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Employee or Self-Employed Partner? Guideline Tax Tribunal Ruling

When discerning whether an individual is an employee or a self-employed partner in a professional firm, judges look beyond the label attached to their engagement and focus on the reality of the relationship. A tax tribunal ruling provided a prime example of that multi-factorial approach in operation.

The case concerned an international tax specialist who was engaged by a UK firm of accountants. HM Revenue and Customs (HMRC) took the view that he was a self-employed partner in the firm and was therefore personally liable to pay National Insurance Contributions (NICs) in respect of a period of about 17 months.

Although he had formally been appointed a member of the firm, he asserted that he was a partner in name only and that he was, in substance, the firm's employee. He contended that the level of control the firm exercised over how he went about his work with clients was consistent with a contract of service. His argument that liability to pay the relevant NICs fell upon the firm by reason of his employment status was, however, rejected by the First-tier Tribunal (FTT).

Ruling on his challenge to that outcome, the Upper Tribunal (UT) noted that, under the terms of his partnership agreement, he was neither required to contribute to the firm's capital nor did he have a right to any surplus assets on a winding up. On the other hand, he had a voice in the management of the firm's affairs and a significant part of his income was dependent on it making a profit.

Dismissing his appeal, the UT rejected arguments that the FTT was over-influenced by the partnership label attached to his engagement. The FTT was entitled to find on the evidence that he was a partner in the sense that he was carrying on business in common with other members of the firm with a view to profit. He was thus a self-employed earner for NICs purposes.