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HMRC internal manual

Employment Status Manual

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HM Revenue & Customs
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Basic principles: meaning of "the client"

In the case of Future Online Ltd v Foulds (see ESM7280), the appellant argued in the High Court that “the client” was the intermediary’s client, which in that case was a recruitment agency, and not the end user of the worker’s services. As a consequence, the hypothetical contract to be constructed would be that between the intermediary and the recruitment agency. It was also argued that if such a construction was not clear then the provisions are ambiguous and, under the Pepper v Hart doctrine, it is necessary to look at reports of the Parliamentary proceedings in Hansard.

The judge rejected both these arguments. He found that, on the established facts, it was clear that it was the end user, and not the recruitment agency, which required the worker’s services. The end user had in that case required the services of an IT specialist for the purposes of its business of supplying computer systems to its customers. The end user was the only person for the purpose of whose business the worker could realistically be said to be providing services. He also found that, even if it could be said that the recruitment agency fell within the meaning of “the client”, so that there were then two clients, it would be necessary to see whether the paragraph 1(1)(c) test in Schedule 12 FA 2000 [now section 49(1)(c) of ITEPA 2003] was met in respect of either of them.

It is therefore necessary to establish the nature of the services being provided by the worker and the identity of the person for whom those services are being provided and then apply the section 49(1)(c) test.

Care must be taken to identify whether a firm is providing a service (for example, an IT or typing service) to a customer as opposed to providing an individual’s services.