In the recent Tax Appeals Commission (“TAC”) determination 94TACD2026, the TAC considered the employment status of an individual taxpayer and, in particular, whether the individual was an independent contractor or an employee. The case stemmed from an investigation commenced by the Irish Revenue Commissioners (“Revenue”) in December 2015 into the appellant’s tax affairs covering the years 2010 to 2014.
Background: the employment status dispute
The appellant, a software developer / IT professional, provided services to related entities (referred to in the determination as “A Limited” and “B Limited”) over the period 2007 to 2016. These services were provided pursuant to a series of written agreements entered into by the appellant and the relevant entities covering some, but not all, of the period in question. The agreements referred to the appellant as a contractor. The appellant raised invoices on a monthly basis, and charged VAT on the invoices.
The appellant filed on-time income tax returns with Revenue for the years 2007 and 2008, in which he disclosed self-employed income from software development under Schedule D. The appellant subsequently failed to file on-time returns for the period 2009 to 2013. The appellant again disclosed self-employed income in his tax return in respect of 2014.
In May 2016, following the commencement of Revenue’s investigation, the appellant’s tax agent wrote to Revenue indicating that the appellant wished to make an unprompted qualifying disclosure for the years 2007 to 2009. The tax agent separately provided information in respect of the years 2010 to 2014 and, in this letter, the agent stated that income from A Limited and B Limited has been excluded from the computations – “the basis being to establish [the appellant’s] employment status.”
On 1 December 2017, Revenue issued Notices of Assessment and Notices of Amended Assessment to the appellant for the period concerned. The appellant appealed, contending that income from A Limited and B Limited constituted emoluments from employment chargeable under Schedule E, rather than self-employed income chargeable under Schedule D.
TAC determination: applying the Karshan Employment Status Test
In addressing the question as to whether the appellant was an employee or a contractor, the Commissioner applied the five-step framework for determining employment status set out by the Supreme Court in The Revenue Commissioners v Karshan (Midlands) Ltd. t/a Domino’s Pizza. The five steps set out in the Karshan case are:
- Wages? Does the contract involve the exchange of a wage or other remuneration for the work provided?
- Own services? If so, is the agreement one pursuant to which the worker is agreeing to provide their own services, and not those of a third party, to the employer?
- Control? If so, does the employer exercise sufficient control over the putative employee to render the agreement one that is capable of being an employment agreement?
- Terms of working arrangements? If (1) – (3) are satisfied, the decision maker must then determine whether the terms of the contract between employer and worker and the related working arrangements are consistent with an employment contract, or with some other form of contract.
- Other considerations? Finally, it should be determined whether there is anything in the particular legislative regime under consideration that requires the court to adjust or supplement any of the foregoing.
The first three questions act as a “filter” – if the answer to any of them is no, then the individual cannot be an employee. However, if all three questions can be answered in the affirmative, the analysis under questions 4 and 5 will be undertaken.
The Commissioner found that although the first three ‘filter’ limbs of the Karshan test were satisfied by the appellant, the appellant failed to satisfy the fourth limb.
The Commissioner considered the terms of the series of agreements entered into between the appellant and A Limited / B Limited ambiguous. It was found that there were features of the working arrangements which pointed to employment (ie, continuous unbroken engagement with A Limited / B Limited, regularity of payments and reimbursement of travel and subsistence expenses), while there were also factors pointing to the contrary (ie, lack of holiday and pension entitlements and contractual freedom to undertake other work).
From the appellant’s own oral evidence, it was heard that his day-to-day working arrangement was indistinguishable from colleagues he said were employees, and that he performed management-type functions such as engaging with senior management on hiring and staff performance reviews.
Significant weight was placed by the Commissioner on the appellant’s contemporaneous conduct during the period concerned. The fact that the appellant invoiced A Limited / B Limited monthly and charged VAT on the invoices (even after Revenue began looking into the appellant’s affairs) was seen as conduct “fundamentally at odds” with an employee / employer relationship. In addition, as the appellant claimed business expenses and capital allowances and, crucially, disclosed income received as self-employed income under Schedule D in the income tax returns he had filed, the notion that the appellant had mistakenly returned himself as self-employed was deemed “implausible”.
The Commissioner also noted that it was a striking feature of the appeal that the appellant had not called a witness with whom he had worked in A Limited and B Limited over the years to bring additional evidence to support his claims.
The Commissioner reaffirmed that the settled principle in tax appeal cases is that the burden of proof rests on the taxpayer (per Menolly Homes and Quigley v Revenue Commissioners) and the evidence brought by the appellant pointing to employment was “not sufficient” to discharge this burden.
The appeals brought by the appellant were therefore unsuccessful.
Key takeaways: why conduct matters when determining employment status
This determination highlights the importance of the conduct of an individual when assessing their employment status. In scenarios where the three ‘filter’ limbs of the Karshan test have been met, and there is a degree of ambiguity concerning the terms of relevant written contracts between the relevant parties, the prior conduct of an individual will carry significant weight in determining the employment status of the individual and can prove to be decisive where an employer-employee relationship is being asserted.
