Mark Daniels provided construction management services to Structure Tone Ltd through his company, MDCM Ltd.
He worked mainly as a night-shift manager on construction projects and was responsible for overseeing the site, dealing with subcontractors and suppliers, and resolving safety or practical problems as they arose.
Structure Tone decided what work needed to be done, but Daniels was an experienced construction professional and was given considerable freedom over how he carried it out.
HMRC took the view that IR35 applied to Daniels’s work for Structure Tone and raised PAYE and National Insurance determinations for the 2012/13 and 2013/14 tax years. MDCM disputed HMRC’s interpretation of the engagement and took the case to the First-tier Tribunal, where the company succeeded.
The tribunal’s findings were mixed. Daniels had to provide his services personally; there was sufficient mutuality of obligation, and he bore little financial risk.
However, the evidence did not support HMRC’s case on control; Daniels was not integrated into Structure Tone’s organisation, and several important terms of the engagement were inconsistent with employment.
Construction management through MDCM
Daniels had worked in the construction industry for many years and had a background in quantity surveying. He and his wife were directors and employees of MDCM Ltd, which supplied his construction management services.
Solutions Recruitment Ltd introduced Daniels to Structure Tone. MDCM contracted with Solutions Recruitment, which in turn contracted with Structure Tone for his services.
Daniels worked as a night shift manager and took responsibility for the site during his shift. His work included supervising contractors, dealing with suppliers and handling practical and safety issues that arose overnight.
The hypothetical contract
The tribunal had to establish the terms of the contract that would have existed if Daniels had worked directly for Structure Tone, and then decide whether that hypothetical contract would place him inside or outside IR35.
It applied the principles in Ready Mixed Concrete and considered the relationship as a whole, following the wider approach in Hall v Lorimer.
Mutuality of obligation
The tribunal found that sufficient mutuality of obligation existed within the engagement. Daniels agreed to carry out the work, and Structure Tone paid for it through the contractual chain.
That work-for-pay arrangement was enough for the tribunal to find mutuality of obligation during the engagement. Daniels had agreed to carry out the work, and Structure Tone was obliged to pay for it, so this was one of the factors supporting HMRC’s case.
Control
HMRC also relied heavily on control, but the evidence did not support the degree of control it alleged.
Daniels worked set night shifts, and Structure Tone’s project manager could tell him which jobs or issues needed attention during a shift. The tribunal accepted that Structure Tone could set priorities and specify the work that had to be dealt with, but it did not have the same level of control over how Daniels carried out his role. On site, he was expected to use his own experience and judgement rather than work under close direction.
Daniels was experienced and was trusted to manage the site without close supervision. The tribunal found that Structure Tone did not exercise any more control over him on site than it would have exercised over an independent contractor.
One incident involving Aldwych House illustrated the point. Structure Tone wanted Daniels to move to another site, but it required his agreement rather than simply directing him there.
The tribunal therefore rejected HMRC’s argument that the engagement involved the degree of control expected in an employment relationship.
Personal service and substitution
The written contract between MDCM and Solutions Recruitment contained a substitution clause, but the tribunal found that it did not reflect the arrangement with Structure Tone.
Daniels was expected to provide the services personally. If he was unavailable, Structure Tone would have asked Solutions Recruitment to find somebody else rather than requiring MDCM to send a substitute.
There was therefore no genuine right of substitution in the hypothetical contract. Personal service was another factor that supported HMRC’s case.
Financial risk
Daniels was paid a flat daily rate of £310 and carried little meaningful financial risk.
Daniels paid his own travel, hotel and other expenses, but the tribunal did not see that as carrying much weight. Those were costs he chose to meet himself rather than evidence that he was taking on any real commercial risk, and employees can also incur similar expenses.
Structure Tone supplied the safety equipment required on site, and Daniels was not exposed to any substantial risk of making a loss on the work.
Notice, benefits and integration
Other parts of the engagement weighed in favour of an ‘outside IR35’ finding. Neither side had to give notice to end the arrangement, and Daniels had no entitlement to severance pay or payment in lieu of notice.
He was paid his agreed daily rate for the days he worked and received no holiday pay or other employee benefits.
The tribunal also found that Daniels had not become part and parcel of Structure Tone’s organisation. Although he had considerable responsibility while on site, he did not attend internal staff meetings or staff functions and was not treated as part of the permanent workforce.
Why MDCM won
The case was finely balanced in some respects. Personal service, mutuality of obligation and limited financial risk all supported HMRC’s argument that the hypothetical contract was one of employment.
However, Structure Tone did not exercise the level of control HMRC alleged. Daniels retained substantial autonomy over how he carried out his work, could not simply be moved between sites without his agreement and was not integrated into the client’s organisation.
The lack of notice, severance rights, holiday pay and other employee benefits also formed part of the overall picture.
Having considered the terms of the hypothetical contract as a whole, the tribunal concluded that Daniels would not have been an employee of Structure Tone. MDCM’s appeal was therefore allowed, and IR35 did not apply.
MDCM and the wider IR35 context
MDCM is useful because several findings went against the contractor and the case was still decided outside IR35.
Daniels had to provide the services personally, there was mutuality of obligation during the engagement, and he carried little financial risk. None of that was enough to make the hypothetical contract one of employment once the tribunal considered the arrangement as a whole.
Control was especially important. Structure Tone could decide what needed doing on site, but Daniels was left to use his own experience and judgement in carrying it out. That distinction helped undermine HMRC’s case.
It also reflects the broader approach in Hall v Lorimer: employment status depends on the overall effect of the relationship rather than any single factor.
MDCM was only a First-tier Tribunal decision, so later tribunals are not bound by it. Its value is that it shows personal service and other employment-style features can be present without the engagement necessarily falling inside IR35.
Read more about other employment status cases in our comprehensive guide to IR35 case law.
Judgment
MDCM Ltd v Revenue & Customs [2018] UKFTT 147 (TC), TC06400.