ECR Consulting Contractor v HMRC (2011)


Miss Richardson had been in the business of providing software development services to clients since June 1993 after having been made redundant by her previous employer. She made the decision to become self-employed as she did not want the risk of being made redundant again.

Since the incorporation of her own Limited Company, ECR Consulting Limited (“ECR”) has worked with multiple clients. ECR had serviced up to 3 separate clients between 2002 – 2005 and 2 clients between 2006 – 2007.

In 2001, Miss Richardson was approached by Best People Ltd (“Best”) (subsequently taken over by Spring Technology Staffing Services Limited) to provide computer services to Vertex Data Services (“VDS”) but refused as she was working on another contract. In 2002 Best approached Miss Richardson again to see if she could help with the implementation of the Accenture Customer 1 billing system for TXU Energy. Miss Richardson agreed to provide services to VDS via Best commencing on 6th March 2002. The contract was terminated by Best on the 18th November 2002. Miss Richardson then agreed a new contract at a significantly lesser rate (due to the market climate at that time) to provide services to VDS again on 21st April 2003 until 23rd February 2004.

Miss Richardson was not interviewed for either position and assumed that VDS had checked her website which contained her CV.

IR35 Indicators

The project manager, Linda Brown of VDS, claimed that Richardson was under her overall control, despite there being no company procedures or standards about how to conduct the work Miss Richardson was hired to complete.

The tribunal accepted that Miss Richardson received advice on the way in which VDS worked, but Linda Brown was not able to tell Miss Richardson how to do the work or when she should do the work.

Although Miss Richardson’s work was subject to a peer review system for the monitoring and maintenance of standards, she was not controlled as this process was to ensure that the whole team could examine how the project was progressing with a view to resolving problems.

Further, the Tribunal held that the level of payment indicates that Miss Richardson is clearly a knowledgeable computer expert capable of handling complex work and unlikely to be controlled.

Both the contract between ECR and Best (the lower level contract), and Best and VDS (the upper level contract) made provision for substitution. HMRC contested that the right of substitution was fettered because the client’s permission was required before a substitute could be appointed.

Miss Richardson was hired without an interview, and VDS asked the agency to supply the contractor with the best available qualifications, and not Richardson specifically. Best approached Miss Richardson’s for her services, not the client, therefore despite HMRC’s claim that the substitution clause was fettered, the tribunal found that the substitution clause was not fettered as suggested by HMRC, on the basis that the hypothetical contract would have to have a valid substitution clause, which could only be found in a contract for services.”

In the event that Miss Richardson was unable to perform the services VDS would have returned to Best for them to supply another contractor.  Both contracts allowed for substitution and Miss Richardson confirmed she knew of at least 6 other people she could enlist to perform the services.

Mutuality of Obligation
Although the contracts between VDS and Best were unsigned, the tribunal accepted them as having been executed.

The contract between Best and ECR clearly stated that there would be no obligation to supply further work for ECR. A similar clause existed in the contract between the agency and the client VDS.

VDS was unconcerned who the contractor was, they were merely interested in obtaining the necessary skills for the cheapest price.

In addition, Miss Richardson had turned down work offered by VDS, and had had a previous contract terminated early with them. Not surprisingly, the ruling confirmed there was no mutuality, stating that this was “not a provision that would be found in a contract of services”.

In Business on own Account
ECR had its own home office, specialised equipment, stationary business cards and insurance, advertised its services via its own website and held a trade membership with the PCG.

Miss Richardson stated that one of the reasons she originally incorporated ECR was to prevent personal liability if she were to be sued and the tribunal considered that indemnity given in the contract and the potential impact of being sued was substantial.

ECR had retained reserves, invested in development projects and had taken on fixed-price work for numerous clients simultaneously.

All these factors led the tribunal to conclude that ECR is a genuine business.


The Tribunal found there was no real control over the way Miss Richardson carried out the contract and VDS were not concerned with who did the work, merely that they were suitably qualified, therefore the arrangement was not personal to Miss Richardson.

In line with the Marlen case, the Tribunal acknowledged that mutuality of obligations is more than pay for services performed and did not accept there was any mutuality of obligations.

In coming to their decision, the Tribunal stated, “it is clear that ECR is a genuine business and therefore not a target of the IR35 legislation. The terms of the hypothetical contract would result in a contract for services.”