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Supreme Court judgement delivered in The Revenue Commissioners v. Karshan (Midlands) Ltd. t/a Domino’s Pizza

On 20 October, the Supreme Court delivered an important judgement on the key factors to be considered when classifying an individual’s employment status for income tax purposes.

The detailed judgement was delivered by Mr. Justice Brian Murray in The Revenue Commissioners v. Karshan (Midlands) Ltd. t/a Domino’s Pizza.

The case was concerned with whether the delivery drivers were independent contractors under a “contract for service” and taxable under self-assessment, or employees under a “contract of service”, and taxable through payroll (PAYE). Revenue welcomed the judgement and the significant clarity it provides on these matters.

Justice Murray decided that the question of whether a contract is one “of service” or “for service” should be resolved by reference to the following five questions:

1. Does the contract involve the exchange of wage or other remuneration for work?
2. 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?
3. 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?
4. If these three requirements are met, the decision maker must then determine whether the terms of the contract between employer and worker interpreted in the light of the admissible factual matrix and having regard to the working arrangements between the parties as disclosed by the evidence, are consistent with a contract of employment, or with some other form of contract having regard, in particular, to whether the arrangements point to the putative employee working for themselves or for the putative employer.
5. 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.

In this case, Justice Murray found that the Tax Appeal Commissioner was entitled to conclude that the drivers were employees for the purposes of income tax.

Businesses are responsible for ensuring that the correct taxes are deducted from their employees’ pay (which includes both salary payments and any notional pay received) and remitted to Revenue under Schedule E (PAYE), at the right time.

Revenue encourages all businesses, and any agents representing them, to familiarise themselves with the details of this judgement, which is available on the Court Service Website.

Any business which currently engages contractors, sub-contractors or other workers on a self-employment basis, (i.e. where that worker is not treated as an employee of the business for income tax purposes), should review the nature of any such arrangement(s) in light of this judgement and consider any implications it may have for them. It is important to note that this judgement is relevant to a broad range of work and is not limited to delivery drivers.

Revenue provides a range of opportunities for taxpayers to self-review, self-correct or to make unprompted qualifying disclosures of any matters. Where a business considers that it may have previously misclassified a worker as self-employed, rather than as an employee, and wishes to regularise its position, it should do so as set out in Section 2 of Revenue’s Code of Compliance for Revenue Compliance Interventions.

By way of background, this case related to delivery drivers working in 2010 and 2011 under contracts for services. The drivers argued they were employees for tax purposes, but Karshan said they were independent contractors. Karshan had appealed a 2018 decision of a Tax Appeals Commissioner that the drivers should be treated as employees. The High Court rejected that appeal, but the Court of Appeal overturned the decision. The Revenue Commissioners appealed that ruling to the Supreme Court and it overturned the Court of Appeal decision.