Direction & Control

‘Direction and Control’ determines how you interact with the Hirer, how they determine and influence your work, and hence your relationship with them.  Control means that your Hirer can order you around, in the same way they would an employee.  If you are seen to be performing extraneous tasks, outside the remit of your original contract assignment, then the Hirer would be deemed to have a large amount of ‘control’, and you may Fail IR35.

Direction refers to how much the Hirer can influence the way in which you perform the task you have been hired to do. If the Hirer is giving you day-to-day instruction on how to best carry out a task, then they are giving you excessive ‘Direction’ and, again, you may Fail IR35.

As you start to consider ‘Direction and Control’ you need to think about the what, when, where and how rules that are often considered by HMRC and the Courts.  You will find that these four simple words repeat regularly in this section of the micro-site.

In the case of a regular employee, an employer would give instructions on what to do (the piece of work to be carried out), where to do it (assign a desk, book a meeting room etc.), when to do it (at what point each stage of the work should be complete), and how to do it (sometimes in the form of training, sometimes by general instruction). Generally a regular employee would ‘Fail’ all of these tests – i.e. the employer influences each answer.

In the case of a Freelance Professional, they would usually ‘Pass’ some or all of these tests however none of them are black and white.  For example, although a Hirer would tell a Freelancer ‘what’ to do generally, they would often not break this down into individual small stages as would be done for an employee.  Think about this in terms of a piece building work being completed at your home.  The builder would be ‘Directed’ to the extent that he has to construct in accordance with the architects plans.  He would also have to decorate and finish to your standards and colour choice.  But is he really under your control?  Will you be telling them ‘what’ to do and ‘how’ to do it?  Probably not.  You will, however, insist on the ‘where’ given that you want the extension attached to your home!

A Freelance Professional would usually be hired for his or her individual skills in a certain area, so a Hirer would not need to tell you ‘how’ to do a job.  Although general timelines would be imposed on a project, the Hirer would usually not tell you ‘when’ to complete their work with the level of granularity an employer would with their employee (for example, they wouldn’t ask to have a certain task finished “before lunch”).

The question of “where” depends on the nature of the Contractor. A software developer would usually not need to be on-site, whereas a Consultant would need to be on-site sometimes, but off-site at other times. The key is that the Contractor defines “where” they work – they are not told they must be at a specific desk at a specific time every day.

When a client has the right to determine ‘how’ the work is done this is a strong pointer to employment. But it is not an essential feature of employment – many ‘experts’ who are employees are not necessarily subject to such control (for example, ship’s captain, consultant brain surgeon, etc).

Equally, a right to determine ‘what’ work is carried out is a strong pointer to employment. It will normally be a feature whenever a client needs a worker to undertake whatever tasks are required at any particular time or where the worker is required to work as part of a co-ordinated team.

Case law suggests:

  • if there is no right of control, then the relationship cannot be employment;
  • control has four aspects – What, Where, When, and How;
  • if there is control on all four aspects, the relationship is likely to be employment;
  • if one or more of these aspects of control is absent, control is less likely to be a conclusive factor;
  • in the case of a highly skilled professional, the control test is less likely to be useful in deciding status; in particular, the lack of control over ‘how’ does not help either way;
  • constraints imposed by the nature of the task itself (and perhaps also those which are otherwise objectively justifiable) cannot reasonably be regarded as ‘control’ at all, and do not help either way; and
  • in the case of a highly skilled professional, being part of a team cooperating on a production in conjunction with others does not significantly affect the issue.

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In the Employment Appeals Tribunal case of Motorola Ltd v. (1) Davidson (2) Melville Craig Group Limited (2009) it was stated:

“….(the extent to which) on any given day (the ’employer’) determined: “The thing to be done, the way in which it shall be done, the means to be employed in doing it, the time when and the place where it shall be done”.

Ready Mixed Concrete
In the case of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance(1968)it was established that a working relationship which involves no control at all is unlikely to be an employment.
Market Investigations
In Market Investigations v The Minister for Social Security (1968) the Hirer had ‘….. no right to instruct Mrs. Irving as to when she should do the work. The only requirement imposed on her was that the work should be completed within a specified period.’

The judge said that ‘….. the fact that Mrs. Irving had a limited discretion as to when she should do the work was not in my view inconsistent with the existence of a contract of service.’

Morren v Swinton
In the case of Morren v Swinton and Pendlebury Borough Council (1965), relating to a civil engineer who worked for the Borough Council, it was said  “Clearly superintendence and control cannot be the decisive test when one is dealing with a professional man or a man of some particular skill and experience.  Instances of that have been given in the form of a master of a ship, an engine driver or a professional architect, or as in this case, a consulting engineer.  In such cases there can be no question of the employer telling him how to do work; therefore the absence of control and direction in that sense can be of little, if any, use as a test.”
Hall v Lorimer
Hall v Lorimer (1992) is an important case. Mr. Lorimer was a ‘vision mixer’ working on a series of short-term assignments with different Hirers. The Crown’s representative argued that Mr. Lorimer was controlled to the extent that he had to work at times and dates stipulated by the production company – simply, he had to be there when the rest of the crew were there. He also had to be at a specified site, and had to work as part of the production team. The Crown accepted that the Hirer had no control over Mr. Lorimer’s skills in performing his functions.

The reason that the case is important is that it established that some, reasonable, controls are required in order to perform any task. Provided the controls are reasonable they should not have a detrimental effect in establishing an IR35 status.

Marlen Limited v HMRC Tribunal
In Marlen Limited v HM Revenue and Customs (2011), it was found on appeal that although Hughes (an employee of Marlen Limited) determined how he carried out his services in a manner similar to senior employees of the Hirer the judgement stated “We have considered two factors – mutuality of obligation and control. These are the two factors which make up the irreducible minimum required to demonstrate a contract of employment. Whilst we found some evidence of control, that which does exists falls short of that which is required in the terms of the test propounded by MacKenna J. The picture in relation to mutuality is even clearer. It is our conclusion that there is no mutuality of obligation and the degree of control which would have been needed to establish a contract of employment just did not exist.”
JLJ Services Limited v HMRC
JLJ Services Limited v HMRC (2011) is an important case insofar as the status of the Contractor (John Spencer), with his client, (Allianz Cornhill Management Services Limited)) changed after a few years on site.  For the first few years the Tribunal found that the contracts ‘Passed’ IR35, and for the remaining years the contracts Failed IR35.  Regards ‘control’ the Tribunal considered that when a worker is engaged to undertake a particular project, for which the engager would not need undertaken repeatedly, and where the person engaged alone has the expertise to implement the task, the degree of control to be exercised would be very modest. It accepted that in the early period when Mr Spencer was engaged and re-engaged for defined projects, it was realistic to say that the control over his work was limited.

However, at the end of 2003, if not before, the Tribunal concluded that Allianz wanted Mr Spencer’s services permanently and that he became one of their key computer experts, available for work indefinitely. By breaking the link with projects, and indicating that Mr Spencer would work generally within the organisation, the Tribunal believed that from 2004 onwards, there would be greater opportunity to control him.

What does HMRC Say
What we are concerned with is the right to control what the worker has to do, where it has to be done, when it has to be done and how it has to be done (see ESM1016). The engager may not be able to exercise control over all these aspects. If so, this does not necessarily mean that there cannot be employment although the greater the level of control there is, the stronger the pointer towards employment. You must also bear in mind that the right of control is only one factor to take into account and must be considered in context.

When reviewing the status of an individual you should always consider the right of the engager to exert control. It is the right of control, not whether the engager chooses to exercise that right, which is important. In many cases, particularly where the work in question involves the use of an individual with specialist skills or knowledge, there may be little evidence of the engager exercising control. The key question is could the engager exercise control?

Whilst a high level of control is a strong pointer towards employment, it may not be conclusive on its own and should be considered in the light of all of the relevant factors and the overall picture. On the other hand, if there is no right of control whatsoever under a particular contract; it cannot be a contract of service for tax and NICs purposes. It should be noted that the right of control may be explicitly set out in the contract or merely implied – see ESM1026.

Where a worker is paid by the hour or day, he/she may be required to complete time sheets and have them authorised by a representative of the engager. All that the engager’s representative is doing is confirming that the worker performed services to a satisfactory standard and did so during the hours stated. Those time sheets would be passed to another department to make payment.

By themselves, time sheets do not indicate that the engager has a right of control in any way over the worker. You cannot infer that there was an obligation to attend during the hours stated but such an obligation may exist under the terms of the contract(s).

Where an engager has a right to exert control over a worker this is a significant pointer towards employment. The extent of the right of control will vary from employment to employment and can be exerted in different ways.

A requirement in a contract for a worker to work at a specified place is more characteristic of a contract of employment, than one of self employment. The ability of theatrical producers to transfer a variety comedian to any of their theatres was a factor in the case of Stagecraft Ltd v Minister of National Insurance (SC288/52) where it was found that there was a contract of employment (see ESM1017). Where a worker is required to work on the engager’s premises it is also more likely that there will be a right of control over other aspects, especially where the work is integrated into the daily routine of an office or factory.

Where a worker can carry out work wherever he wishes, the contract is more likely to be a contract for services. However, you should be careful about making a judgement concerning status where the nature of the work dictates where it should be carried out. In such cases, this factor is not likely to be of any significance in determining status.

You should bear in mind that control over where work is carried out is only a pointer towards employment, which must be considered in the context of the overall contract. Working practices are becoming more and more flexible and many employees now work from home. You should not accept that a worker is self employed just because he or she does not work at the engager’s premises. This is particularly true where the engager covers any expenses that the worker incurs as a result of working out of the office.

Most employees are required to work hours prescribed by their employer. Details of these hours and when they will be worked will normally be set out in the contract of employment or other documentation. The documents may also indicate flexitime and time off etc arrangements.

Usually, self employed workers are not subject to extensive control over when the work is carried out. There may be an agreed deadline by which the specific work, or stages in the work, should be completed. However, within this deadline, the worker will usually have freedom to do the work at times to suit him or herself. On the other hand, workers engaged under contracts for service may be subject to considerable restrictions where commercial pressures dictate. For example, if working on large sites where access is limited to normal working hours, the worker is not going to be able to work as and when he or she pleases. In such circumstances the limitations put on when the work can be carried out tells us nothing about the status of the individual and other factors will have to be considered.

In general, the more an engager can control when work is done the stronger the indication that there is an employment. However, you need to treat this factor with caution and look at the overall picture before reaching any conclusions.

The presence of control over how work is done is a strong pointer towards employment. However, its absence is only likely to be a mild pointer towards self employment. This is because many employees are experts in their particular fields with particular skills and specialist knowledge and are not subject to such control. For further guidance on control over an expert see ESM1024.

Click here for some useful examples from HMRC.

What the case law and the HMRC guidance suggest is that:

  • the right of the engager to require changes on a day to day basis, in circumstances where the consultant would be failing to comply with the contract and thus in breach if they were to refuse, may represent a high degree of control; and
  • where the consultant has the right to make changes on a day to day basis, without the requirement for obtaining the consent of the engager, this clearly suggests that there is no right of control.

Where there are express rights to control in the written contract, the question of whether or not they are exercised is immaterial. But where there are no such express rights in the written contract, unless such control could be implied under the general legal provisions governing implied terms, and unless that contractual provision can be shown to be a ‘sham’, the lack of control will likely be accepted.

Perhaps the best way of being prepared to counter any argument that the lack of control is a ‘sham’ must be to decline a request from the client for change or to be able to say that no such request has ever been made.

The direction and control test used in IR35 cases is based on the premise that if the hirer can tell you where and how to perform your work, then an employee-like relationship exists and your assignment will fail IR35. Against this you must consider the ‘reasonableness’ of any controls imposed by an assignment contract….

  • Is it control if the client insists a first-line support worker is on site at the same time as the users they are there to support?
  • Or the worker has to use the client’s hardware, usually because the client doesn’t want someone else’s equipment plugged into his network (and he doesn’t see why he should spend time and effort validating such equipment for use)?
  • Or that the worker has to adhere to the client’s coding standards?
  • Or that a tester has to have his work periodically reviewed for quality?

All the above have actually been argued in recent IR35 cases, and only in the Dragonfly case was it found to represent control. This also focused on the fact that the reality and contract have to be aligned.

Finally, let us consider an employee and a professional consultant, side-by-side:

Employee Professional Consultant
A Job Description A contract to complete a task
Stipulated Hours, days, breaks etc No stipulation on routine unless reasonable
Supervised Regularly Quality checked
Able to be redeployed within reason Unable to be redeployed without a new contract
Works at the emplyer’s site Can work where they wish
Follows the employer’s rules and practices to complete the tasks Work how they like, provided that the task is completed
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