J and C Windows v HMRC (2009)

J and C Windows v HMRC (2009)

Another IR35 victory for a contractor in the construction sector helps us to keep abreast of how the Special Commissioners interpret the ever-changing case law on employment status.

In January 2009, the Special Commissioners heard the appeal of J and C Littlewood (“JC Windows”) against HMRC’s determination that all of the workers engaged by JC Windows were working as disguised employees and therefore, fell within the scope of the IR35 legislation.

Whilst no new laws have been created or precedents set, this case does give us an insight into how the Special Commissioners interpret case law that has already been created in relation to IR35 and employment status.


The case provides us with comprehensive analysis as to how “mutuality of obligations” has developed over the years and why it is still a relevant factor when considering employment status for tax purposes.

When considering an ongoing relationship with a client, it is essential to consider whether there was a lack of mutual obligation to offer/accept further work at the end of the assignment as well as whether there are mutual obligations during the term of the assignment.

Whilst this may appear straight forward, recent cases have adopted a wide interpretation of what constitutes mutual obligations and HMRC’s interpretation is very much different compared to how the courts and tribunals have applied mutual obligations over the years. Although HMRC believe otherwise, the obligation to undertake work and the obligation to pay for that work is not considered enough to establish a mutuality of obligations.

Agreeing the specific services at the outset of the assignment will increase the prospect of being able to overcome a presumption that mutuality of obligations are present. By ensuring that any additional work/services being performed during the assignment, are documented, (ideally in the form of a contract) will also help, as will any evidence demonstrating the contractor has refused to undertake work offered by the client.


Turning to the issue of substitution, it was interesting to note in this case that some of the workers had engaged and paid their own men to undertake work for JC Windows. Others engaged family members to undertake their work whilst on holiday or used “helpers” to finish jobs for them.

In this case, the Special Commissioner took the surprising view that where JC Windows had paid the “helpers” directly, that this would not have a bearing on the worker’s IR35 status, as it would not amount to a sufficient right of substitution.

Historically courts have adopted the approach that qualified rights of substitution are not enough to demonstrate that a worker is not a disguised employee however, in this case the Special Commissioner went a step further in stating that the occasional use alternative workers was not enough to show that there was no requirement for personal service.

Therefore, any suggestion that the right of substitution is a limited or occasional power or delegation will be enough to render the right useless. This is a far cry from the High Court’s decision that the mere right to provide a substitute was considered enough to dispel any obligation to provide a personal service.


Once JC Windows had acquired work on a building site, the workers had full control to decide whether to work on that site or elsewhere. On occasions where workers chose to work on site, JC Windows allowed the contractors complete autonomy in when and how the services were carried out. JC Windows were only reasonably concerned with work being completed to deadlines to ensure no penalties were incurred. In addition, the use of timesheets was insufficient to demonstrate that the client had control over the worker. As a result of this IR35 indicator, the case was won in favour of JC Windows.


The following factors help to demonstrate that someone is in business of their own account. In this particular case, many of these factors were strong and therefore could have helped to tip the balance of the decision.


If the workers had undertaken and paid for their own training, then it is highly likely that the Special Commissioner would have used this as evidence of being in business of their own account. In contrast, if the workers would have received training and not reimbursed JC Windows then this would have been evidence that the workers were treated as disguised employees. Unfortunately, neither situation occurred in practice, thus this point was neutral.


Employees do not carry their own insurances as unlike company contractors there is no legal obligation. Therefore, it would always be of benefit for a contractor to have their own insurance to demonstrate that they are in business of their own account. In this case, absence of insurance pointed towards the workers being disguised employees. However, it must be noted that the Special Commissioner in this case did not see it as a decisive factor.


Workers were able to profit from their own management as they could take a bigger share of the purse when work was completed ahead of the deadline. Also, any delays in completing the services meant that there was less money at the end of the assignment to shared. As a result, there was a clear element of financial risk.

Furthermore, the fact that workers would have to remedy any defects in their own time and at their own cost supported that the workers were not disguised employees of JC Windows.

To conclude, this case is significant in establishing that the following factors help to defeat an IR35 challenge: having your own insurance in place; rectifying your own defective work at your own time and at your own expense; agreeing the full scope of the work to be undertaken at the outset and agreeing fixed prices for the entire assignment. Contractors should not rely on the fundamental right to substitute alone as case law is proving it is becoming increasingly more difficult to succeed in this area.