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No Clear View of Employment

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Double-glazing salesman loses appeal to be classed as employee

In one of those unusual cases where a self-employed individual claims to be an employee, Malcolm Tomlinson failed to persuade the First Tier Tax Tribunal that he was an employed double-glazing salesman.

Mr Tomlinson worked as a glazing salesman for more than 35 years selling mainly conservatories and double glazing. He, and the companies he worked for, always understood him to be self-employed. It therefore came as a surprise to Tomlinson when his new adviser, who he had hired to deal with an enquiry into his tax affairs, which had started in early 2013, advised him that he may in fact be an employee.

After two years of discussions, Tomlinson’s adviser was unable to persuade HMRC that his status should be re-categorised as employee, causing HMRC to issue an NIC decision that Tomlinson was self-employed for the period 6th April 2004 – 5th November 2015.

Background

In the period in question Mr Tomlinson worked for Window Centre (Solihull) Ltd (WCSL) but there were no written contractual terms. He first started working for WCSL in around 1990 but left the following year. After about 12–18 months, Tomlinson returned to work for WCSL on the same verbal terms he had worked under previously.

Working arrangements

Mr Tomlinson’s main job was to sell WCSL’s products. He generated his own leads as well as receiving leads that the company received directly. Following an enquiry, Tomlinson would visit the customer at their home and take measurements. He would then provide a quote with some suggested designs. If the customer decided to go ahead, he would take a deposit and then pass the job over to WCSL’s surveyors.

Quotes and initial contracts were produced on WCSL’s headed paper and would be signed by Tomlinson on behalf of WCSL.

Training was provided by WCSL on new products to all of its salesmen. WCSL also had an arrangement with a finance company to provide interest free credit to its customers and the finance company also provided training to the salesmen as to how to fill in the credit application forms. Mr Tomlinson was not required to pay for any of this training.

Tomlinson provided and paid for his own car and mobile phone.

WCSL provided Tomlinson with stationery, business cards, samples, brochures, an e-mail address and the use of its premises including access to a computer and landline telephone. Again, the worker did not have to pay WCSL for any of this.

In 2014, WCSL provided Tomlinson with a laptop loaded with specialised software for providing quotes and producing contracts, completely free of charge.

Shirts bearing the WCSL logo were also given to Mr Tomlinson at no cost to him.

Basis of remuneration was strictly commission based, with the headline rate being 10%.  WCSL produced a price list for its products but Tomlinson could give customers a discount of up to 25% on the listed price without affecting his commission. If he gave customers a higher discount of up to 30%, this would need to be approved by WCSL and his commission would be reduced. Commissions would also be reduced or clawed back in three other circumstances:

  1. if there was a problem with the job which resulted from an error made by Tomlinson;
  2. if the customer failed to pay; and
  3. if the customer cancelled the job.

Each month, Tomlinson would submit a commission claim form for the previous month listing of all the orders which had been placed and in respect of which he believed he was entitled to commission. The claim form would be reviewed by WCSL and sometimes adjustments would be made to the commissions.

Payment was normally made after about four weeks after the claim form was submitted. On some occasions, when payment was delayed, a payment on account was made.

Until mid-2002, WCSL paid Mr Tomlinson a regular weekly advance payment against his commission entitlement of less than £250.

During the period in question, Tomlinson spent approximately two days per week in WCSL’s showroom where he would deal with telephone enquiries and customers visiting the showroom. He would also perform administrative tasks such as receiving post and directing visitors to other parts of the business.

No limit was placed on Tomlinson’s holiday entitlement but in 2009 he was required to complete holiday request forms which were countersigned by WCSL.

Half of Tomlinson’s paperwork/administration was carried out at home and the remainder at WCSL’s premises.

Tomlinson appeared in a number of adverts in local newspapers placed by WCSL alongside WCSL officials.

There was no possibility of Tomlinson providing a substitute as any replacement salesman would not have the requisite training in respect of WCSL’s products and credit facility.

No holiday pay, sick pay or pension contributions was received from WCSL.

Painting the picture

Control

HMRC argued that WCSL exercised very little control and that the element of control should be given different weight according to the scenario and that it was less important in this case.

Mr Tomlinson’s participation in training was evidence of some control being exercised by WCSL over him but, by the same token, if he did not understand the product and how to fill in credit application forms, he would be less likely to generate sales.

Overall, the Tribunal felt that WCSL did exercise sufficient control over Mr Tomlinson in order for there to be the possibility of the existence of a contract of service although the level of control was modest and could equally be consistent with a contract for services.

Equipment

The equipment provided by WCSL was considered to be relatively minor and even the provision of a laptop was not significant. As such, this test did not provide any real indication one way or another.

This was also true of other items provided by WCSL, such as brochures, samples, stationery and access to WCSL’s premises and associated office equipment.

Providing his own car and mobile phone was more supportive of the self-employment argument but given the nature of Tomlinson’s work, this was not strong enough to point either way.

Financial risk/payment terms

That Tomlinson was paid only on a commission basis was considered significant by the Tribunal. He could work as many hours as he liked but if he failed to achieve any sales, he would not earn anything. This was a very great risk compared to an employee who is normally paid for the work which they do.

Tomlinson was also subject to other risks. If the customer failed to pay, he received no commission and was therefore at risk of bad debts and unpaid invoices.

Although commissions earned were within the parameters laid down by WCSL, Tomlinson was able to influence the amount of commissions he could generate. If he was able to negotiate a sale without providing too big a discount, he would get more commission.

In agreeing to be paid on a commission only basis, Tomlinson took a significant financial risk. Whilst he had the opportunity to increase his profits by generating his own leads and negotiating better deals, he did incur expenses which would reduce his profits which could give rise to a theoretical loss. The Tribunal therefore considered this to a fairly strong indicator of self-employment rather than employment.

Personal service

Whilst it was a fact that Mr Tomlinson’s personal service was a feature of the working arrangements, HMRC sought to argue that this was not decisive.

Mutuality of obligation (MOO)

HMRC did not put forward any arguments on this point but the Tribunal were prepared to assume that the necessary MOO existed, although if MOO in fact required there to be an obligation on WCSL to provide work and an obligation on Tomlinson to do the work provided, the Tribunal doubted whether those obligations existed.

Employee type benefits

Hypocritically, HMRC sought to argue that the lack of employee type benefits was clear evidence that Tomlinson was not an employee but the Tribunal attached very little weight to this factor.

Integration

Whilst Mr Tomlinson had many of the hallmarks of being seen to be part and parcel of WCSL’s organisation, HMRC argued that there was no reason to suppose that a customer would care whether he was an employee of the company or whether he was self-employed.

The Tribunal did not think it would be unusual for a self-employed salesman to be authorised to sign contracts on behalf of the company and this factor was no strong enough evidence of being an employee.

The whole picture

There were factors which supported both employment and self-employment.

Employment

In favour of employment were the following factors:

  • WCSL did exercise some control over Tomlinson’s activities
  • WCSL provided equipment and support to enable Tomlinson to do his job
  • Tomlinson appeared to the outside world to be an employee
  • There was a negligible chance of Tomlinson making a loss
  • Personal service of Tomlinson

Self-employment

Factors pointing towards self-employment were:

  • Worker was paid on a commission only basis
  • Tomlinson incurred non-reimbursed expenses
  • Although WCSL exercised some control over Tomlinson, he was fairly free to work in the way he wanted and there was no limit on the time he could take off
  • No entitlement to holiday or sick pay
  • Ability to increase earnings by Tomlinson generating more of his own leads and negotiating the best possible deals.

Standing back from the detail and looking at the overall picture, the Tribunal tended to believe that this showed that Tomlinson was in business on his own account and was not an employee.

Decision

The picture was not a clear one and was one of those cases where either conclusion would be perfectly possible. That both parties believed Tomlinson was self-employed and operated on that basis for almost 25 years was decisive and it was concluded that the appellant was self-employed.

HMRC demonstrated just how contrary they can be in placing different emphasis on some of the employment status tests, when under normal circumstances they would argue very differently.