04

May 15, 2023

IR35 & Off Payroll Working - The 3 planks approach and what does this mean?

IR35 & Off Payroll Working - The 3 planks approach and what does this mean?

At Inspired Employer Solutions Ltd (“IESL”), we liken this to HMRC using their best endeavours to construct a bridge consisting of “3 planks” if they are to stand any chance of success in progressing their case - without these their argument will fail.

This analogy is used by IESL as a means of describing the building process HMRC must think about in cases where they believe and can demonstrate that an employment as opposed to self-employment contractual relationship exists between the engager and a worker. To put it simply, HMRC need to construct a bridge and one which must consist of all 3 planks if they are to succeed in their line of argument to put them in a position to prove an employed relationship exists between the relevant parties.

The 3 planks analogy has its foundations and basis from a long standing legal case which started back in 1965 and finally resolved in 1968. The case in question involved Ready Mix Concrete (South East) Ltd and the then Minister for Pensions and National Insurance and is the bedrock on which all employment status disputed cases are ultimately based, including deemed employment in cases involving IR35.

The 3 planks HMRC must put in place to further their case for employment (a contract of service) are;

  • Plank 1 - "personal service"
  • Plank 2 - "right of sufficient control"
  • Plank 3 - "any other factors consistent with employment."

To help you appreciate the basis of the “3 planks”, we have referenced the wording taken from the judgement reached in the Ready Mix Concrete (South East) Ltd’s case (here “servant” means the worker and “master” means the engager).

In his judgment, MacKenna J considered what is meant by a contract of service. He said

“A contract of service exists if these three conditions are fulfilled.

  1. The servant agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master.
  2. He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master.
  3. The other provisions of the contract are consistent with its being a contract of service.

As to (i). There must be a wage or other remuneration. Otherwise there will be no consideration, and without consideration no contract of any kind. The servant must be obliged to provide his own work and skill. Freedom to do a job by one’s own hands or by another’s is inconsistent with a contract of service, though a limited or occasional power of delegation may not be….”

This established that in order for there to be a contract of service there must be

  • The worker has to be subject to a right of control. If there is no right of control of any kind, then you will not have a contract of service. However, it was also made clear in the judgment that, although a right of control is an important factor in determining employment status, it is not necessarily a determining factor;
  • He agrees, expressly or impliedly, that in the performance of that service he will be subject to the other’s control in a sufficient degree to make that other master.
  • The other provisions of the contract are consistent with its being a contract of service.

To summarise, if all 3 conditions are not present, then it is clear that an employment relationship will not exist, thus leaving self-employment and a contract for services as the de-fault position.

Using the “3 planks” analogy and defending against HMRC?

The objective for businesses is to appreciate these 3 conditions. On the basis the facts permit, they will then be in a position to ensure HMRC are either unable to construct their “3 plank” bridge, or alternatively, being in a position to dismantle their preconceived bridge when HMRC investigate – this of course being dependant on the case you present and the audit trail you able to collate.

As such, understanding the “3 planks” and how the subject employment status is approached by HMRC and then considered by the tax tribunal process not only under employment status general but also deemed employment under IR35, will enable you to prepare and plan ahead.

Our IR35 App (www.ir35app.co.uk) which has been developed specifically with the IR35 and the Off Payroll working market in mind, will aid and facilitate this process.

Timing will be crucial and getting your audit trail in place from the outset of each contract / engagement, will allow you to lay the necessary foundations to defend any attack from the tax authorities.

What help is available?

Inspired Employer Solutions Ltd (IESL) have developed IR35 App (www.ir35app.co.uk). This is a first to market solution which cannot be found elsewhere and is specifically adapted to your business. This unique and unrivalled paperless software application which delivers a bespoke and innovative approach to IR35 and Off Payroll Working. Implementing the necessary defence mechanisms that will educate and protect your business and make HMRC think twice before challenging.

IR35 App is backed by IESL’s team of dedicated specialists. The Directors Geoff Heron and Adrian Williams are former investigators with HMRC and Senior Managers with a Big 4 accountancy practice have the expertise and knowledge to help. IESL’s Directors are also joined by Steve Gretton; a former Employment Status Inspector who spearheaded IR35 investigations within HMRC. We believe no other “Big 4” or accountancy practice in the UK can boast such and array of hands on expertise.

How do you get IR35 App?

IR35 App is not available as an “off the shelf” product; why? - because the Directors understand that the decision makers within businesses caught up in the Off Payroll Working Rules and interested in investing in this unique product will want to understand its benefits and value prior to purchase.

The Directors Adrian and Geoff believe the best way to move this forward is to hold a face to face meeting, where we can;

  • Demonstrate the IR35 App.
  • Discuss the “extras” that come with IR35 App.
  • Discuss IR35 Apps IT support.
  • Confirm Pricing.
  • Answer any questions.

For more information, to include the timeframe for implementation, please contact Adrian or Geoff by following the IR35 App link at www.ir35app.co.uk.