David Armitage provided specialist electrical control and instrumentation design services to Diamond Light Source Ltd through his company, Armitage Technical Design Services Ltd (ATDSL).
He had worked in engineering for many years, including more than 25 years in the nuclear industry, before taking on work for Diamond. His job was to produce detailed electrical drawings for Beamline projects at Diamond’s scientific research facility.
Although Diamond was based at Didcot, Armitage carried out most of the work from the Daresbury Laboratory in Warrington, around 200 miles away. He worked there without Diamond staff alongside him and travelled to Didcot when a project needed to be discussed.
HMRC treated the engagements as caught by IR35. ATDSL appealed and won, with the First-tier Tribunal finding that the hypothetical contract between Armitage and Diamond was one for services rather than employment.
Engineering work for Diamond Light Source
ATDSL supplied Armitage’s services to Diamond through agency arrangements, initially involving Assystem UK Ltd and later Champion Employment Ltd.
Diamond required detailed electrical designs for its Beamlines. A project engineer would give Armitage the design requirements and the information he needed, after which he produced the drawings using his own experience and technical knowledge.
The work was divided into separate projects. During his first period with Diamond, Armitage completed three Beamline projects before the engagement ended and he went to work for another client, AMEC. He later returned to Diamond and worked on another three.
HMRC’s determinations covered 2009/10, 2010/11, 2012/13 and 2013/14.
Working 200 miles away from Diamond
Diamond wanted Armitage to work at Didcot, but he preferred to remain in Warrington and carried out the bulk of the work from Daresbury Laboratory.
There were no Diamond employees working with him there.
Armitage generally travelled to Didcot when a new project began and the requirements needed to be discussed. Once the work was under way, information could be sent electronically and contact with Diamond could be quite limited. The tribunal heard that a week might pass without an email or telephone conversation with the project engineer.
Diamond staff held regular meetings at Didcot involving engineers, scientists and others working on the Beamline projects. Armitage did not attend those meetings.
Diamond’s engineers specified what was required, checked the drawings and made sure they fitted the project. Armitage was nevertheless left to decide how to produce the designs.
The tribunal compared his position with Marlen Ltd v HMRC, another engineering case where the client monitored the project while leaving the contractor to apply his own specialist skills.
Diamond had more control over what Armitage was required to produce than over how he went about producing it. The tribunal found that a reasonable degree of control existed, but that Diamond exercised less control over Armitage than it did over its employees at Didcot.
Read more about control and IR35.
His working arrangements were different from Diamond employees
Armitage was required to work a fixed number of hours each week, generally between 9am and 5pm, and recorded those hours so that ATDSL could invoice through the agency.
For much of the engagement he finished at lunchtime on Fridays. Diamond employees at Didcot were required to remain until the end of the company’s core-hours period at 3pm.
Employees also used an electronic system which recorded when they entered and left Diamond’s buildings. Armitage was not included in it.
He received no holiday pay, sick pay or other employee benefits from Diamond and did not have access to its employee grievance procedures. He was not included on the company’s organisation charts or engineering team sheets and was not invited to internal training courses or staff events.
Most of his work was done in Warrington, where he did not have a locker provided by Diamond.
Diamond described Armitage as working within a virtual team. The tribunal did not regard this as making him part of Diamond’s organisation in the same way as its employees.
The substitution provisions
The contractual arrangements allowed ATDSL to provide somebody else to carry out the work, although Diamond retained the right to decide whether that person had the necessary skills and experience.
Diamond’s HR department had also confirmed that ATDSL could provide a substitute subject to the proposed replacement having the expertise and qualifications required for the work.
Armitage never used a substitute.
One of Diamond’s managers said that if Armitage had become unavailable he would probably have gone back to the agency and asked it to find somebody else.
The tribunal accepted that ATDSL had a contractual right to put forward a suitably qualified replacement.
It was a restricted right rather than an unfettered one, had never been exercised and was not a strong factor either way.
See our guide to substitution and IR35.
Mutuality and the project-based work
HMRC’s case on mutuality of obligation relied on Diamond offering work, Armitage accepting it and payment being made for the services supplied.
The tribunal did not regard that basic exchange as pointing strongly towards employment. A client and a self-employed contractor also agree that work will be done for payment.
Armitage’s work was arranged around individual Beamline projects. Three were completed during his first period with Diamond and the relationship then stopped. He worked for AMEC before returning to carry out a further group of projects for Diamond.
HMRC had accepted that his AMEC engagement was outside IR35.
There was no arrangement under which Diamond simply retained Armitage indefinitely to provide whatever engineering assistance might arise. The work remained tied to projects with a defined purpose.
Equipment, risk and ATDSL’s other work
Diamond supplied the principal hardware and software needed for its projects. Given the nature of the work and the systems Armitage needed to access, the tribunal did not place much weight on this.
ATDSL had its own equipment and specialist software as well. Armitage arranged a wireless connection at Warrington so he could reach ATDSL’s server and use the technical standards and specifications he kept there.
His financial exposure on the Diamond work was fairly limited. ATDSL could have been required to correct defective work at its own cost, although that never happened, and its ability to make additional profit was restricted by the fact that Armitage was paid according to the hours worked.
Neither equipment nor financial risk gave the tribunal much assistance in deciding his status.
ATDSL was also doing more than supplying Armitage to Diamond.
The company existed before the Diamond work began, and its contracts allowed it to provide services elsewhere. From 2012, Armitage developed a satellite installation business which generated work from other customers while the Diamond engagements continued.
He travelled to a satellite exhibition in Cologne during 2014 while he was still carrying out Diamond work.
These activities formed part of the wider picture of ATDSL’s business.
Read more about being in business on your own account.
Why ATDSL won its IR35 appeal
Armitage performed the work himself throughout, charged for his time and used Diamond’s systems. Diamond decided what each project required and checked the drawings he produced.
His day-to-day position was nevertheless different from that of Diamond’s employees.
Armitage spent most of his time 200 miles from Diamond’s workforce. He was outside its employee timekeeping arrangements, organisation charts, staff meetings and training, and received none of its employee benefits. Contact with the project engineer could be infrequent and Diamond relied on Armitage’s specialist knowledge to produce the designs it required.
The work also came in identifiable projects. One group finished, Armitage went elsewhere, and he later returned for another group. ATDSL was carrying on other commercial activity while the Diamond engagements continued.
The substitution provisions existed but had never been exercised and carried limited weight.
Taking the arrangements as a whole, the First-tier Tribunal found that the hypothetical contract between Armitage and Diamond would have been a contract for services. IR35 did not apply.
ATDSL’s appeals against HMRC’s determinations and the associated penalties were allowed.
The tribunal’s comparison with Marlen Ltd v HMRC is particularly useful. Both involved experienced engineering contractors working within larger client projects, with the clients specifying the required result and checking the work without exercising the same degree of control they had over employees.
You can find both decisions in our IR35 case law guide.
Judgment
The appeal was heard at Liverpool Civil and Family Court on 15 November 2016 and the decision was released on 27 January 2017.
Armitage Technical Design Services Ltd v HMRC, appeal number TC/2015/07115.
The tribunal was Judge Rupert Jones and Michael Sharp FCA.
ATDSL’s appeal was allowed.