Elaine Richardson provided specialist IT consultancy and software development services to Vertex Data Science Ltd through her company, ECR Consulting Ltd.
Richardson had worked as an independent IT contractor since 1993 and had built up a business with a number of different clients. During the years reviewed by HMRC, ECR supplied her services to Vertex through Best People Ltd, later Spring Technology.
She negotiated the rates ECR charged, could refuse further work and worked with little day-to-day control from Vertex. The contracts also allowed ECR to provide a suitably qualified substitute.
HMRC argued that the engagements fell within IR35, but ECR successfully appealed. The First-tier Tribunal found that the hypothetical contract between Richardson and Vertex would have been a contract for services.
IT consultancy work for Vertex
Richardson started contracting independently in June 1993 after being made redundant from her previous employment.
She was the sole director and shareholder of ECR Consulting Ltd and provided specialist IT consultancy and software development services through the company.
ECR supplied Richardson to Vertex Data Science Ltd through the agency Best People Ltd, which was later taken over by Spring Technology Staffing Services Ltd.
HMRC’s decisions covered National Insurance from 6 April 2002 to 27 March 2005 and PAYE for the 2002/03, 2003/04 and 2004/05 tax years.
Richardson worked on several Vertex projects, including work connected with transferring Powergen customers onto a common IT platform.
The work was carried out under a series of separate contracts rather than one continuous agreement.
Negotiating the contract rate
Richardson’s first Vertex engagement began in March 2002 at £600 a day.
That contract was extended, but Best terminated it early in November 2002.
When Richardson was later approached about returning to Vertex, the rate offered was £300 a day. She refused.
The offer was eventually increased to £350 a day and Richardson accepted another engagement.
The tribunal regarded the negotiations as evidence of the commercial relationship between ECR and its client. Richardson was prepared to turn work down when the price was not acceptable, and the rates moved with the market for her services.
Further contracts followed through Best and Spring Technology, with the final Vertex engagement ending in March 2005.
Substitution
The contracts allowed ECR to propose another person to carry out the services, subject to approval by the agency and Vertex.
Richardson was named in the contractual schedule and two Vertex witnesses told the tribunal that they would not have accepted a substitute.
The tribunal did not accept that this prevented substitution from being a genuine contractual right.
Vertex used agencies to obtain contractors with the skills needed for particular projects. Richardson herself had originally been supplied for the £600-a-day engagement without Vertex interviewing her beforehand.
If she had been unavailable or unsuitable, Vertex could have asked the agency to provide someone else with the required experience.
The tribunal accepted that the substitution provision was genuine and would have formed part of the hypothetical contract.
See our guide to substitution and IR35.
Control over Richardson’s work
Richardson worked within a Vertex team managed by Linda Brown.
Vertex decided what work was required and Richardson had to meet the standards applying to the project, but she had been brought in for her specialist IT experience and was largely left to decide how to carry out the work itself.
The tribunal heard that Brown could not tell Richardson how to perform her specialist tasks or dictate how much time she should spend on them.
Her work was subject to peer review, but this was part of Vertex’s quality assurance process rather than close supervision of the way she worked.
The tribunal found that Vertex did not exercise any real control over how Richardson performed her work.
Contractors were also outside a number of policies and procedures which applied to Vertex employees.
Read more about control and IR35.
Hours and further work
Invoices commonly recorded a 37.5-hour week, but Richardson’s own records showed that the hours she actually worked varied.
Vertex did not prescribe an employee-style working pattern or determine exactly how many hours she had to work each week.
There was also no promise of another contract when an engagement ended.
The agency agreements stated that Best was not obliged to offer ECR further work and ECR was not obliged to accept it.
That was borne out by what happened. The first Vertex engagement was terminated early, and Richardson later rejected another offer until the rate was increased.
See our guide to mutuality of obligation.
ECR worked for other clients
By the time HMRC opened its enquiry, Richardson had already been contracting through ECR for many years.
Vertex was not the company’s only client.
ECR provided services to as many as three clients during the years from 2002 to 2005, and Richardson carried out other commercial work while also working on the Vertex projects.
That included advising businesses on hardware and software and supplying, installing and configuring computer equipment.
ECR operated from a dedicated office at Richardson’s home, had its own domain and website and owned computer equipment used in the business.
The company had also carried out fixed-price work and retained money for investment and future development.
The tribunal described ECR as “a genuine business and therefore not a target of the IR35 legislation”.
The wider business evidence can be compared with Hall v Lorimer, where the Court of Appeal also looked at the freelancer’s activities beyond a single engagement.
Read more about being in business on your own account.
No Vertex employee benefits
Richardson received no holiday pay or sick pay from Vertex and had no entitlement to its pension scheme, company vehicle or other employee benefits.
The contracts also stated that the parties did not intend to create an employment relationship.
That wording could not decide the status question on its own, but it was consistent with the commercial arrangements the tribunal had heard about.
Richardson was supplying specialist services through a company which had existed for years, negotiated its own rates and worked for other customers.
Why ECR Consulting won
HMRC relied on Richardson being named in the contracts, the length of her work for Vertex and the fact that she worked within a Vertex project team.
The evidence showed a less employee-like relationship.
Richardson had negotiated the rates ECR charged and had refused Vertex work when the price was not acceptable. Her first engagement had been brought to an end early, and neither side had any obligation to enter another contract afterwards.
Vertex exercised little control over how she carried out her specialist work, while the contractual right to provide a suitably qualified substitute was accepted by the tribunal.
ECR had also been trading since 1993, worked for several clients and carried on other commercial activities while Richardson was supplying services to Vertex.
The First-tier Tribunal found that the hypothetical contract between Richardson and Vertex would have been a contract for services rather than a contract of employment.
ECR’s appeal was allowed.
The decision sits alongside Novasoft Ltd v HMRC, another IT contractor victory where several individual factors pointed towards employment but the wider relationship did not.
It can also be compared with Marlen Ltd v HMRC and MBF Design Services Ltd v HMRC, both successful contractor appeals from the same period.
Judgment
The First-tier Tribunal released its decision on 11 May 2011.
ECR Consulting Ltd v Revenue & Customs [2011] UKFTT 313 (TC), TC01174.
The appeal was heard by Tribunal Judge David S Porter and Alban W Holden.
Read the full ECR Consulting decision on BAILII.