In a recent First-Tier case the Tribunal considered whether a company was required to account for Class 1 National Insurance Contributions in respect of an 'employee'. The company in question manufactured and distributed flavoured soft drinks made with crushed ice. In 2001, the company took over another company and all the employees of that other company became employees of the soft drinks company with the exception of the senior service engineer. This was because all the existing service engineers were at the time working in a self-employed capacity. The service engineer had been a part owner of the disposed business and also had some close family connections with the soft drinks manufacturer.

The Tribunal explained in some detail the way that the service engineer operated as a self-employed person and this continued until the service engineer wrote to the company on 29 March 2007 to inform them that he would no longer be able to work for them from 6 April 2007. On the advice of his accountants, the service engineer wrote to HMRC to argue that he should in fact have been treated as an employee in the intervening years and that he was entitled to a repayment of Income Tax that he had accounted for.

HMRC considered the issue in some detail and stated that based on their enquiries they were unable to give an opinion at this time and that the existing tax treatment should not be disturbed. This decision was not accepted by the service engineer and after much discussion HMRC were persuaded that the service engineer had been employed and that the company should have accounted for Income Tax and National Insurance. The company were most surprised at this decision and appealed to the Tribunal.

The Tribunal explored a significant amount of case law in coming to a decision and held that the way the service engineer appeared to customers (such as wearing a company uniform) was not a decisive factor in determining his status. The other facts such as the level of independence which the service engineer had and the fact there was no obligation on the company to provide him with work outweighed the arguments that he was employed. The Tribunal found that the service engineer was not an employed earner and was therefore self-employed. The company's appeal was allowed in full.