Court of Appeal
Published March 25, 2009
Regina (Oriel Support Ltd) v Commissioners for Revenue and Customs
Before Sir Anthony Clarke, Master of the Rolls, Lord Justice Keene and Lord Justice Moses
Judgment February 24, 2009

An outsourcing company responsible for calculating and paying the wages of workers employed by a labour provider to work for other businesses was not entitled to use its own employer reference when accounting for the tax on the workers’ wages because it was not the workers’ employer.

The labour provider as the workers’ employer had the primary statutory liability to account for pay-as-you-earn income tax so that the outsourcing company was required to account for the tax under the PAYE reference of the labour provider.

The Court of Appeal so held, dismissing the appeal of the claimant, Oriel Support Ltd, against the dismissal by Mr Kenneth Parker, QC, sitting as a deputy Queen’s Bench Division judge ([2008] EWHC 1304 (Admin)), of Oriel’s application for judicial review of the decision of the Commissioners for Revenue and Customs that in accounting for PAYE on wages paid to workers employed by labour providers to work for third parties, Oriel was required to make payments under the PAYE reference of the labour provider.

Mr John Walters, QC, Mr Laurent Sykes and Mr Nicholas Ashton for Ptiel; Mr Peter Mantle for the commissioners.

MR JUSTICE MOSES said that the claimant provided a complete financial outsourcing service for end users who were their clients.

The labour provider was the only body which entered into contracts with the workers, whose labour they made available to the end users. The workers personally provided services to the end user, supplied through the labour provider.

Payments to the workers were at the expense of the labour provider who employed them. Under the invoicing arrangements between the claimant and the labour provider the claimant recharged to the labour provider the expense of the payments made by the claimant to the labour provider’s employees, so that in the final analysis the labour provider bore the cost of the payments to its employees. The invoicing reflected the underlying commercial reality of the arrangements between the claimant and the labour provider.

The claimant contended that it was “another payer” within regulation 2 of the Income Tax (Pay As You Earn) Regulations (SI 2003 No 2682) and as such was treated by regulation 12 as an employer. The appeal therefore turned on whether a worker was a person who received relevant payments in a capacity other than as an employee within the meaning of regulation 2.

The claimant submitted that it paid the workers and their tax out of its own funds, then after deducting its own profit it accounted to the labour provider. The workers were not the claimant’s employees so they received payment for their services as other payees. The judge rejected that argument.

His Lordship agreed. There was no warrant for that construction of “other payer” and “other payee”, which were mirror images of each other. A worker received his payment in his capacity as an employee under his contract of employment and in no other capacity.

When the claimant paid the labour provider’s workers it was discharging the labour provider’s obligation to pay the workers for the work they had done for the end users.

That same analysis was reflected in section 687 of the Income Tax (Earnings and Pensions) Act 2003. When the claimant made payments to the workers it did so as an intermediary on behalf of the labour provider within section 687(2), and was to be treated for PAYE purposes as discharging the liability of the employer, the labour provider.

Lord Justice Keene and the Master of the Rolls agreed.

Solicitors: Bevan Brittan, Bristol; Solicitor, Revenue and Customs.

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