No: not the sort of substitutions made in the course of the Euro 2020 football tournament: we mean the sort of substitution that is a key feature of determining whether an engagement is a contract of employment (a contract of service). Or rather – following the decision in the recent Upper Tribunal ([2021] UKUT 134 (TCC)) – that is now slightly less of a key feature than it had hitherto been thought to be.
The obligation to provide personal service has always been considered a fundamental element of a contract of service. For example, in 1999 the Court of Appeal said (in Express and Echo Publications Ltd v Tanton [1999] ICR 693) that a clause entitling the worker not to perform any services personally was ‘a provision wholly inconsistent with [a] contract of service’. HMRC guidance is clear on the point:
An essential element of an employment is that the worker provides personal service. If the worker undertakes to perform a task and is free to hire someone else to do it or to give substantial help, it is unlikely that the worker is an employee. This is a very important factor to take into account in any status case.
But the position has been materially revised by the decision in Northern Light Solutions.
This was an ‘IR35’ case: the question was therefore whether, if the services in question had been provided under a contract between the worker and the client, that contract would have been a contract of service. The First-tier Tribunal (‘FTT’) had held ([2020] UKFTT 100 (TC)) that that hypothetical contract would have included a right of substitution (albeit only if the substitute was acceptable to the client, acting reasonably); but nonetheless held that the contract would have been one of service. The company appealed to the Upper Tribunal (‘UT’) on the grounds (inter alia) that that was an error of law: if there was a right of substitution, the contract could not be one of service.
The UT referred to the Supreme Court decision in Pimlico Plumbers v Smith [2018] UKSC 29. That was not a tax case nor even one about contracts of service, but about whether Mr Smith was a ‘worker’ under the Employment Rights Act. Crucially, however, that status also requires the person to ‘perform personally’ his work or services; so the answer to the question posed in that case by the Supreme Court (‘Where, then, lie the boundaries of a right to substitute consistent with personal performance?’) was also relevant when considering substitution in the context of contracts of service.
The Supreme Court formulation was that the presence or absence of a right of substitution is more nuanced than had previously been thought. What matters is ‘whether the dominant feature of the contract remained personal performance’. And, applying that principle to the facts in Northern Light Solutions, the Upper Tribunal considered that the ‘dominant feature’ test was passed and the FTT had made no error.
It is fair to observe, we think, that replacing a (comparatively) simple bright-line test with one which requires contemplation of whether personal service is a ‘dominant feature’ is unlikely to render any simpler the (already difficult) question of status determination.
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This article has been republished in Tax Journal Issue 1538 and is also available on the Tax Journal website.
This article has also been republished in the August 2021 issue of ICAEW TAXline and is available to subscribers here on the ICAEW website.