Legal Judgment Defines Your Principal Place of Business – May Have IR35 Impact


Principal Place of Business

According to a recent Queen‘s Bench Division judgment, your principal place of business is the place at the heart of your operations. It was held that this was not necessarily the place where most of your business is carried out.

According to Article 60 of Council Regulation, ‘For the purposes of this regulation, a company’¦.is domiciled at the place where it has its’¦. (b) central administration , or (c) principal place of business.’

Part (b) may be of significance for contractors as their administrative centre, both for themselves and for their company, is normally at their home or their accountants. This is very different for an employee of a company. It was said in the recent Gordon Stutchbury High Court case, by the Inland Revenue‘s barrister, that working from home didn‘t make a contractor not a ‘˜disguised employee‘ as permanent employees can work from home too.

However, they don‘t pay themselves from home, or pay their National Insurance from home. That is done from an employee‘s company‘s administration centre.

According to this judgment, his home is not an employee‘s administrative centre, as his administrative centre has to be the same as his employers, as he is an employee of the company.

London or Switzerland

This particular case was brought by the claimant Douglas King relating to the termination of his employment. The defendants were Crown Energy Trading AG and Crown Resources AG, in Zug Switzerland. The defendants claimed that their principal place of business was in Switzerland and not London. The claimant claimed the opposite was true.

The judge agreed with the claimant. In Judge Chambers‘ view, a simple listing of those with important responsibilities and where they operated from would be enough to show where the central administration and principal place of business were to be found.

When the proceedings were issued, the chairman, the chief executive officer, the chief financial officer, the chief operating officer and the head of risk department were housed at the London office.

His Lordship concluded that the central administration was in London. He concluded that the two committees that were at the heart of the business, the management committee and the risk management committee were domiciled in London. This led him to his conclusion that the principal place of business was in London.

What About Contractors?

What about our contractor readers? Where is your company‘s administration centre? Where is your own personal administration centre (even if the Inland Revenue say that you were not working for your company at the time, but a disguised employee)?

It‘s not at your client‘s site I would presume. The difference between a contractor and an employee is that the administration centre is different. The judge said that the principal place of business might not be where the bulk of your business is carried out.

Thus, when a contractor is at a client‘s site, he is working away from his main administration centre and his principal place of business, the way a plumber might be when he goes out to a house.

Difference Between Contractor and Employee

However, when a contractor is working at home, he is working away from the company‘s (of which he is an employee) main administration centre and principal place of business.

That‘s the difference – and it makes it a lot harder to say that just because an employee can work from home some of the time that it shows that a contractor can be a ‘˜disguised employee‘ when he does so.

It is the administrative centre, rather than where the bulk of the work is done, that defines the principal place of business – and whether a contractor is a disguised employee or not.

A good question to ask might be ‘Where does the Inland Revenue send correspondence to you – at your client‘s site or at your administrative centre’? If they send it to your home (or accountant‘s), they are admitting, effectively, that this is your principal place of business. Correspondence relating to employees is normally sent to the company where they work – to the company‘s administrative centre.

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