longer required them.
There was also a genuine ability to propose a substitute, even though finding another specialist with the required security clearance would have been difficult.
Ansell worked within the clients’ project teams and used their premises and equipment, but the nature of the defence work largely dictated those arrangements. He was also treated differently from employees in a number of practical respects.
Taking the evidence together, the Special Commissioner found that the hypothetical contracts with Marconi and BAE would have been contracts for the provision of services, not contracts of employment.
The appeals were allowed.
The decision can be contrasted with Synaptek Ltd v Young, another early software contractor case where the employment-status evidence led to an inside-IR35 result.
It also followed earlier contractor victories including Lime-IT Ltd v Justin and Tilbury Consulting Ltd v Gittins.
Judgment
The Special Commissioners released the decision on 29 July 2004.
Ansell Computer Services Ltd v Richardson (HMIT), SpC 425, [2004] STC (SCD) 472.
The appeal was heard by Special Commissioner Graham Aaronson QC.
Read the full Ansell Computer Services decision.