In the case of Parade Park Hotel v HM Revenue & Customs (HMRC), HMRC were of the view that Paul May was an employee of the proprietors of the hotel and claimed income tax and NI Contributions for the period in question. The Hotel and Mr May appealed against this decision to the Special Commissioner of Taxes.
Mr May first worked at the Parade Park Hotel when he was one of three self-employed painters and decorators hired by a building firm to work on an extension. Before the work was finished, the building firm closed down and Mr May and another man were asked to stay on until the work was complete. Mr May was subsequently offered further decorating work at the hotel and general maintenance work. At first he quoted a price for the completion of each task but was later paid at an agreed daily rate. There was no written contract governing the arrangements however. At first Mr May worked for five days a week, but later this became three days and sometimes there was no work. During this time he did work for other clients.
Mr May provided his own tools and clothes, chose which jobs he wanted to do and could decide which days he would work. The proprietor could not make him do jobs that he did not wish to do. At first Mr May was reliable but as time went on his choice of hours and whether or not he turned up when he said he would were often influenced by his acknowledged problem with alcohol.
HMRC argued that there was the necessary mutuality of obligation between Mr May and the Hotel for a contract of service to exist. He did not have the right to substitute anyone else to do the work and in reality there was an expectation that work would be given to him as evidenced by the length of time he had worked there and the regularity of the payments made to him. Furthermore, the issue was not whether mutuality of obligation existed from one job to the next but whether it existed during each individual contract. In HMRC’s view, to argue that there was no mutuality of obligation if the work provider was not obliged to offer future work and the worker was not obliged to accept it was ‘tantamount to saying that a short-term engagement could not be a contract of service’. HMRC also argued that the proprietor of the hotel did exercise control over Mr May’s work, dictating what he did, how he did it and when and where he did it.
The Special Commissioner rejected this argument. The regular pattern of payments made to Mr May did not in itself amount to evidence that he was an employee. Whilst there can be mutuality of obligation in respect of separate engagements, this was no greater in respect of each separate day on which Mr May actually worked than it was over the whole period of the working relationship. In these somewhat unusual circumstances, Mr May was not under an obligation to carry out work for the hotel but he could choose to do so. The hotel was not under an obligation to offer him work but could choose to do so. As regards control over his work, the proprietor had to accept Mr May’s refusal to do particular tasks and had no right of control over the way in which he did his work. There was therefore insufficient control for the engagement between the two parties to constitute a contract of service.