M&A Tax Update
A periodic update for those involved in corporate finance on tax
developments relevant to M&A transactions.
If you would like further information on any of the areas covered, please
email firstname.lastname@example.org or speak to your usual Pinsent
Short summaries of each article are
shown below. If you would like to
view the full article, click on the
underlined links. To return to the
start, click on the "Go back" link.
Corporate acquisitions in the current climate - the impact of debt
Although M&A activity has dropped the deals which are still going ahead often involve companies which are heavily laden with
debt. This article looks at the tax issues to consider in these types of deals. Read more
Pension Deficit Indemnities
Given the current difficulties in the financial markets, it is becoming increasingly common to find pension deficits in a target
company. This article looks at the tax implications that may arise in connection with the funding and payment of a pension
deficit liability. Read more
Implementation of Companies Act 2006
On 1 October 2008 certain provisions of the Companies Act 2006 came into force which will have an impact on M&A
transactions. This article looks at the provisions now in force and how these may shape deals going forward. Read more
The recent case of Owen Pell Limited and Bindi (London) Limited has shown that contracting parties must remember what they
are being bound by when they agree that an expert's determination will be final and binding. This article looks at the detail of
this case which confirms that an expert's decision is binding, even if errors have been made in its conclusions and what can be
done to help the parties' position in such a case. Read more
Update on Demibourne
This article looks at the HMRC guidance on the practical effects of the Demibourne case and the legislation brought in to
address what was considered the harsh result of this case for employers when a worker treated as a self employed consultant is
later re-categorised as an employee. Read more
Employment Status – The Importance of a Right of Substitution
We look at the recent High Court decision in Dragonfly Consulting Limited v HMRC which has confirmed the importance of
unfettered rights of substitution where consultants or other contractors are treated as self-employed. The decision shows the
importance of thorough due diligence and appropriate indemnities to cover this risk on acquisitions, and the need to review the
basis on which any consultants are engaged following completion of the purchase. Read More
Corporate acquisitions in the current climate - the impact of debt
We are facing difficult times in the M&A market and there is a noticeable drop in the number of deals being done. However,
despite the current conditions, there is still some activity in the market place and many of the deals that are going ahead
involve companies which are heavily laden with debt. This gives rise to a number of interesting tax issues which we will focus
on in this article.
Agreement to repay target debt – does this attract stamp duty?
It will often be a term of a company acquisition that the buyer will ensure that the debt of that company is repaid on
completion. It is important from a stamp duty point of view that this is documented in the right way.
In order to avoid paying stamp duty on this agreement to repay the debt, the contract should make it absolutely clear that the
agreement to repay the debt is not consideration for the share acquisition. This can be achieved by making sure that the debt
repayment is not dealt with in the consideration clause and instead there is a completion obligation that the buyer will procure
that the target company repays the debt. The buyer can then put the target in funds (either by way of loan or a share
subscription) to repay these amounts. In this way, it is possible to ensure that the repayment (or the agreement to repay) is not
consideration for the share acquisition meaning that no stamp duty should be payable in respect of such amounts.
How are indemnity and warranty payments taxed when the consideration is nominal?
It was established in the case of Zim Properties v Proctor  TC 42 that the right to court action for compensation for
damages was an asset for capital gains tax purposes. The result of this is that a person who receives compensation or damages
whether by court order or negotiated settlement may be regarded as disposing of the right of action.
Following this very wide reaching decision, HMRC issued Extra Statutory Concession ("ESC") D33 which provides a number of
concessions, including in relation to payments made under warranties and indemnities which are included as one of the terms
of a contract of sale and purchase. ESC D33 provides that if, after the completion of the sale, a payment is made by the seller
to the buyer under such a warranty or indemnity, then the buyer's acquisition cost when they dispose of the asset is reduced
by the sum received, and the seller's sale proceeds are also adjusted. In basic terms, what this means is that it should be
possible for a warranty or indemnity payment to be treated as a reduction in the consideration paid by the buyer so that no tax
liability arises on the receipt of such payment.
We are increasingly seeing sales for a nominal consideration of say £1 with the buyer also agreeing to procure the repayment
of target debt. In these cases it is not possible to benefit from the ESC D33 treatment because there is no consideration to
adjust. As such, these payments are taxable under the principles established in Zim. It is therefore of critical importance for a
buyer to ensure that the tax deed includes a gross up clause so that the buyer is left in the same after-tax position as if there
had been no such tax liability. The position for warranty claims is slightly different in that the amount of tax suffered should
flow through to the quantum of damages so strictly speaking a gross up clause is not necessary for warranty claims.
An alternative to making a warranty or indemnity payment in these circumstances is for the seller to subscribe an amount
equal to the warranty or indemnity claim for deferred shares. In this way the cash ends up in the target company without
incurring a tax charge. The deferred shares would have nominal value and no economic rights and could be bought back by the
buyer for a nominal amount on short notice.
Consideration should be given as to whether the gross up payments should fall within the agreed maximum liability cap or not.
What are the tax consequences of buying impaired debt?
Anti-avoidance legislation contained in paragraph 4A of Schedule 9 FA 1996 can apply in certain circumstances in the case of
impaired debt to effect a deemed release subject to tax in the debtor company. Impaired debt is debt which is worth less than
the carrying value of such debt in the accounts of the debtor company. This legislation will apply and a deemed release in the
debtor company will occur if:-
One company acquires a creditor loan relationship and immediately after the acquisition, the debtor company and that
company are connected, and the consideration paid by that company for the debt is less than its carrying value in the
debtor company's accounts.
This situation will therefore arise where a company acquires impaired debt and is already connected with the debtor
company, or where it buys shares in the debtor company – and thus becomes connected – at the same time as it buys the
debt. There are however two important exceptions:-
1. Paragraph 4A will not apply if the debt is transferred from "old creditor" to "new creditor" and they are in the same
group of companies.
2. Paragraph 4A will not apply if the "new creditor" acquires the loan relationship under an arm's length transaction and,
it was not connected with the debtor company at any time in the period beginning four years before the acquisition
and ending 12 months before the acquisition date. This is intended to facilitate the rescue of ailing companies by
The amount of the deemed release on which the debtor company will suffer a tax charge is the difference between the
price it pays for the debt and the carrying value of such debt in its accounts.
A previously unconnected company that holds impaired debt becomes connected with the debtor company.
If the period of account of the creditor company ended immediately before the connection starts and if the carrying value
of the debt would have been adjusted for impairment, the amount of the deemed release is the amount of the impairment
adjustment that would have appeared in such accounts.
Normally the transfer of loan capital will be exempt from stamp duty because it will fall into one of the available exemptions.
Broadly the transfer of loan capital will be exempt unless the loan instrument:-
is convertible into shares or other securities or carries a right to receive shares or other securities including loan capital of
the same description; or
carries a right to interest:-
- which exceeds a reasonable commercial return;
- the amount of which falls to be determined to any extent by reference to the results of a business or to the value of
any property; or
carries a right on repayment to an amount which exceeds the nominal amount of the capital and is not reasonably
comparable with what is generally repayable under the terms of loan notes issued on the Official List of the Stock Exchange.
Even if the loan instrument is not exempt because it falls within one of the sub-paragraphs above, it may still be exempt if it is
not a "marketable security". Case law suggests that a marketable security must be a security which is capable of being dealt
with on a stock exchange according to the use and practice of stock markets. In order to be a "marketable security", at the very
least it must be transferable. There is an argument that as a loan note issued by a private company cannot be dealt with on a
stock exchange it cannot be a marketable security, however we are not clear if this view is accepted by HMRC. Go Back
Pension Deficit Indemnities
Given the current difficulties in the financial markets, the assets of most defined benefits pension schemes are insufficient to
meet the pension scheme's estimated liabilities and so there is a pension deficit. When a target company participates in a
single group defined benefits pension scheme, then the trustees of the pension scheme can require the seller or the target to
meet the target's share of the pension deficit on sale.
As the amounts involved are often material, it is important to consider carefully the tax implications that may arise in
connection with the funding and payment of that pension deficit liability.
Responsibility for the pension deficit liability
A buyer's position is usually that responsibility for such debts should rest with the seller as they are attributable to the target's
participation in the seller's group pension scheme before completion of the purchase. We would therefore expect a buyer
either to adjust the consideration payable for the target to take account of any pension deficit liability or request an indemnity
from the seller to cover any exposure.
Tax implications of an indemnity payment
The first issue to consider is the tax implications of the seller making an indemnity payment to put the buyer or the target in
funds to meet the pension deficit liability. (This assumes that the seller will not be making the payment directly to the pension
scheme – a point addressed further below.)
As seen above in the earlier article on ‘Corporate acquisitions in the current climate - the impact of debt’, where an
indemnity is included as a term in the sale and purchase agreement then any payment made by the seller to the buyer
pursuant to that indemnity will, by concession (ESC D33), be treated as an adjustment to the consideration paid by the buyer
for the target's shares. If the indemnity payment exceeds the consideration paid then the excess is potentially a taxable receipt
in the buyer's hands and the sale and purchase agreement will often require the seller to gross up indemnity payments to
compensate the buyer for any such tax suffered on receipt. Grossing up can therefore be a particular issue where the pension
liability exceeds the consideration, for example, where the target is sold for a nominal amount.
Often a buyer will not wish to receive funds itself (perhaps due to the cost of putting its subsidiary in funds to meet the
pension deficit liability) and may request that the seller makes the indemnity payment to the target at the buyer's direction. In
those circumstances, there is a further concession which will treat those payments as made to the buyer, thereby adjusting the
consideration paid for the target shares. A seller will usually resist giving gross up protection on payments to a target.
The grossing up risk should be avoided where a contribution is made directly by the seller to the scheme (though, as discussed
below, no corporation tax deduction may be available). Alternatively, any gross up concerns could be dealt with by requiring
the seller to subscribe for deferred shares in the target to the extent that the consideration paid for the shares is insufficient to
Corporation tax treatment of the payment into the pension scheme
The second issue to be considered is whether tax relief will be available in respect of the payment into the pension scheme
and, if such relief is available, whether the buyer or seller will benefit from that tax relief.
(a) the seller makes the payment into the pension scheme
If, rather than indemnify the buyer against the pension deficit liability, the seller makes the payment directly to the pension
scheme, the payment by the seller may not be allowable for corporation tax purposes on the basis that it will be unable to
show that it is making the payment "wholly and exclusively" for the purposes of its trade and not to facilitate the disposal of
the target or to secure an increased sale price. Generally, HMRC guidance indicates a deduction would only be available to the
seller where it could be shown that the purpose of the contribution was to maintain the seller's reputation and to underpin the
morale of remaining scheme members, and that the target had insufficient resources to meet the liability.
(b) the target makes the payment into the pension scheme
Where the target itself makes the pension deficit payment into the defined benefits pension scheme then the payment will be
deductible for corporation tax purposes.
If the parties have agreed that the seller will benefit from the corporation tax deduction (which we would expect where the
seller is bearing a gross up risk - see further above) then the mechanism for passing back that benefit to the seller should also
the seller could make an indemnity payment to the buyer of the pension deficit liability net of the assumed amount of tax
relief. If the assumed tax relief proves not to be available then the seller could be required to make an additional payment
to the buyer to compensate for the non-availability of that tax relief. There is a potential cash flow advantage for the seller
with this option where the legislation requires target to spread tax relief over a period of time;
the seller could make a payment to the buyer of the pension deficit liability and the buyer could agree to repay to the seller
the benefit gained as and when the target's actual tax bill (or that of a member of the buyer's group) is reduced as a result
of obtaining the tax relief.
(c) the buyer makes the payment into the pension scheme
Where the buyer itself makes the payment then it is unlikely to be deductible for corporation tax purposes on the basis that
the payment will not be "wholly and exclusively" incurred for the purposes of the buyer's trade if it has a dual purpose (namely
to benefit both the buyer's and its subsidiary's trades). Go Back
Companies Act 2006 – provisions coming into force on 1 October 2008
Before 1 October 2008, subject to certain exceptions, any private or public company was prohibited from giving financial
assistance for the purpose of the acquisition of shares in the company or its holding company. Private companies could use the
'whitewash procedure' to sanction the giving of financial assistance, but this involved, among other things, special resolution
approval, a directors’ solvency declaration and an auditor's report.
As of 1 October 2008, the prohibition on private companies giving financial assistance no longer applies. This is good news for
private companies and should make acquisitions, intra-group reorganisations and public-to-private transactions simpler.
Note, however, that where a private company is considering authorising a transaction that would previously have been
prohibited, its directors must still remain mindful:-
of whether the company has power to give the assistance in its memorandum and articles; and
that directors do not act in a way that may breach any of their duties to the company. For example, if a transaction involves
a private company subsidiary guaranteeing the obligations of its parent company, the private company's directors will need
to consider whether there is a corporate or commercial benefit to their company in giving the guarantee - it is not enough
to show a benefit to the group as a whole.
Disclosures of directors' interests
The rules on disclosure of directors' interests in transactions changed on 1 October 2008 in two major areas:-
Disclosure of interests in transactions
The old Companies Act legislation has been repealed and replaced with a system where directors have to disclose an interest in
a proposed (or in some cases, an existing) transaction, either orally at the board meeting, by notice in writing or by general
notice. The disclosure needs to give details of the nature and extent of the director's interest.
Companies involved in acquisitions or disposals will need to update their board minutes to ensure compliance with the new
Directors' duty to avoid conflicts of interest
This new duty is a much more significant change. Directors now have a statutory duty to avoid conflicts of interest and if a
situation arises where there is a conflict or a potential conflict (a "situational conflict"), the directors must authorise the
conflict. The rules potentially have very wide scope – and could apply to any arrangements involving shares or other securities
(including share plans, transactions involving trusts and subscriptions for or transfers of shares).
For a private company incorporated after 1 October 2008, the directors can authorise the conflict unless the company's
articles contain anything to the contrary. However, for private companies incorporated before 1 October 2008, shareholder
approval is required for the directors to authorise conflicts (unless the articles say otherwise). In view of this it may be
appropriate to amend the company's articles to specifically cover this issue.
For a public company, only non conflicted directors can authorise the conflict, and then only if the articles specifically give
them the powers to do so. There will also still need to be sufficient non conflicted directors to form a quorum. In practice this
means that the company's articles may require amendments before the arrangement can proceed.
Reduction of capital by solvency statement
As of 1 October 2008, assuming the company's articles of association do not prohibit it, a private company may reduce its
capital provided there is a director's statement of solvency, without the need for court approval.This change should assist
companies in increasing distributable reserves, returning surplus capital to shareholders, distributing assets and buying back or
redeeming shares. Go Back
It is common in corporate transactions for the parties to agree that an expert determination should be sought where, for
example, a valuation is needed or an opinion is needed on a technical matter. The expert determination provides a means of
settling the dispute (reasonably swiftly and cost effectively) and is therefore a useful alternative to the more costly routes of
litigation or arbitration. On a corporate acquisition it is common to see an expert determination clause in the sale and purchase
agreement in the context of agreeing completion accounts or in the tax deed in the context of determining whether there is an
overprovision in the accounts (or completion accounts).
The recent case of Owen Pell Limited and Bindi (London) Limited has confirmed that an expert's determination will be binding,
even if he has made errors in his conclusions, where:
the parties have agreed to be bound by the expert's decision;
the expert has complied with the instructions given and answered the question(s) asked; and
there is no evidence of bias in the expert's decision.
Owen Pell Limited ("Owen Pell") entered into a contract with Bindi (London) Limited ("Bindi") under which Owen Pell agreed to
build an extension and undertake other work at Bindi's property. Owen Pell left the site before the work was finished and a
dispute arose as to Owen Pell's entitlement to payment under its final account. Bindi also complained of defects in Owen Pell's
The parties agreed to have their dispute determined by an independent expert, to be appointed by the Royal Institute of
Chartered Surveyors. The written agreement set out the following terms:-
the independent expert would be asked to determine:
- the value of Owen Pell's work and the sum due to Owen Pell pursuant to submission of its final account; alternatively
the amount to be deducted from sums owed to Owen Pell under the contract; and
- the entitlement (or otherwise) of Bindi to contra charge Owen Pell in respect of the work carried out on the project.
the parties would be bound by the decision of the independent expert and, following the decision, were not able to refer the
dispute to a subsequent tribunal, including adjudication under the 1996 Act.
The independent expert issued his decision in a detailed document and determined that Owen Pell was entitled to be paid
£53,487 plus VAT, but that Bindi should only pay 80% of his fees. Bindi refused to make payment - saying that it was an implied
term of the agreement that the decision of the expert would be of no effect and/or would be liable to be set aside in the event
the expert failed to conduct himself in accordance with the principles of natural justice; or
the expert conducted himself in such a way as either was biased or gave the appearance of bias; or
in conducting himself and/or reaching his conclusions, the expert was guilty of gross or obvious error and/or was perverse
in his conclusions.
Bindi contended that the expert was guilty of bias or partiality, both actual and perceived and acted in breach of the principles
of justice in a number of ways including: being dismissive of Bindi's complaints about Owen Pell and reaching a conclusion
without giving Bindi the opportunity to comment on it.
The High Court found in favour of Owen Pell and granted Owen Pell's application for summary judgement to enforce the
expert's decision. The court held that:-
there was nothing in the agreement which suggested that this dispute and the approach to it was different from other
expert determinations and it was not suggested that the parties gave any consideration to the rights enshrined by virtue of
the Human Rights Act when they agreed to submit to expert determination;
there were benefits to the parties who chose the route of an independent expert – for example: a quick solution; the ability
for the parties to limit their exposure to costs; and finality. The wording of the agreement indicated that the parties
intended to be bound by it;
there was no reason to depart from the guidance given in a previous case (Bernhard Schulte) which confirmed that there is
no requirement for the rules of natural justice or due process to be followed in an expert determination in order for that
determination to be valid and binding between the parties;
there was no evidence of actual or apparent bias on behalf of the expert;
even if Bindi was able to demonstrate that the expert made gross and obvious errors and reached decisions that were
perverse, there is no authority to say that the decision should be considered to be a nullity or set aside. Provided that the
expert answered the right question (which he did here), the decision is binding even if wrong.
This decision confirms previous case law in this area that an expert's determination will be binding even if wrong (provided that
the expert has answered the right question put to him). If the parties do not want to be bound by an answer in such a case
then the agreement should expressly provide for this. For example, any decision in a sale agreement (or other ancillary
documents such as the tax deed) which is stated to be "final and binding" should also include the words "in the absence of
clear or manifest error". Alternatively the parties could agree a set of rules that the expert must follow in reaching his
conclusion. Go Back
Update on Demibourne
HMRC has published guidance (the "Guidance") on the practical effects of the Demibourne case and the legislation brought in
to address what was considered the harsh result of this case for employers when a worker treated as a self employed
consultant is later re-categorised as an employee (see our earlier article in the April edition
The new regulations allow HMRC to make a direction to transfer a PAYE liability from an employer to an employee, meaning
that the employer will not be liable for PAYE income tax which the employee has already paid under self-assessment. Such a
direction will not be used to impose any additional liability on the employee.
What is covered by the Guidance?
HMRC discretion - HMRC has discretion in deciding whether to make a direction. However, the guidance says that it will
only use its discretion to not make a direction in exceptional circumstances where there is strong evidence to suggest that
the employer has deliberately failed to operate PAYE (with no collusion from the employee) in the expectation that the
employer will benefit from the new legislation if discovered.
Worked examples include:
- Circumstances in which HMRC would or would not consider a direction. Examples are given where an employer has
wrongly treated a worker as a self employed consultant and he is later re-categorised as an employee, and whether a
direction would be made based on the facts and, in particular, the timings of events;
- Cases where the employee's self assessment relates to more than one contract. Provided there is sufficient income
self-assessed to cover the income from the employer concerned, HMRC will accept that the tax self-assessed
represents the tax on the re-categorised income (an apportionment calculation may be applied); and
- Situations where the employee has claimed deductions for expenses, reducing the self-assessed amount of tax.
VAT - where a worker had been registered for VAT, that registration becomes invalid on the worker's re-categorisation as an
employee. PAYE will be charged on VAT exclusive sums paid to the worker. The VAT account can be cleared by either a
refund to the employee, or a recovery from him, whichever is applicable. If the employer has been incorrectly recovering
VAT paid to the worker as input tax, HMRC may assess the employer for the over claimed input tax.
Penalties and Interest - a PAYE direction does not reduce the figure on which penalties are calculated. The employer may
remain liable to penalties on the full amount of tax which should have been deducted in accordance with the PAYE
Regulations. However, interest will only be charged on any balance of tax remaining payable by the employer after a
direction has been made.
When conducting due diligence for M&A transactions any consultancy agreements should be scrutinised to ensure that they
contain provisions which function in line with the new regulations and which (ideally) contain the circumstances in which
HMRC may make a direction under the regulations. However, this is no substitute for taking full indemnities in relation to
compliance with the PAYE Regulations by the target company. Go Back
Employment Status – The Importance of a Right of Substitution
A recent High Court case has confirmed the importance of unfettered rights of substitution where consultants or other
contractors are treated as self-employed. The decision shows that it is difficult in practice for arrangements relating to the
services of highly skilled workers to avoid characterisation as employment, as the end client is unlikely to accept an unfettered
right of substitution in that situation. The case also emphasises that even a limited degree of control over how a skilled worker
carries out the work will point towards employment.
The case in question, Dragonfly Consulting Limited v HMRC, concerned the application of the IR35 regime, but it also has wider
application to employment status more generally and will be relevant where consultants are directly engaged by the client
company. The IR35 Rules were introduced to prevent individuals avoiding income tax by providing their services through an
intermediary, most commonly a personal service company. IR35 allows HMRC to effectively 'look through' the legal
relationships between the parties and instead determine the tax treatment by considering whether, had the services been
provided under a contract made between the worker and client directly, the worker would have been regarded as employed by
the client for income tax and NICs purposes. If the worker would have been so regarded, income tax and NICs must be
deducted by the intermediary under the PAYE system.
In the Dragonfly case a highly skilled IT Systems Tester (Mr Bessell) was the sole worker for the personal service company
Dragonfly Consultancy Limited ("Dragonfly"), of which he owned half the shares and was the sole director. Dragonfly entered
into an agency agreement with DPP International Limited ("DPP") to provide the services of Mr Bessell to the AA. Mr Bessell
was engaged on a fixed term contract which, having been extended and renewed, resulted in his overall duration of engagement
being from April 2000 to February 2003. During this time he carried out the services personally and did not carry out any
significant work for any other person.
HMRC maintained that IR35 applied to the arrangement and that, had a hypothetical contract existed between Mr Bessell and
the AA, that contract would have been one of employment. The Special Commissioner agreed, so Dragonfly appealed to the
High Court on four grounds:-
1. Right of Substitution
Dragonfly argued that, if the hypothetical contract between Mr Bessell and the AA contained a right for Mr Bessell to send a
substitute, it could not, generally speaking, be one of employment.
To assess what the hypothetical contract between Mr Bessell and the AA would have looked like the High Court examined
the contract between the AA and DPP, the contract between DPP and Dragonfly and the factual reality of the arrangements
in general. The contract between DPP and Dragonfly contained various clauses meaning that Dragonfly could not provide
a substitute for Mr Bessell without the prior written consent of DPP. Further provisions also required that a substitute
consultant could not be deployed without Dragonfly having first satisfied DPP that the new consultant was trained and
suitable to undertake the services. The contract between DPP and the AA, however, contained only a promise that DPP
would use their best endeavours to supply staff competent to do the work; it did not prohibit substitution. Dragonfly
argued that because of this, it could not be said that substitution was impermissible.
The High Court, however, found that as a matter of fact, regardless of the precise contractual situation, the AA considered
itself as having engaged the services supplied by Mr Bessell and no one else, and that without the AA's consent a substitute
could not be provided. Rejecting the argument of Dragonfly, they held that in order to displace this finding the contract
between DPP and the AA would need to contain an express provision permitting substitution at the unfettered discretion of
DPP. Such a provision was not present and therefore the hypothetical contract between them and Mr Bessell was one of
2. The Question of Control
Dragonfly’s second ground for appeal was that there was insufficient control exercised by the AA for the relationship to
It was common ground that control is an essential ingredient of a contract of employment. The High Court, however, noted
that this was not the sole determining factor and that the fundamental question was whether the person performing these
services was doing so on his own account. In this case, Mr Bessell's performance of his duties was subject to a degree of
supervision and quality control which went beyond merely directing when and where to work. There were also factors such
as regular appraisal and monitoring which, albeit that these were not referred to in the formal contracts, occurred in
practice and were not compatible with a self employed worker in business on his own account. In the case of a skilled
worker in particular, the Court noted that one would not expect to find control over how the work was done.
3. The Intention of the Parties
It was argued by Dragonfly that the fact that the intention between all the parties was that there should never be a
relationship of employment was relevant. Indeed, the contract between DPP and the AA contained a provision specifically
stating that nothing contained in the agreement was intended to create a contract of employment between AA and Mr
Bessell. However, the High Court held that the weight to be attached to the intention of the parties was minimal except in
This case shows how difficult it can be, regardless of what the parties intend and what is documented, to be fully certain as to
the employment status of highly skilled consultants. It emphasises the importance of 'end clients' genuinely agreeing that a
substitute can be provided at the consultant's discretion and making provision for this in the relevant contract. Of course, care
also needs to be taken as regards the other indicators of employment – notably the question of control, as highlighted above.
We have particular expertise in this area and our employment and tax specialists have put together a "status toolkit" designed
to help companies review the risk profile within their businesses arising from the way in which they engage workers. If you
would like further information, please contact Lisa Stevenson (email@example.com).
In addition, anyone acquiring a company should also be careful when conducting due diligence to review the employment
status of any consultants who regularly carry out work at the company. This applies however the consultant is engaged, but the
risk is of course particularly high where consultants are engaged directly. If there is any doubt, protection should be included in
the sale documentation to cover the potential tax and NICs exposure. Go Back
© Pinsent Masons LLP 2008
Should you have any questions please contact your usual Pinsent Masons adviser who will be able to assist you further.
This note does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered.
LONDON BIRMINGHAM BRISTOL LEEDS MANCHESTER EDINBURGH GLASGOW DUBAI BEIJING SHANGHAI HONG KONG
T 0845 300 32 32
Pinsent Masons LLP is a limited liability partnership registered in England & Wales (registered number: OC333653) and regulated by the Solicitors Regulation Authority. The word ‘partner’, used in relation to
the LLP, refers to a member of the LLP or an employee or consultant of the LLP or any affiliated firm who has equivalent standing and qualifications. A list of the members of the LLP, and of those nonmembers
who are designated as partners, is displayed at the LLP’s registered office: CityPoint, One Ropemaker Street, London EC2Y 9AH, United Kingdom. We use ‘Pinsent Masons’ to refer to Pinsent Masons
LLP and affiliated entities that practise under the name ‘Pinsent Masons’ or a name that incorporates those words. Reference to ‘Pinsent Masons’ is to Pinsent Masons LLP and/or one or more of those
affiliated entities as the context requires. For important regulatory information please visit: www.pinsentmasons.com