Marlen LTD V HMRC (2011)


In this particular IR35 case, Mr Gary Hughes, the sole director and shareholder of Marlen Limited (“Marlen”) provided engineering, design and drafting services to JCB. The engagements subject to appeal involved two divisions of JCB who Marlen provided services to, through the Recruitment Agency, DDC Precisions Limited (“DDC”). Between April 2003 and January 2004 Marlen provided services to Compact Products Ltd (a satellite of JCB) based in Cheadle, Staffordshire, working on Mini Tracked Excavators. Following this, between February 2004 and April 2007 Marlen provided services to JCB itself, at its Rochester site working on the Backhoe Machine.

IR35 Indicators

The evidence surrounding substitution was conflicting. The contract between Marlen and DDC clearly allowed Marlen to provide a suitably qualified replacement if Mr Hughes was prevented from performing the services due to illness or injury. A term accepted by Mr Hughes, but never exercised in practice.

JCB held a different view in that they stated that they would not have accepted a substitute from Mr. Hughes, but that if a situation had arisen were Mr. Hughes had been unable to provide the services then they would have contacted DDC to provide someone else with the same skill set.

There was also conflicting evidence in relation to the working hours and what was stated in the contract compared to what happened in practice. JCB held the view that Mr Hughes’ hours were fixed. JCB stated that between Monday to Thursday, Mr Hughes would work 8:30am to 5:00pm and on Friday 8:30am to 4:00pm with 30 minutes’ for lunch each day. However, Mr Hughes put forward that employees were required to work core hours and asked permission for time off.  He expected to work a basic 39-hour week, but this rarely happened, and he never worked fixed hours, effectively coming and going as he wished without seeking permission. Mr Hughes also provided evidence showing that his working hours varied from week to week.

The Tribunal was of the opinion that the only form of control exercised over Mr Hughes was, the project managers “overseeing the project and checking progress”.

Mutuality of Obligation
There were a number of occasions when the computer servers were down and contractors sent home without pay, whereas JCB employees remained in situ and were remunerated. This showed that JCB did not consider itself under any obligation to provide work or pay, even after an offer had been made and accepted. This understanding was clearly reciprocated by Mr Hughes when he terminated the contract early after being offered another contract. This helped the tribunal to conclude, with little difficulty, that there was no existence of Mutuality of Obligation.


Upon considering mutuality of obligation and control, the Tribunal found that whilst some evidence of control was present, it falls short of what is required in the test propounded by MacKenna J. The picture in relation to mutuality was much clearer and the Tribunal concluded that there was no mutuality of obligation and the degree of control which would have been needed to establish a contract of employment just did not exist.

It is therefore apparent that mutuality of obligation is still a relevant indicator in determining employment status and should be addressed, not only once the contract has ended but also, and more importantly, during the contract. If there is a clear lack of mutuality of obligation during the contract, particularly as set out in this case, there will be a strong case for HMRC conceding that no mutuality of obligation exists. Whilst the test is unlikely to be conclusive by itself, combined with the other key status tests such as Control and the right of Substitution, a lack of Mutuality of Obligation is still a very useful tool.