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	England and Wales High Court (Administrative Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Accenture Services Ltd v HM Revenue and Customs & Ors [2009] EWHC 857 (Admin) (28 April 2009) URL: http://www.bailii.org/ew/cases/EWHC/Admin/2009/857.html Cite as: [2009] STI 1601, [2009] STC 1503, [2009] BTC 5430, [2009] EWHC 857 (Admin), [2009] BVC 429

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		28/04/2009

Mr Justice Sales:

1. This is a hearing of two applications for judicial review to quash a decision of the Defendant ("HMRC") to assess Accenture Services Ltd ("ASL") for output value added tax ("VAT") payable in respect of a supply of personnel to Barclays Bank Plc ("Barclays"), brought by ASL and Barclays respectively. ASL's application is supported by Barclays and also by an affiliated company, Accenture (UK) Limited ("AUK"). Barclays' application is supported by ASL and AUK. ASL and AUK were represented at the hearing by Mr Sinfield; Barclays by Mr Hitchmough. By agreement between Mr Hitchmough and Mr Sinfield, Mr Hitchmough took the lead in presenting submissions against the assessment made by HMRC, with Mr Sinfield covering any additional points or points of difference on the part of ASL and AUK from the submissions made on behalf of Barclays.
2. The supply of personnel by ASL to Barclays commenced in about June 2004, and was made on the terms of a Secondment Agreement dated 11 June 2004 between ASL and Barclays ("the SA"). The personnel supplied by ASL to Barclays were, throughout the supply, each employed by ASL under an employment contract in standard form ("the Employment Contract"). The supply was made in order to enable AUK to carry out its obligations under a Master Service Agreement with Barclays also dated 11 June 2004 ("the MSA"), under which Barclays outsourced to AUK the management and development of what had until then been Barclays' information technology ("IT") department.
3. ASL contends that the services it provided to Barclays under the SA, in the form of supply of personnel, fell within the terms of an extra-statutory concession promulgated from time to time by HMRC and their predecessors, HM Commissioners for Customs and Excise (for convenience I will refer to HMRC and their predecessors together as "HMRC"). On this basis, ASL, AUK and Barclays submit that HMRC should not have assessed ASL as liable to charge Barclays and account for any output VAT in respect of the supply of personnel made by ASL. HMRC contend that the extra-statutory concession is not applicable.
4. The issue of the application of the extra-statutory concession is important, because the banking services which Barclays supplies to its customers are exempt from VAT. This means that Barclays cannot reclaim any VAT it has to pay ASL as recoverable input tax in relation to Barclays' own supplies of services to its customers.
5. Under the SA, ASL seconded to Barclays staff employed by ASL in each case under the terms of the Employment Contract, on terms that Barclays paid those staff directly sums equal to the remuneration owed to them by ASL under their respective employment contracts and paid directly to relevant third parties any taxes, national insurance and pension contributions attributable to their employment. All these payments constituted consideration payable in respect of the supply of personnel by ASL to Barclays. That supply of personnel took place within the United Kingdom.
6. It was common ground that, but for application of the extra-statutory concession, VAT would be chargeable on the consideration payable in respect of the supply of personnel by ASL to Barclays (i.e. by reference to the amount of remuneration, tax, national insurance and pension contributions payable in relation to the ASL employees supplied to Barclays). It was also common ground that HMRC, in the exercise of their statutory tax management powers, have authority to grant extra-statutory concessions relieving persons falling within those concessions from liability to charge and account for VAT. It is important to observe that an extra-statutory concession represents a policy of HMRC and operates according to its own terms, as devised by the HMRC, as an instrument distinct from the underlying legal provisions set out in the statutory tax regime. The purpose of an extra-statutory concession is, in effect, to disapply the underlying statutory tax regime in respect of cases falling within the concession.
7. The parties were agreed that the relevant principle of law is that set out by Collins J in R (Greenwich Property Ltd) v Customs and Excise Commissioners [2001] STC 618; [2001] EWHC Admin 230, at [13], as follows:

"… Concessions lead not only to artificiality and false documentation but also to arguments whether particular transactions fall within them. The language of concession is not that of a statute and should not be construed as if it was. But if a concession is published to all who might benefit from it, they are entitled to arrange their affairs in reliance on it, provided that what they do falls clearly within the terms of the concession. As Bingham LJ said in a leading case relating to legitimate expectation arising from concessions (see R v IRC, ex p MFK Underwriting Agencies Ltd [1989] STC 873 at 892, [1990] 1 WLR 1545 at 1569):

'The taxpayer's only legitimate expectation is, prima facie, that he will be taxed according to statute, not concession or a wrong view of the law … No doubt a statement formally published by the Revenue to the world might safely be regarded as binding subject to its terms in any case falling clearly within them.'"

8. That statement followed a leading judgment in this area, that of Bingham LJ in R v Inland Revenue Commissioners, ex p. MFK Underwriting Agencies Ltd [1990] 1 WLR 1545, in particular at 1569A-1570B. Where a taxpayer claims to be entitled to take advantage of an extra-statutory concession promulgated by the tax authorities, its claim is in the nature of a claim to benefit from an enforceable substantive legitimate expectation. After the passage quoted by Collins J, Bingham LJ emphasised that any statement relied upon would have to be "clear, unambiguous and devoid of relevant qualification" (at 1569G).

The Extra-statutory Concession

9. From the early days of VAT in the 1970s, HMRC operated an extra-statutory concession (originally known as the "staff concession") allowing a business which employed staff to second those staff to a client's business without having to charge and account for VAT in respect of the salary costs of those staff, in circumstances where the client paid relevant salary direct to the staff concerned (thereby discharging the liability of the employing business to pay the remuneration of its employees) and where, in respect of the tax, national insurance and pension costs in relation to those staff, the client paid the necessary amounts direct to the relevant authorities or bodies. In this original version of the staff concession, there was no requirement that the business supplying staff on a secondment basis could not also make a profit from the supply arrangement, but if the arrangement included a fee payable by the client to the supplier, the supplier would have to charge VAT in respect of that fee element rather than in respect of that fee plus the remuneration, tax, national insurance and pension costs in relation to the staff supplied. On the other hand, if the supplying business itself paid the remuneration, tax, national insurance and pension contributions in relation to its employees, and then charged the client a sum to cover those amounts and any profit element, this would fall outside the concession and the supplier would have to charge and account for VAT in respect of the whole sum.
10. A statement of the staff concession appeared in VAT leaflet 700/34/88 of 1 May 1988, entitled "Supplies of Staff, including Directors and Other Office-holders". Paragraph 1 of the leaflet provided a definition of "Supply of staff" as follows:

"You make a supply of staff for VAT purposes if you provide to another person the use of an individual who is contractually employed by you and you receive payment from the other person. This applies whether the terms of the individual's employment with you are set out in a formal contract or in a letter of appointment."

Paragraph 3 dealt with the value of the supply:

"If you supply staff to another person, you must account for VAT on the full payment you receive. This applies even if you are just recharging the costs which you incur, such as salary and National Insurance and pension contributions. If the recipient of staff pays them their salary direct, or meets the employer's obligation to make payments to third parties (eg PAYE, National Insurance or pension contributions), you need not account for VAT on those amounts, but you must still account for any payments that the recipient makes direct to you …"

11. This leaflet was reissued as VAT Leaflet 700/34/94, dated 1 May 1994, entitled "Staff", which gave "guidance on the VAT treatment of supplies of staff, including supplies made by staff agencies". Paragraph 2, headed "Definition", stated:

"You make a supply of staff for VAT purposes if you receive payment for providing to another person the use of an individual who is contractually employed by you or is a director of your company. This applies whether the terms of the individual's employment with you are set out in a formal contract or letter of appointment, or are on a less formal basis. The determining factor is that the staff are not contractually employed by the recipient company, but come under the direction of that company.

If your company supplies services, eg construction services, to another person but your staff continue to operate under your own direction, this is not a supply of staff, but is a supply of those services. This distinction is significant where the services may be zero-rated or exempt, or when determining whether or not the supply is made in the UK. If you are in doubt about the place of supply of your services, you should refer to Notice 741."

Paragraph 4, headed "Value of the supply", was in substantially the same terms as paragraph 3 of the 1988 leaflet, set out above. Paragraph 12 contained a description of the VAT treatment normally applicable to an employment bureau which acted as a principal supplying its own staff to its client and charging the client for that service (which had to account for VAT in relation to that full charge) and an employment bureau or agency which acted as an agent for the client by finding workers for the client to employ, and charging the client an introductory service fee (which had to account for VAT only in relation to that service fee). Paragraph 12 did not detract from the possibility of an employment bureau which supplied its own staff doing so on the basis of the concession set out in paragraph 4 of the leaflet, where the client paid remuneration, tax and other costs direct rather than to the bureau.

12. The original staff concession was very wide, and it was found that in practice it gave rise to scope for avoidance of VAT which HMRC considered ought properly to be recovered. A number of services contractors, such as security and cleaning companies providing services to clients who were to some degree exempt from VAT, sought to use the concession to avoid VAT. In light of this, HMRC decided to tighten up and limit the scope of application of the concession. In giving consideration to this, HMRC also took into account the decision in Customs and Excise Commissioners v Reed Personnel Services Ltd [1995] STC 588. In that case, Reed Personnel Services Ltd was an employment agency which charged a fee for introducing staff to be employed by its clients, and was held liable to account for VAT only in respect of that introduction fee. HMRC wished to prevent a distortion of competition arising from the application of VAT rules as between such employment agencies and employment bureaux which supplied their own staff to their clients. Accordingly, HMRC did not wish simply to remove the original staff concession, but to reformulate it so as better to reflect the policy of relief from the usual rules of VAT which HMRC considered was appropriate.
13. The text of the re-formulated concession, applicable with effect from 1 April 1997, was set out in Business Brief 07/97 issued by HMRC. It was in these terms:

"A. Hire of staff by employment businesses

1. The new arrangements described in paragraph 2 below apply between 1 April 1997 and 31 December 1998 (both dates inclusive).

2. Where an employment business within the meaning of the Employment Agencies Act 1973 supplies a member of its staff (the employee) to another business which –

(a) is responsible for paying the employee's remuneration directly to the employee, and/or

(b) discharges the obligations of the employment business to pay to any third party PAYE, NICs, pension contributions and similar payments relating to the employee,

then, to the extent that any such payments as are mentioned in paragraphs (a) and (b) above form the consideration or part of the consideration for the supply of the employee to the other business, they shall be disregarded in determining the value of the supply of the employee.

B. Secondment of staff by businesses other than employment businesses

1. The arrangements described in paragraph 2 below apply from 1 April 1997.

2. The secondment by an employer (other than an employment business within the meaning of the Employment Agencies Act 1973) of a member of its staff (the employee) to another business which:

(a) exercises exclusive control over the allocation and performance of the employee's duties during the period of secondment;

(b) is responsible for paying the employee's remuneration directly to the employee; and/or

(c) discharges the employer's obligations to pay to any third party PAYE, NICs, pension contributions and similar payments relating to the employee,

then, to the extent that any such payments as are mentioned in paragraphs (b) and (c) above form the consideration or part of the consideration for the secondment of the employee to the other business, they shall be disregarded in determining the value of seconding the employee.

3. For the purposes of paragraph 2 above, an employer shall not be treated as seconding an employee to another business, if the placing of the employee with that other business is done with a view to the employer's (or any other person associated with him) deriving any financial gain from:

(a) the placing of the employee with the business, or

(b) any other arrangements or understandings (whether or not contractually binding and whether or not for any consideration) between the employer (or any other person associated with him) and the other business (or any person associated with it) with which the employee is placed. …"

14. ASL and Barclays emphasise that this statement of the concession did not appear in a document which included any general description of the meaning of supply of staff, such as that in paragraph 2 of VAT Leaflet 700/34/94 (set out at para. [11] above). However, Business Brief 07/97 did not appear in a vacuum. It was dealing with one particular matter in relation to the VAT treatment regarding supply of staff, replacing in that regard an existing statement of the concession contained in VAT Leaflet 700/34/94. In my view, the Business Brief was clearly intended to be read alongside and in the context of the existing general guidance regarding VAT treatment of staff contained in that VAT Leaflet, including the guidance contained in paragraph 2 of that leaflet. On a reasonable and objective approach to the interpretation of Business Brief 07/97, it would have been understood amongst those used to dealing with VAT treatment in relation to supply of staff, or having to familiarise themselves with such matters, that the Business Brief was to be read in that way. If a person asked himself the question, "What do HMRC mean by a supply of staff for the purposes of the concession?", the obvious source for the answer would have been the general guidance issued by HMRC and still in effect, which defined what HMRC meant by "supply of staff".
15. The Business Brief stated that the concession was applicable until 31 December 1998, but a series of further Business Briefs extended its application.
16. The fact that the reformulated staff concession is to be read in the context of the general guidance issued by HMRC in respect of supply of staff was reaffirmed in VAT Notice 700/34, entitled "Staff" ("the Notice"). This was issued in May 2005 to replace VAT Leaflet 700/24/94. In the Notice, the staff hire concession as originally reformulated in Business Brief 07/97 was incorporated in the body of the Notice in Section 4 ("the Concession") and extended in time until after a review of it to be conducted by HMRC. The guidance as to what qualifies as a supply of staff for VAT purposes, replicating in substance paragraph 2 of VAT Leaflet 700/34/94, was contained in Section 2 of the Notice (headed "General Information") at paragraph 2.1 (headed "What is a supply of staff for VAT purposes?") in these terms:

"2. General information

2.1 What is a supply of staff for VAT purposes?

You make a supply of staff for VAT purposes if you provide to another person, for consideration, the use of an individual who is contractually employed by you or is a director of your company. This applies whether the terms of the individual's employment with you are set out in a formal contract or letter of appointment, or are on a less formal basis. The determining factor is that the staff are not contractually employed by the recipient company, but come under the direction of that company. Consideration and value of the supply are explained in paragraph 2.3.

If your company supplies services, such as construction services, to another person but your staff continue to operate under your own direction, this is not a supply of staff, but is a supply of those services. This distinction is significant where the services may be zero-rated or exempt. If you are in doubt about the place of supply of your services, you should refer to Notice 741 Place of supply of services."

17. Paragraph 1.3 of the Notice, under the heading "Who should read this notice?", indicated that "It is intended for businesses, including staff agencies, which supply staff". Paragraph 2.3 of the Notice provided:

"If you make a taxable supply of staff you must charge VAT on the full amount of the consideration for the supply. As well as any fee, this includes your recovery of staff costs from the recipient such as salary, National Insurance and pension.

Even if the arrangements do not involve the recipient paying these staff costs to you – for example, because the salary is paid directly to the individual or the National Insurance directly to the DSS – these amounts are still part of the consideration for your taxable supply. There are a limited number of exceptions to this, however. These are explained in a Statement of Practice, the full terms of which are set out in Section 4.

The Statement is effective from 1 April 1997. It replaces an earlier informal concession. There are three sections to the Statement. They all have the effect of excluding staff remuneration, PAYE, NICS, pension contributions and similar costs from the taxable consideration for staff secondments if these costs are paid by the recipient businesses directly to the staff and third parties and if other conditions in the sections are met.

Section A and Section C are self explanatory. If the recipient pays the relevant costs directly to the staff and third parties, you may exclude these amounts from the taxable consideration for your supplies of staff provided:

- you are an employment business defined in the Employment Agencies Act 1973 and your staff are employees; or

- you are a sponsor placing disabled workers under the Sheltered Placement Scheme or any similar scheme.

Section B is the principal part of the Statement. If the recipient pays the relevant costs directly to the staff and third parties, you may exclude these amounts from the taxable consideration for your supplies of staff provided:

- the recipient business exercises exclusive control over the allocation and performance of the employee's duties during the period of secondment; and

- your business does not derive any financial gain from the secondment, whether this comes directly from the secondment or through any other arrangements you may have with the recipient business – for example, from a management services agreement relating to the seconded staff. Any such arrangement involving an associate of your business, or an associate of the recipient business, will also preclude the supply from the Section B easement.

It is important to remember that the amounts in question may only be disregarded from determining the consideration and value of the secondment when they are paid directly to the individual and/or third parties. If these amounts are received by you, they cannot be so disregarded and will be taken to be part of the consideration and value of the supply.

These rules apply whether you supply full-time or part-time staff. They also apply to the value of supplied received from outside the UK under the "reverse charge" procedure (Notice 741 Place of supply of services)."

18. The introductory part of paragraph 2 of Section 4 of the Notice contains two conditions which have to be satisfied before the limb of the Concession set out in Part A of Section 4 is brought into operation, namely (a) that a business which is "an employment business within the meaning of the Employment Agencies Act 1973" (b) carries out an activity which qualifies as "supply[ing] a member of its staff … to another business …". I will refer to (a) as "Condition (a)" and to (b) as "Condition (b)".
19. The Concession set out in the Notice was brought to an end with effect from 31 March 2009, following consultation and review by HMRC.

The nature of the arrangement between AUK, ASL and Barclays

20. AUK is the current form of a well known firm of management consultants. It employs the former UK partners in Andersen Consulting. ASL is a wholly owned subsidiary of AUK. ASL's primary activity is the supply of staff to AUK and companies associated with it. ASL also supplies staff to clients of AUK, such as Barclays.
21. AUK provides services of various kinds to its clients, seeking to assist them to realise commercial benefits from re-organising the management and structures of their businesses. Such services range from the simple provision of advice to a client to a full outsourcing by the client of some part of its business to be run by AUK. According to evidence filed by AUK, in an outsourcing scenario the client's employees will be transferred, in whole or in part, to the service provider (AUK or an affiliated company). The service provider then provides an agreed service to the client in respect of the function formerly carried out by the client itself, with specified performance targets for which the service provider takes responsibility. This type of arrangement is intended to allow for fundamental changes in performance and the business culture relevant to the particular function to be made, with the service provider providing both training and access to tools, methods and knowledge for the transferred employees and also using its expertise in order (it is hoped) to deliver a faster, cheaper and better service to the client than the client would achieve using its own employees. Such an arrangement involves a transfer of the risk of the relevant performance targets not being achieved from the client to the service provider.
22. The arrangement under the MSA between AUK and Barclays in relation to Barclays' IT function involved a substantial outsourcing element. Some 1400 staff working on Barclays' IT function (both Barclays' employees and contractors) were transferred to AUK, and then by arrangement between AUK and ASL were transferred to ASL. They ended up as employees of ASL, employed in each case under the terms of the Employment Contract. ASL then seconded these employees back to Barclays under the SA, to work in the same Barclays offices in which they had worked previously. Upon transfer to ASL, these employees were provided with information about how they would be expected to behave within the "Accenture" culture into which they had been adopted. These ASL employees formed the bulk of the staff needed by AUK to fulfil its obligations to Barclays under the MSA, to provide an outsourced IT function with service levels guaranteed by AUK. In broad terms, the services to be provided by AUK involved the provision of application maintenance (maintaining and dealing with problems arising in relation to existing software operating on Barclays' computer systems) and application development (involving more substantial modifications and upgrading of software for those computer systems).
23. I will turn to the detail of the terms of the MSA, SA and Employment Contract later in this judgment. At this stage, it is relevant to observe that salient features of this tripartite arrangement were that (a) AUK would have principal management responsibility and authority in relation to the outsourced IT function and the staff involved in providing the services AUK had contracted to carry out for Barclays (this feature was at the heart of the commercial arrangement between AUK and Barclays: AUK was to run the IT function to realise the benefits which it had promised Barclays, and would not have been expected to guarantee levels of service as it did without having the ability to control how such service was provided); (b) under the SA, Barclays was to have certain rights to call for staff to be seconded by ASL and certain rights of management of such staff as were seconded to it (which management role would in many cases be exercised by other ASL employees seconded to work for Barclays in relation to the IT function); but (c) such management role as was reserved to Barclays under the SA would be subject to the overall management of the IT function by AUK (point (a) above); and (d) the SA also reserved to ASL certain rights of management of its staff seconded to Barclays. Therefore, as a matter of commercial substance, AUK had the dominant management role in relation to the IT function and the ASL employees working within it, while Barclays and ASL also shared management functions in respect of those ASL employees between them.
24. The picture in relation to the management and control of ASL employees seconded to Barclays under these arrangements is thus a rather confused and complicated one. I have had the benefit of some witness statements adduced by ASL, AUK and Barclays which attempt to describe the position, but ASL did not provide such statements to HMRC when they had to consider ASL's claim to benefit from the Concession. HMRC was simply provided by ASL with the MSA, the SA and the Employment Contract by way of evidence relevant to their decision. HMRC requested meetings to discuss in more detail the arrangements and how they operated, but ASL did not accede to these requests. HMRC had to take their decision on the basis of their understanding of how the MSA, the SA and the Employment Contract would in practice work together. The MSA and the SA, in particular, are lengthy and complex agreements, which are related to each other in ways which are not always clearly spelled out in them. HMRC did the best they could to understand them and the way in which the overall arrangement would operate. This background will be relevant when I come to consider whether HMRC's decision that the secondment arrangements between ASL and Barclays did not fall within the terms of the Concession was flawed.

The Employment Agencies Act 1973

25. The Employment Agencies Act 1973 ("the 1973 Act") is relevant in these proceedings only because HMRC decided to formulate the Concession by reference to the definition of "employment business" contained in it. The long title of the 1973 Act was, "An Act to regulate employment agencies and businesses …". It required employment agencies and businesses to be licensed and created a power for the Secretary of State to make regulations to secure their proper conduct. Substantial parts of the Act have been amended or repealed. Section 13(3) of the 1973 Act remains in force. It provides:

"For the purposes of this Act "employment business" means the business (whether or not carried on with a view to profit and whether or not carried on in conjunction with any other business) of supplying persons in the employment of the person carrying on the business, to act for, and under the control of, other persons [in any capacity]…"

26. The 1973 Act engages a wide notion of employment, which is capable of including certain engagements under contracts for services as well as employment in the strict sense of engagement under a contract of employment (contract of service). Section 13(1) provides, in relevant part, that:

"In this Act – …

'employment' includes –

(a) employment by way of a professional engagement or otherwise under a contract for services;

(b) the reception in a private household of a person under an arrangement whereby that person is to assist in the domestic work of the household in consideration of receiving hospitality and pocket money or hospitality only;

and "worker" and "employer" shall be construed accordingly …"

HMRC's decisions and the related legal proceedings

27. On the basis of the MSA, SA and Employment Contract, ASL invited HMRC to decide that the secondment of ASL employees to Barclays under the SA, on terms that Barclays paid their salaries direct to them and other related costs such as tax and national insurance direct to the relevant authorities, fell within the Concession and hence should not be treated as a chargeable supply of services for the purposes of VAT. In a detailed decision letter dated 24 April 2007 ("the First Decision Letter") HMRC, acting by Mr Gamble-Beresford, decided that ASL's supply of staff to Barclays did not fall within the Concession, with the result that ASL would be liable to account for VAT chargeable in respect of the sums paid by Barclays to those staff and to others in respect of them. The First Decision Letter summarised the basis for this conclusion in this way:

"1. I have decided ('my preferred decision') that notwithstanding the contractual form that has been presented to us, the supply that is made by ASL to Barclays is a supply of services [i.e. a supply of services which does not qualify as a supply of staff for the purposes of the Concession] that is subject to the standard rate of VAT.

2. In the event that my preferred decision is found to be incorrect, and ASL is making a supply of staff, I have decided ('my alternative decision') that ASL is not acting as an employment business and is therefore not able to disregard the consideration for the secondment supplies under Part A of the Staff Hire Concession. As a consequence, the consideration for the supply is subject to the standard rate of VAT."

28. The 'preferred decision' involved the conclusion that ASL could not satisfy Condition (b). The 'alternative decision' involved the conclusion that ASL could not satisfy Condition (a).
29. HMRC gave further consideration to the contractual documents available to it, and subsequently produced a further decision letter by Mr Gamble-Beresford dated 22 May 2007 ("the Second Decision Letter"), containing a 'second alternative decision'. That further decision was summarised as follows:

"In the event that my preferred and alternative decisions are incorrect, I have decided that the payments made by Barclays in respect of the seconded employee costs are further consideration for the taxable supplies that AUK makes to Barclays under the MSA".

This decision involved a re-characterisation of the payments by Barclays in respect of the supply of staff by ASL to Barclays so as to regard them, as a matter of commercial substance, as part of the consideration for the supply of services by AUK to Barclays.

30. ASL and Barclays wish to challenge each of these decisions. By agreement between the parties, the appropriate procedure for ASL and Barclays to challenge the two decisions contained in the First Decision Letter is by bringing judicial review proceedings in this court, as they have done. In the judicial review proceedings brought by ASL, in addition to seeking to rely on the Concession (and, for staff supplied before May 2005, on the staff hire concession in the same terms derived from Business Brief 07/97 as continued by further Business Briefs issued by HMRC), ASL also wishes to rely upon past practice of HMRC in relation to an earlier transaction which ASL maintains also gives rise to a substantive legitimate expectation in its favour that it would not be required to account for VAT in respect of its supplies of staff to Barclays. By a case management order made on 28 February 2008 the judicial review claims brought by ASL and Barclays were ordered to be heard together and the challenges to the two decisions contained in the First Decision Letter were ordered to be heard and decided prior to any other issues in the case. The hearing before me took place pursuant to that order. The effect of the order is that the further challenge by ASL based on past practice of HMRC has been left to one side at this stage, and I say no more about it. ASL and Barclays also wish to challenge HMRC's 'second alternative decision' contained in the Second Decision Letter, but they propose to do that by way of an appeal to the new Tax Chamber of the First Tier Tribunal (formerly the VAT and Duties Tribunal). Accordingly, the question of the validity of that decision also was not before me. The net effect of all this is that this judgment is concerned only with the lawfulness of the two decisions contained in the First Decision Letter.

Legal Analysis

(i) The proper legal question and the evidence to be taken into account

31. HMRC submitted that the proper legal question was whether they had acted irrationally in arriving at their conclusions as set out in the two decisions contained in the First Decision Letter. On that approach, the witness statements adduced by ASL, AUK and Barclays and any explanations of the arrangements given after the First Decision Letter were not relevant. Mr Hitchmough for Barclays accepted that this was the proper question and that such evidence and explanations were not relevant to resolving it. However, Mr Sinfield for ASL and AUK did not accept this. In his submission, the question whether ASL is entitled to claim the benefit of a substantive legitimate expectation is a matter for the court to decide for itself, having regard to the terms of the Concession and evidence about reliance by ASL upon it, including evidence produced for the court but not available to HMRC at the time of the First Decision Letter about how the arrangements between ASL, AUK and Barclays operate in practice.
32. In my judgment, the correct position is as follows. ASL claims to be entitled to benefit from a substantive legitimate expectation created by a promise or assurance given by HMRC and relied on by it. A substantive legitimate expectation claim typically depends upon a promise or assurance given by a public authority to a group which includes the claimant, relied upon by the claimant, such that it would be unfair or an abuse of power for the public authority now to go back on that promise or assurance (in many cases it may be a requirement that the reliance involved some detriment to the claimant: I heard no submissions as to whether this was a requirement in the circumstances of this case or, if it was, whether it could be satisfied by ASL). Put in these simple terms, a substantive legitimate expectation claim does not depend upon the claimant having to allege or prove that the public authority has acted irrationally, and it is for the court to judge whether the necessary element of unfairness or abuse of power has been established: see e.g. Corkteck Ltd v HMRC [2009] EWHC 785 (Admin), [25]-[26]. To this extent, there is support for Mr Sinfield's submission.
33. There is no doubt in this case that an assurance in the form of the Concession was issued by HMRC. The proper interpretation of the Concession is a matter for the court (cf First Secretary of State v Sainsbury's Supermarkets Ltd [2005] EWCA Civ 520 at [16]), as is the overall judgment whether it would be unfair or an abuse of power for HMRC to fail to apply the Concession in ASL's case.
34. However, in relation to the application of the Concession to the facts in this case, evaluative judgments were called for in relation to each of Conditions (a) and (b). Was ASL "supplying staff" to Barclays, as that expression is to be understood in the context of the Concession? Was ASL carrying on an "employment business" as defined in the 1973 Act? The judgments required on these points in the circumstances of the tripartite arrangement in this case were not simple and straightforward. They were evaluative judgments of the kind identified in, for example, Moyna v Secretary of State for Work and Pensions [2003] 1 WLR 1929, HL, at [19]-[20]. Is it for the court to make the necessary evaluative judgments as primary decision-maker, having regard to all the evidence available to it at the time of the hearing? Or is the proper approach, on a question of this kind, for the court to treat HMRC as the primary decision-maker for making such evaluative judgments regarding the proper application of the Concession, having regard to the evidence before them, and subject only to review by the court to ensure that their judgment was not an irrational one?
35. In my judgment, the latter is the correct approach on an issue of this kind. HMRC are the body entrusted by Parliament with the role of administering the tax system, who have made the relevant decision to promulgate and operate the Concession. They have experience and expertise in making evaluative judgments of the kind in question here. A decision was called for from them whether the Concession applied or not, and that is the decision which the court is asked to review in these proceedings. If they properly interpreted the terms of the Concession and reached a rational conclusion that it did not apply in the case of ASL (even if the court might itself have reached a different conclusion), it could not in my view properly be said that they had acted unfairly or had committed an abuse of power. Accordingly, it could not then be said that there were any proper or sufficient grounds for the court to override their judgment by reference to the law protecting substantive legitimate expectations, since the foundation for the doctrine of legitimate expectations is unfairness or abuse of power. Moreover, in a case where HMRC rationally concluded that a person in the position of ASL did not fall within the terms of the Concession, it could not properly be said that that person had a case "falling clearly within" those terms, as required under the test stated by Bingham LJ in ex p. MFK Underwriting Agencies Ltd and reiterated by Collins J in Greenwich Property Ltd.
36. I therefore consider that it is for the court to rule upon the proper interpretation of the Concession, but that otherwise the proper legal test in relation to the evaluative judgments made by HMRC in deciding whether Conditions (a) and (b) were satisfied or not is a test of rationality, applied to the decisions contained in the First Decision Letter in light of the evidential material available to HMRC at the time that letter was sent.
37. In approaching the latter issue, it is relevant that HMRC were supplied with not much more information than the terms of MSA, SA and Employment Contract. In those circumstances, HMRC are entitled to be afforded a wide margin of judgment. Given the complexity and, at points, obscurity of the terms of the MSA, SA and Employment Contract and of the practical workings of the overall arrangement between AUK, ASL and Barclays, HMRC had to do the best they could to understand what was going on and the court will be slow to be critical about the judgments they made. Putting the same point a different way: where HMRC made a judgment about how the arrangement could be regarded as working in practice and as a matter of commercial substance, if the terms of the MSA, SA and Employment Contract allowed for affairs to be conducted in that way and did not clearly prevent such a situation arising, there was no other evidential material available to HMRC at the relevant time to which ASL and Barclays can now point in order to suggest that HMRC clearly misunderstood the position, and therefore should be taken to have acted irrationally.
38. In the event, however, on the facts of this case, the choice between the different approaches referred to in para. [34] above is not critical. I had regard to the additional evidence adduced by the Claimants and heard full argument about the meaning and effect of the MSA, SA and Employment Contract. As explained below, I have come to the conclusion that the judgments of HMRC in respect of each of Conditions (a) and (b) were correct, as well as being rational.

(ii) Meaning of "employment business" in the 1973 Act – Condition (a)

39. According to the terms of the SA, ASL transferred a measure of control to Barclays over the ASL employees seconded to work in relation to Barclays' outsourced IT function. According to the terms of the MSA, AUK had a substantial measure of control over those employees. At the hearing it was common ground between the Claimants and HMRC that in the present case the test whether ASL was an "employment business" within the meaning of the 1973 Act was whether ASL had supplied ASL employees "to act for, and under the control of, other persons", meaning persons other than ASL: i.e. this could potentially include reference to both Barclays and AUK, whether acting by themselves or in combination – it might not be necessary for ASL to show that the seconded employees were under the control of Barclays alone.
40. Two issues arose regarding the meaning of the phrase, "under the control of", in s. 13(3) of the 1973 Act. First, Mr Hitchmough submitted that the word "control" related to what he described as day-to-day control over the transferred staff in respect of, as he put it, "the activity contemplated by the supply arrangement" or "the matter in hand". The reason for his pressing for this approach was to suggest that a wider range of factors to which HMRC had regard, such as the restrictions contained in the SA as to the scope of the work to which Barclays could assign transferred staff, were not properly relevant on this question. He criticised the submission made for HMRC and by Mr Sinfield that guidance as to the meaning of "control" could be derived from the familiar case-law (in particular, Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497) on the extent of control required in order to characterise a contract as an employment contract (contract of service) rather than a contract for services. Mr Hitchmough made the point that a business which supplied nursing staff employed by it to a health trust to work in a hospital would not fail to be an "employment business" for the purposes of the 1973 Act simply because, under the secondment agreement between that business and the trust, it was agreed that the staff supplied could only be assigned to nursing duties, and were not placed at the general disposal of the trust (and so could not, for example, be required to work as cleaning or secretarial staff). I think this point is correct, so far as it goes; but it does not mean that such restrictions are necessarily irrelevant to determining whether the necessary degree of "control" has been given to "other persons" under s. 13(3), particularly when placed alongside other terms restricting the level of management powers which have been conferred on those "other persons" under the secondment arrangement. Mr Hitchmough also made the point that the test of "control" under s. 13(3) of the 1973 Act must indicate something less than the full form of control which is required to establish an employment relationship under a contract of service. I agree. The definition of "employment business" in s. 13(3) is predicated on the supplier remaining the employer of the person supplied, so the "control" conferred upon the client or "other persons" must be less than the full rights of control which an employer has over its employee. Moreover, since, by virtue of s. 13(1) of the 1973 Act, "employment" includes some forms of engagement under a contract for services (i.e. where the employment business does not itself possess the full rights of management control which would make the contract a contract of employment in the strict sense) and the definition of "employment business" includes supply of persons engaged by the business on such terms, the notion of "control" in s. 13(3) cannot be directly equiparated with the degree of control which an employer has in relation to the activities of its employee.
41. In the event, HMRC did not contend that the notion of "control" in s. 13(3) was to be equiparated with the degree of control which an employer has in relation to its employee; rather, they submitted that the notion of "control" in s. 13(3) was significantly wider than that indicated by Mr Hitchmough and that the sort of factors relating to the type of control relevant to identifying a contract as an employment contract were relevant, by broad analogy, to the examination whether the requisite degree of "control" has been transferred for the purposes of s. 13(3) in any given situation. I accept both these points. The word "control" in s. 13(3) is not expressly qualified and there is no reason to give it anything other than its natural meaning, modified to the limited degree necessary to allow for the points made in para. [40] above. In my view, the notion of "control" in s. 13(3) has regard to the practical levels of control transferred and retained under the supply arrangement, without any artificial limitation of the kind proposed by Mr Hitchmough, and requires an overall evaluative judgment to be made whether the predominant power of control of what the employee does has been transferred by the supplier to "other persons".
42. This conclusion is also supported by the view I take on the second issue which arose on the meaning of the phrase, "under the control of", in s. 13(3). Mr Clayton and Mr Hitchmough submitted that, in a situation where, as here, there is a significant sharing of control between the supplier of staff and "other persons", the phrase means that the staff supplied are to act under the predominant control of such "other persons". Mr Clayton then submitted that, on the facts, Barclays/AUK did not have predominant control over the staff supplied by ASL; Mr Hitchmough submitted that they did. Mr Sinfield, however, submitted that it is sufficient, in such a situation, for the "other persons" to have any significant power of control as to how the staff supplied are to do their job. He submitted that, even if it could not be said that Barclays/AUK had predominant control over those staff, Barclays (and AUK) clearly did have some significant powers of control as to how such staff should do their job.
43. On this point of construction, I prefer the submission of Mr Clayton and Mr Hitchmough to that of Mr Sinfield. In my view, the words, "the control", in s. 13(3) cannot be reconciled with the idea that any significant level of control is sufficient. The use of the definite article implies that it is some full measure of control which is required before the test is satisfied. In a situation where elements of control are divided between different persons, the natural meaning of "the control" is the predominant practical control over what the transferred employee does. This view is also supported by the overall scheme of the 1973 Act, which originally created a burdensome licensing and regulatory regime applicable to "employment businesses". It is not plausible to suppose that Parliament intended to bring businesses within the scope of such a regime on the basis of the extremely diluted test put forward by Mr Sinfield.
44. Having resolved these points of construction in favour of HMRC, I turn to the facts of the case, as revealed by the terms of the MSA, the SA and the Employment Contract, to determine whether HMRC reached a conclusion (that ASL was not acting as an "employment business" in the context of the arrangement involving ASL, AUK and Barclays) which was wrong, in the sense of irrational. This was the conclusion which formed the basis of HMRC's 'alternative decision' set out in the First Decision Letter, as explained in paragraphs 68-83 of that letter. The main focus of those paragraphs was the terms of the Employment Contract; however, they followed an extended discussion at paragraphs 32 to 67 of the letter about wider aspects of the SA and MSA and the overall arrangement so far as concerned Barclays' and AUK's powers of direction in relation to the ASL employees transferred to Barclays, and I consider that the reasoning for HMRC's conclusion that ASL was not carrying on an "employment business" includes relevant points which had already been made in that earlier discussion. The Claimants' challenge in these proceedings to HMRC's decision was not a challenge to the adequacy of the reasons set out in the First Decision Letter, but to the substantive correctness of the conclusion HMRC arrived at. At the hearing, HMRC developed its arguments as to the correctness of its conclusion on this issue by reference to the terms of all of the Employment Contract, the MSA and the SA (including terms not expressly referred to in the First Decision Letter), and the Claimants made no objection to this. Accordingly, I review HMRC's conclusion on this part of the case by reference to the full terms of each of those agreements.
45. I have already set out at paras. [22]-[23] above the broad picture which is to be derived from a reading of those agreements. After dealing with certain points of principle regarding Condition (b), I will review the detail of the terms of those agreements which appear to me to have particular significance for the questions whether the ASL employees seconded to Barclays were placed "under the control of" Barclays or Barclays and AUK for the purposes of s. 13(3) of the 1973 Act (Condition (a)) and whether Condition (b) was satisfied. In doing so, I emphasise that I do not consider it proportionate or appropriate to provide a clause by clause commentary on the very extensive contractual terms contained in each of the agreements. Similarly, I do not think HMRC are to be criticised for failing to do so. They plainly had regard to the broad terms and basic commercial nature of each of the agreements, and it was not incumbent upon them to provide such a commentary in their decision.

(iii) The meaning of "supply of staff" for the purposes of the Concession – Condition (b)

46. The basis for HMRC's 'preferred decision' in the First Decision Letter was that ASL could not satisfy Condition (b), as explained in paragraphs 32-67 of that letter. Since, as a matter of general VAT law, a supply of staff is a subset of the general category of a supply of services (in respect of which VAT is in principle chargeable) it is implicit in the Concession that it drew a distinction between a supply of services consisting of a supply of staff and other forms of supplies of services. This is the substance of the distinction highlighted by HMRC at paragraphs 49-50 of the First Decision Letter. At paragraph 49 they stated: "A supply of staff is the placing of personnel under the general control and guidance of another party as if they became employees of that other party." This analogy with the position of employees was not intended to be a complete equation of supplied staff with the position of employees (see paras. [40]-[41] above), but was in line with the general policy objective of Part A of the Concession to avoid distortion of competition between employment agencies and employment businesses (para. [12] above) and served to emphasise the importance of the client's management powers in determining the applicability of the Concession. At paragraph 50, HMRC stated: "In order for the supply made by ASL to Barclays to be a supply of staff … the employees seconded under the SA must be working under the direction of Barclays". HMRC concluded that that was not the position. In reaching that conclusion, they had regard to powers of direction and control enjoyed by both ASL and AUK on the one hand, as compared with Barclays on the other.
47. The first issue which arises on this part of the case is whether the Concession includes reference to paragraph 2.1 of the Notice (and the earlier equivalent paragraph in VAT Leaflet 700/34/94), as a relevant definition of what is to qualify for the purposes of the Concession as a "supply of staff". In my judgment, it does: see paras. [14]-[16] above. Accordingly, HMRC properly directed themselves in the First Decision Letter as to the test to be applied. On this interpretation of the Concession, ASL would only fall within its terms if it could show that the staff supplied by ASL came "under the direction of [the recipient] company" (i.e. Barclays). Unlike in relation to Condition (a), it would not be sufficient for ASL to show that the staff came under the control of Barclays and AUK together, as opposed to ASL.
48. Next, an issue arose as to what was meant by the phrase, "come under the direction of [the recipient] company", in paragraph 2.1 of the Notice, in circumstances where, as here, different persons exercised different elements of managerial control over the seconded staff. In line with their submissions regarding the interpretation of s. 13(3) of the 1973 Act, Mr Clayton and Mr Hitchmough submitted that the relevant test to be applied was whether the seconded ASL employees came under the predominant control of the recipient company (that is to say, on my interpretation of the Concession, Barclays). Mr Sinfield, however, in line with his submission regarding s. 13(3), submitted that the relevant test was whether any degree of direction was available to the recipient company.
49. On this issue, I again accept the submission of Mr Clayton and Mr Hitchmough. The use of the definite article ("the direction") in this context again imports the idea that it is some full measure of directive control which is required before the test in paragraph 2.1 is satisfied. In a situation where elements of control are divided between different persons, the natural meaning of "the direction" (in the phrase, "comes under the direction of …") is the predominant practical power to direct the transferred employee to do things. This interpretation is also supported by the general scheme of the Concession and by the policy background for HMRC's formulation of the Concession. That formulation was adopted to reduce the scope for avoidance of VAT (which had been found to be excessively wide under the original staff hire concession) and to provide for equivalent treatment of employment agencies and employment businesses. The importance of the objective of keeping the Concession within narrow bounds also reflected the need for HMRC to avoid departing too far from the requirements of EU law on VAT, according to which VAT should be charged on the full amount of consideration in relation to the supply of staff, since departure from those requirements would tend to undermine the need for equal application of EU law throughout the EU Member States and could give rise to difficulties with the EU Commission. Yet on Mr Sinfield's suggested interpretation, substantial scope for avoidance of tax would appear to be preserved for any arrangement involving an employment business. It is difficult to see why this would have been thought desirable – particularly since on his suggested interpretation employment businesses would on the face of it be put in a better position than employment agencies. This is because where an employment agency introduces staff, the staff are then employed by the client (i.e. under that client's full direction, as their employer); but if the Concession is not limited to employment businesses which provide a closely comparable service (i.e. by providing their own staff to act under the predominant direction of the client company), then those businesses would have greater scope to provide services to clients while avoiding VAT. On Mr Sinfield's proposed interpretation, the Concession would go further than the intended and declared policy aim of putting employment agencies and employment businesses in the same position.
50. As to the scheme of the Concession, it is relevant that Part B of the Concession in Section 4 of the Notice provides that in a pure secondment situation the seconded employee must come under the "exclusive control" of the recipient company and that paragraph 2.3 of the Notice states that Part B of the Concession is the main provision in the Concession. A pure secondment situation is one where, for example, a bank seconds one of its staff to another bank in order to enable them to acquire experience or to foster good relations between the banks. The requirement in the Concession that the recipient should have "exclusive control" of the seconded staff member and that the provider should not secure any financial benefit in respect of the arrangement underlines how narrow the scope of this part of the Concession was intended to be and how important was the objective of ensuring that unmerited avoidance of tax did not occur. Since Part B is the primary operative part of the Concession, one would not expect a subordinate part of the Concession (Part A) to apply with a greatly extended scope and to allow significantly wider opportunities to avoid paying tax. Construing the phrase, "under the direction of …", in paragraph 2.1 of the Notice to mean "under the predominant direction of …" preserves a reasonable degree of harmony and balance between the operation of Parts A and B of the Concession.
51. Mr Hitchmough made two further submissions regarding paragraph 2.1 of the Notice. First, he submitted that the definition of a supply of staff given in paragraph 2.1 was intended to state the general law on that subject deriving from the Value Added Tax Act 1994 and EU VAT law, that the definition was inaccurate and did not properly reflect the general law, that consequently paragraph 2.1 should be reformulated so as properly to reflect that law and that if that were done then the secondment of ASL employees to Barclays would be found to satisfy paragraph 2.1 as reformulated, so that ASL would fall within the terms of the Concession. Secondly, in the alternative, he submitted that for the Concession to be limited to the supply of staff who came under the direction of the recipient company alone (as distinct from that company and others, as under s. 13(3) of the 1973 Act) was irrational, so that paragraph 2.1 should either be treated as amended to cover the arrangements made by ASL in this case or as having no effect. I reject both these submissions. I deal with them in turn.
52. As to the first, in my opinion the submission ignores the nature of the Concession and the nature of the claim which ASL seeks to make in these proceedings. The Concession is an extra-statutory policy of HMRC which is specifically intended to depart from the usual application of the general law of VAT. Subject to the limits of rationality, HMRC were entitled to formulate their policy as expressed in the Concession in any way they saw fit. It was open to HMRC to state their policy by reference to a definition of supply of staff which they wished to use, and that is what they did. In my view it is nothing to the point for the Claimants to contend that HMRC may have summarised the general law regarding supply of staff incorrectly in paragraph 2.1 of the Notice. Whether HMRC had done so or not, it was paragraph 2.1 which contained the definition of supply of staff which HMRC wished to use for their policy formulated in the Concession. By their argument, the Claimants seek to reformulate one aspect of HMRC's policy in their own favour by reference to EU law. But if EU law were applied, the Concession simply would not exist at all. It is not open to the Claimants to pick and choose parts of the policy to subject to a test of EU law, in order to reformulate in their favour a concession which is intended to create a departure from EU law.
53. In addition, in my judgment it is plain that ASL cannot properly claim to bring itself within the relevant rule of law contained in the domestic law doctrine of substantive legitimate expectation by this argument. The authorities emphasise that a tax-payer may only benefit from this doctrine if it can show that it falls clearly within the terms of a concession: paras. [7]-[8] above. On the face of the Concession, read as it should be with paragraph 2.1 of the Notice, ASL cannot do this. It is not open to the Claimants to attempt to reformulate the terms of a concession, and then to say that ASL can bring itself within such terms as reformulated. Put in this way, the Claimants' case is very far indeed from the legal doctrine on which they seek to rely. (There may be an exception to this general point if it can be shown in a particular case that an exclusion from a policy statement is irrational, that there is no question of the policy being withdrawn and that the only rational way in which the policy could be formulated would have to include the case of the claimant: I address the Claimants' argument based on rationality of the policy below).
54. In any event, I am not persuaded that the Claimants are correct in their argument that paragraph 2.1 of the Notice mis-states EU law. The argument, introduced by Mr Hitchmough for the first time in reply, runs as follows. Paragraph 2.1 is an attempt by HMRC to summarise EU law (and the Value Added Tax Act 1994, which gives effect to that law) regarding supplies of staff. Supplies of staff are a subset of supplies of services, on which VAT is chargeable. The only point in EU law where it becomes relevant to distinguish a supply of services consisting in a supply of staff from other supplies of services is in relation to cross-border supplies. Where there is a cross-border supply of certain types of services (including where there is a supply of staff) from a business based and registered for VAT in one Member State to another business based and registered for VAT in another Member State, Article 56 of the principal VAT Directive (2006/112/EC) and the corresponding provision of the Value Added Tax Act 1994 (section 8) substitute for the usual rule that the supplier has to charge and account for VAT in respect of the supply a rule that the recipient has to charge itself VAT on the supply to it and account for that VAT. One of the issues which paragraph 2.1 of the Notice addresses is this situation. Mr Hitchmough submits that the true rule of EU law which governs in this situation, where there is a complicated division of elements of managerial control, is that a supply of staff occurs in any case in which the supplier does not retain predominant control over or direction of the relevant staff (whether or not the recipient acquires predominant control itself). He contends that this interpretation of Article 56 is required by the principle of legal certainty, since both supplier and recipient must know clearly whether the usual VAT charging and accounting rules apply or the special substituted rules under Article 56, and in a complex case it is only if the test has regard to whether the supplier loses predominant control of the staff that a clear answer can be given to whether the case falls within Article 56 or not. Mr Hitchmough says that one can imagine some complex situations in which a supplier of staff does not know for sure whether the recipient will acquire predominant control over the staff, or might share control with a third party, but will still need to know clearly whether it is for it (the supplier) to charge and account for VAT on the supply; in such a situation, the principle of legal certainty will require that the test whether there is a supply of staff falling within Article 56 should be a test whether the supplier has given up predominant control, rather than a test which has regard to the quality of control gained by the recipient. Therefore, he says, even though the current case did not involve a cross-border supply of services (so Article 56 is not in play on the particular facts of this case) and even though on the particular facts of this case ASL had full knowledge of the terms of the MSA, SA and Employment Contract and of the practical operation of the overall arrangement (so that there would be no particular reason on the facts of this case to suppose that the principle of legal certainty required a test of whether ASL has given up predominant control rather than a test that Barclays had acquired predominant control of the staff), a substitute, accurate summary of the legal position in paragraph 2.1 should have been in these terms: "The determining factor is (a) that the staff are not contractually employed by the recipient company, but (b) predominant control of the staff is given up by you [the supplying company] under your agreement with the recipient company".
55. There are a number of difficulties with this argument. Both supplier and recipient need to know whether Article 56 applies or not, since that question potentially affects the duties of each of them in respect of charging and accounting for VAT. Therefore, it is not sufficient to focus only on the position of the supplier, and the knowledge which may be available to it. One also has to consider the position of the recipient, and the knowledge which may be available to it. Whilst it is possible to imagine complex situations in which, judged from the supplier's point of view, the clearest test would be whether it had given up predominant control of the staff, it is equally possible to imagine complex situations in which, judged from the recipient's point of view, the clearest test would be whether it had acquired predominant control of the staff. In fact, it is possible to characterise the present case in such a way, since it may be said that Barclays knows that it has not acquired predominant control over the staff, but does not have full knowledge of the arrangements between AUK and ASL which would allow it to determine definitively for itself whether ASL has or has not given up predominant control over the staff who are supplied. Therefore, it does not seem to me that the principle of legal certainty dictates a clear answer as to what the test should be, one way or the other. It is quite possible that the HMRC summary in paragraph 2.1 is broadly accurate. There is no relevant case law of the ECJ which provides guidance. It is not always easy to predict what the principle of legal certainty might require in a given context: some degree of uncertainty is inherent, and regarded as acceptable, in any legal system, including the system of EU law. It is possible that the true position in EU law might be more complex than allowed for by Mr Hitchmough – for example, it may be that the basic rule is whether the recipient has acquired predominant control over the staff, save only in classes of case (not including the present) where the supplier cannot be certain of the situation, so that some modified form of the basic rule then operates. The position is not acte clair, and if a case arose in which the issue of the choice of test were critical (which, in light of paras. [52]-[53] above, I do not consider is the case here) a reference to the ECJ would be required. The uncertainty in relation to the precise content of the EU rule undermines the Claimants' argument to be entitled to reformulate paragraph 2.1 of the Notice and the Concession by reference to EU law. Moreover, it would have been open to HMRC, if alerted to any inaccuracy in paragraph 2.1, to reformulate it so as to be accurate in relation to cross-border supplies of staff while retaining the definition of supply of staff in paragraph 2.1 for use in the context of the Concession – it cannot be assumed that, even if paragraph 2.1 contained an inaccurate summary of EU law in relation to cross-border supplies of staff, HMRC would have adopted any wider definition of supply of staff than that set out in paragraph 2.1 for the purposes of the operation of the Concession.
56. Turning to Mr Hitchmough's further argument that the definition of supply of staff in paragraph 2.1 was irrational, I regard this contention as unsustainable for a number of reasons, including those already given in paras. [49]-[50] above. The Notice containing the Concession is an extra-statutory instrument setting out a policy of HMRC for departing from the law in relation to imposition of VAT which should ordinarily be applied. The policy is nothing more than, and extends no further than, the expression which HMRC chose to give it in the Notice (and the HMRC leaflet and Business Briefs which preceded it). There is no clear external reference point from the vantage of which it could be said that the expression given to the policy in the Notice is to be regarded as irrational. On the contrary, one would expect HMRC to formulate such a policy governing collection of VAT (i.e. one relieving some taxpayers from the ordinary application of the general law) in restricted terms, and with a view to minimising opportunities for avoidance of the imposition of VAT other than in clear and obviously meritorious cases. Minimising the scope for unmerited avoidance of VAT was a principal reason why the original staff hire concession was narrowed into the form of the Concession, so there is nothing irrational about the formulation of the Concession by reference to the clear and obvious case where staff are supplied to come under the (predominant) direction of the recipient company: any other rule would give rise to possible scope for unmerited avoidance in circumstances which might be difficult to predict. Moreover, maintaining employment agencies and employment businesses in a similar position, to avoid distortion of competition, was a particular objective of Part A of the Concession. That objective is fully met by interpreting the Concession in light of paragraph 2.1 as it stands, since the client of an employment agency actually employs the staff introduced by the agency (and so has full powers of managerial direction in relation to them) and paragraph 2.1 ensures that an employment business benefits from the Concession only when it fulfils a closely similar role, to provide staff who come under the direction of the client. There is no irrationality in drawing the boundary of the policy in that way. It is also the case that, particularly in the field of taxation, it is legitimate for clear, bright-line rules to be laid down in order to avoid excessive scope for avoidance of tax, even if some meritorious cases at the margins might be excluded from the benefit of such a rule: cf Burden v UK (2007) 44 EHRR 51 at [60] (the case was decided on different grounds in the Grand Chamber, which therefore did not address this issue: (2008) 47 EHRR 38 - although see the concurring judgment of Sir Nicolas Bratza at [OI-2]). This is a further reason why the interpretative provision in paragraph 2.1 in relation to the Concession cannot be regarded as irrational. (To be clear: in making this last point I am not suggesting that there is any indication that the present case in fact constitutes a marginal or meritorious case in terms of HMRC's policy intention in relation to the Concession; on the contrary, it seems to me that the sort of arrangement between ASL and Barclays, forming part of a wider arrangement involving a supply of services by AUK to Barclays, is a considerable distance from any situation likely to be regarded as deserving to benefit from the policy underlying the Concession).

(iv) The terms of the MSA, the SA and the Employment Contract

57. I now turn to deal with the detail of the terms of the MSA, the SA and the Employment Contract in light of the legal framework I have set out above. I address the MSA first. This agreement contained the basic commercial arrangement between AUK and Barclays without which the SA and Employment Contract would not have been entered into, and provides the commercial context in which HMRC had to determine where the practical control of the ASL staff seconded to Barclays was located.
58. It is relevant to note at the outset that ASL is not a party to the MSA. The MSA makes provision for the distribution of rights and obligations (including in relation to the management of Barclays' IT function) between AUK and Barclays, but not as between Barclays and ASL nor as between ASL and AUK. The position as between Barclays and ASL is primarily governed by the SA, to which AUK is not a party. The position between ASL and AUK is touched on in the Employment Contract, but (so far as appears from the materials available to HMRC and to me) is not governed by any contract between AUK and ASL. AUK clearly relied on ASL to supply staff to Barclays to allow AUK to fulfil its obligations to Barclays under the MSA, but AUK appears simply to have relied on its ability (as ASL's parent) to control ASL's conduct through ASL's board of directors and through its rights as sole shareholder in ASL.
59. This is significant, because it means that to the extent that AUK was to manage Barclays' outsourced IT function, it had to exercise management control either by calling on Barclays to give instructions to ASL staff (where Barclays had the right to do so under the SA) or had to exercise its power as sole shareholder in ASL to control what ASL did, in terms of giving instructions to its employees. Under the first route, AUK would have no greater powers of control or direction of the ASL staff seconded to Barclays than Barclays itself had. Under the second route, AUK would not directly exercise any power of control or direction of its own in relation to those staff. It would be dependent on being able to arrange for ASL to exercise its powers of control or direction in relation to those staff. Where AUK exercised control over ASL employees indirectly through ASL in this way, that would mean that ASL was the company which directly exercised relevant powers of control over those employees – AUK would not be exercising any independent control of its own over those employees.
60. By virtue of clause 49.1 of the MSA, AUK was not entitled to act as agent for Barclays. Therefore, under the first route mentioned above, AUK would have to make some form of request to Barclays to issue management directions to ASL staff, since AUK had no authority from Barclays to give directions to the staff itself. There was no evidence that this course was followed in practice. Accordingly, the inference which I draw (and which HMRC drew and were entitled to draw) is that it was the second route mentioned above which was routinely used in practice by AUK to exercise management control over the ASL employees supplied to work on the outsourced IT function. The effect of this is that, as a matter of commercial substance, there was no management control by AUK distinct from that of ASL over ASL employees provided to work on that IT function. AUK only appears to have exercised management control through ASL, so it is not sensible or logical to separate out AUK's position from that of ASL. This seems to me to be the substance of the analysis at paragraphs 66-67 of the First Decision Letter. Albeit it was not strictly accurate to describe ASL as a sub-contractor for AUK, the point being made was that it was not appropriate to treat ASL and AUK separately when analysing the operation of the overall arrangement. This approach is both one which was properly available to HMRC on the evidence available to them and also one which I regard as correct.
61. The other terms of the MSA which I think bear with particular significance on the issues in this case are as follows. Clause 16.2 provided:

"The Supplier shall procure that the Supplier Personnel shall not carry out any act or make any omission which has or could reasonably be expected to have an adverse impact on the security of the Services provided to the Bank or to any of the Bank Systems or any of the Bank Data."

"The Supplier" was AUK. "Supplier Personnel" were defined in Schedule 31 to mean: "all employees, agents, consultants and contractors of the Supplier, the Employer [meaning ASL] and/or of any Subcontractor, and includes any secondees deployed by the Supplier, the Employer or any Subcontractor to work for the Supplier in providing the Services from time to time" – i.e. the term includes the employees of ASL who were seconded to Barclays under the terms of the SA. Clause 16.2 reflects the basic nature of the arrangement contained in the MSA, according to which AUK assumed responsibility for managing what had been Barclays' IT function on an outsourced basis. The clause suggests that, as between AUK and Barclays, AUK will have powers of managerial control in relation to the ASL staff.

62. Clause 32.2 of the MSA provided:

"The Supplier warrants and undertakes on an ongoing basis that:

32.2.1 it will, where applicable, allocate the Relevant Employees to positions and roles appropriate to their skills, expertise and experience and, prior to the completion of Transformation it shall use all reasonable endeavours to perform its obligations in accordance with Good Industry practice. Following completion of Transformation its obligations under this Agreement will be performed by appropriately experienced, qualified, competent, trained and efficient personnel and in accordance with Good Industry Practice …"

The "Relevant Employees" are defined to include the seconded ASL employees. Clause 32.2 again reflects the basic nature of the arrangement contained in the MSA, and assumes that AUK is to have the principal management power to allocate such staff to their roles within the IT function.

63. Clause 45 of the MSA included the following:

"45.4 Subject to where envisaged by the Exit Plan, the Transition Plan or a Change agreed by both parties in accordance with the Change Control Procedure, the Supplier will not subcontract any of its (i) material obligations under this Agreement to any person other than an Affiliate of the Supplier; or (ii) obligations under this Agreement to any entity in an Offshore Jurisdiction which is not an Approved Offshore Jurisdiction or who will or intends to perform or discharge such obligations from any Offshore Jurisdiction or (iii) enter into or renew a Subcontract for a consideration greater than five hundred thousand pounds (£500,000) without the Bank's prior written consent which the Bank may not unreasonably withhold. The Supplier will first seek the Bank's permission to engage any Subcontractor and will provide to the Bank prior written notice of its intention to engage any Subcontractors on this basis together with the following details of them:

45.4.1 the name and address of the Subcontractor;

45.4.2 the subject matter of the Subcontract, including the quality of items to be supplied, involvement in the Services and/or the scope of the services to be provided;

45.4.3 confirmation that the Supplier has agreed appropriate provisions in the relevant Subcontract to enable the Supplier to fully comply with its obligations under the relevant Service Levels and this Agreement;

45.4.4 in the case where the Subcontractor is an Affiliate of the Supplier, documents demonstrating that the proposed Subcontract is on arm's length terms;

45.4.5 such additional information as the Bank may reasonably require by notice in writing to the Supplier; and

45.4.6 the number of persons who will be engaged by the Subcontractor to provide the Services.

45.5 The Bank acknowledges that it has already approved those Subcontractors set out in schedule 12 (Approved Subcontractors)."

Schedule 12 did not include ASL as an approved Subcontractor. However, clause 45 as a whole again indicates that the commercial substance of the arrangement was that AUK was providing a complete service to Barclays in the form of an outsourced IT function, for which AUK would arrange the allocation of appropriate staff. The Approved Subcontractors included companies which might supply temporary skilled staff, which suggests that AUK would exercise detailed managerial control in respect of the IT function, in terms of arranging for staff to carry it out and giving them instructions for doing so. It appears that it was unnecessary to make detailed separate provision in relation to the ASL employees who would provide the bulk of the staff necessary to enable AUK to supply the contracted for service to Barclays because it was already assumed by the parties to the MSA that AUK would, through its control of ASL, be ensuring that they were provided to carry out such work.

64. Schedule 1 to the MSA defined the services to be provided by AUK. These included the following:

"The Supplier shall on behalf of the Bank, manage the Managed Service Providers in accordance with schedule 11 (Third Party Contracts)."

The "Managed Service Providers" were defined in Schedule 31 to include ASL. Since clause 49.1 excluded a relationship of agency between Barclays and AUK, the words, "on behalf of the Bank", indicated that AUK was to manage the Managed Service Providers (including ASL) for the benefit of Barclays, rather than as an agent for it. This provision therefore supports the overall view that under the MSA AUK was to have managerial power (i.e. control and power of direction) in respect of Managed Service Providers and the persons they provided to carry out the outsourced IT function.

65. Schedule 2 to the MSA defined the service levels which AUK undertook to achieve in respect of the outsourced IT function. The payments AUK was to receive from Barclays depended upon the extent to which AUK met these stipulated levels of service. This again supports the conclusion that, under the MSA, the intention was that AUK should have effective control over the personnel (including ASL employees) who were in place to provide the promised services. That, indeed, was the essence of the transaction between AUK and Barclays: in return for payments, AUK would manage Barclays' IT function on an outsourced basis, so as to realise efficiencies and improved performance within that function for the benefit of Barclays. This picture is reinforced by provisions within Schedule 4 to the MSA (headed "Management Information") requiring AUK to produce management information to the same level of detail as had previously been produced by Barclays' own staff before they transferred to ASL. This implies that AUK was to have the authority to require those staff to produce such information. The picture is also reinforced by Schedule 22 to the MSA (which provided that the fees payable to AUK were to include an element - Fee E - comprising a "management charge … in respect of the Supplier's management of staff made available by the Bank to the Supplier for the purposes of providing" services under the MSA) and by Schedule 26 (which defined part of the benefits which Barclays was to receive under the MSA as "Savings achieved following the utilisation of staff made available to the Supplier by the Bank for the purposes of providing the Services").
66. Section 6 of Schedule 7 to the MSA (headed "Roles and Responsibilities") again provided or assumed that AUK was to have management power to take steps necessary to allow it to ensure that the services and data security it promised could be delivered. In particular, paragraph 6.1.2 provided:

"The Supplier shall clearly define appropriate roles and responsibilities of Supplier Personnel in order to comply with this schedule 7 (Security) and shall advise the Bank of the same in order that this may be recorded in the Supplier Security Specification. The boundaries of the roles and responsibilities shall be clearly defined."

These provisions indicated that it was for AUK to define appropriate roles and responsibilities of seconded ASL personnel in relation to security of data. Paragraph 6.2 stated that it was for AUK to apply appropriate controls to ensure that such personnel operated only within their job functions.

67. Section 7 of Schedule 15 to the MSA (headed "Key Personnel and Essential Supplier Personnel") included the following at paragraph 7.1:

"The Supplier will ensure that each of the Key Personnel devotes substantially their whole time to the performance of the Services."

The Key Personnel were set out in Annex F to Schedule 15. They included both AUK employees and a significant number of persons described as "Staff transferring from the Bank" (i.e. individuals who had become employees of ASL). This provision assumed that AUK was to have the ability to direct how those individuals would spend their time.

68. Section 3 of Schedule 15 to the MSA (headed "Proposals in relation to non-contractual & statutory terms and benefits") included provision at Annex C regarding training and development. This stated that "Accenture views training and professional development as a core platform of business success", and referred to the emphasis placed on appropriate career development for employees. The use of the general term, "Accenture", and the contents of this Annex are strongly indicative of AUK and Barclays adopting a view that, in substance, AUK and ASL were to be regarded as a single entity which had taken over staff formerly employed by Barclays in return for providing a service to Barclays. The training to be provided was to be integrated with the operation of the outsourced IT function and directed to meeting service provision requirements in respect of that function. This part of the MSA again assumed that AUK would have management control over ASL employees, including here the ability to direct staff to leave their usual tasks in order to undertake training.
69. Finally, section 1 of Schedule 30 to the MSA (headed "Property") included the following provisions at paragraph 1:

"1.1 The Supplier will initially supply the Services from [defined Bank Premises].

1.2 All employees of the Bank transferring to the Supplier [i.e. who were then also transferred to ASL] shall initially be employed at those Bank Premises. …"

The inclusion of such provisions again supports the overall picture that the parties contemplated that AUK should provide services to Barclays in the form of an outsourced IT function, rather than that ASL should provide staff on secondment to Barclays in any straightforward or simple way. Under a normal secondment arrangement, one would expect the recipient company to have discretion itself (possibly within certain broad geographical limits) as to where to deploy staff, rather than for that to be regulated by such precise contractual terms.

70. Next, I refer to the terms of the SA, in which ASL is referred to as "AS". AUK was not a party to the SA, although the SA was plainly intended to operate in conjunction with the MSA. This reinforces the impression that all three parties assumed that AUK would be able to exercise the powers of management over ASL employees provided for it under the MSA by indirect means of control over ASL, rather than requiring any further specific contractual rights in relation to how the seconded employees would be deployed and controlled. The SA was only entered into in the context of the arrangement under the MSA, and the MSA was clearly intended to be the primary contract. Accordingly, it was not intended that Barclays should have any rights under the SA which would undermine its agreement in the MSA to allow (and require) AUK to assume effective management control over the ASL employees providing the outsourced IT function.
71. Relevant parts of clause 3 of the SA (headed "Overview"), clause 5 (headed "Remedies and Liabilities") and clause 7 (headed "Responsibilities") were as follows:

"3.1 AS shall second to the Bank, or to any UK based member of the Bank's Group as requested by the Bank in writing, personnel for a minimum secondment period for each Employee of three months and a maximum secondment period of up to twenty-three months for each Employee. Subject to clause 3.2, secondment periods will start and end on a calendar month basis. When the Bank Staff Deployment Forum on behalf of the Bank requires personnel to be seconded, it shall submit a Secondment Request and AS shall use all reasonable endeavours to provide such Employees to the Bank in accordance with such Secondment Request. Six weeks prior to the commencement of such Employees' secondment (or if the Secondment Request is urgent, as soon as reasonably practicable) the Supplier shall notify the Bank of the Employment Costs relating to such Employees. If, for any reason, AS is unable to fulfil a Secondment Request it shall contact the Bank as soon as reasonably practicable and AS and the Bank shall use all reasonable endeavours to agree a revised Secondment Request. The secondments shall be solely in connection with the Project Services Outsource Programme and the Bank agrees that while the Employees are seconded it shall not require the Employees to work on any matter other than the Project Services Outsource Programme, unless otherwise agreed. In the event that the Bank requests that an Employee be seconded for a period of 23 months or more and AS consents, then the Bank hereby agrees to indemnify AS in respect of all taxation related to PAYE or National Insurance contributions and related interest and penalties and charges in respect of such Employee's secondment (except where such charges, penalties and interest arise as a result of the failure, omission or act of AS) from the beginning of such Employee's secondment to the Bank to the end of such Employee's secondment to the Bank. [The "Project Services Outsource Programme" was defined to mean "the application development and testing and application support services outsourcing" - i.e. the outsourced IT function described above]

3.2 The Bank may, at any time, through the Bank Staff Deployment Forum, terminate the secondment or refuse the prospective secondment of any Employee(s) without cause upon one month's written notice to AS.

3.3 During and for the purposes solely of their secondment to the Bank, the Employees shall report directly to the Bank and the Bank, using the Bank Staff Deployment Forum, shall be responsible for the direction, supervision, management and performance of the Employees. …

3.5 The Parties acknowledge that the Employees shall remain the employees of AS throughout the Secondment. …

(e) The Bank shall indemnify and hold harmless AS on written demand in respect of any claim which arises solely out of any act of discrimination on the grounds of sex, race, disability, sexual orientation and religion or belief by the Bank in the course of dealing with any Employee. …

(h) AS shall be responsible for the administration of all grievance, disciplinary, appraisal and other performance procedures relating to each Employee. …

5.1 The Bank hereby agrees that whilst performing duties for the Bank during the Secondment, the Employees shall be deemed to be the agents for the Bank and the Bank shall be liable to AS for any act, omission, error or judgment (whether or not negligent or otherwise actionable) which may be committed by the Employee whilst performing duties for the Bank. …

7.1 The Bank agrees that it will observe the terms under which the Employees are employed by AS, to the extent such terms are disclosed to the Bank by AS, as if it were the actual employer of the Employees and that it will use its reasonable endeavours to avoid doing or omitting to do anything which would cause AS to breach any of its obligations to the Employees.

7.2 If any major issue of a disciplinary nature or issue of gross misconduct arises in respect of an Employee during the Secondment, the Bank may request the removal of such Employee and then AS shall deal with such issue as it considers appropriate. …

7.4 The Employees shall be subject to performance monitoring implemented by the Bank which shall have an input to the appraisals/reviews processes of AS. Whilst AS agrees that the Bank's comments may have direct bearings on rewards and promotion prospects of Employees, AS shall at all times retain the ultimate decision with respect to such performance monitoring.

7.5 The Bank shall supply Employees with, or (where applicable) procure that the Employees are supplied with, the necessary office space, desks, storage, furniture, and other normal office equipment support, adequate computer resources (including necessary third party rights to use software), telephone and facsimile service, postage and copying and general office supplies and, where appropriate [sic], which are required to enable the Employees' performance of the Secondment. The Bank will ensure that all computing and ancillary facilities provided to Employees for use in connection with the Secondment and the working environment at the Bank's premises will comply with all applicable health and safety regulations.

7.6 AS may from time to time require that Employees be absent from the Secondment to undertake training, or to take holidays properly taken pursuant to the Employees' contracts of employment. AS will consult with the Bank to minimise or avoid, where possible, disruption to the Bank due to such absences."

72. By clause 3.5 it was made clear that ASL remained the employer of the staff supplied by it: it would be liable to any member of such staff for any act of management amounting to a breach of their employment contract, including acts giving rise to constructive dismissal. As between Barclays and ASL, Barclays assumed full responsibility under clause 3.5(e) only for a narrow class of such cases and assumed further responsibility under clause 7.1 for acts of its own (if it happened to do any) leading to liability of ASL, but subject to a reasonable endeavours qualification. These aspects of the SA imply that the parties assumed that ASL (including by virtue of the effective power of managerial control to be exercised by AUK under the MSA) would have a significant degree of managerial power in relation to the seconded employees, since ASL retained a significant degree of legal liability to the transferred employees in relation to acts of management (this feature of the SA has to be weighed against clause 3.3, which I consider below). Moreover, by virtue of clause 3.5(h) ASL retained a significant degree of managerial control over the seconded employees, beyond what one would expect under a simple secondment arrangement. For example, the fact that powers of discipline were expressly reserved to ASL in the SA implies that Barclays was required to accept the judgment of ASL on any disciplinary matter, and subject to ending the secondment of an ASL employee altogether by giving a month's notice under clause 3.2 and its rights under clause 3.3, would have to accept back onto its premises and working on its IT function any ASL employee accused (including by Barclays) of misconduct but acquitted through ASL's disciplinary procedures (or where those procedures resulted in imposition of a minor punishment, short of removal from the project). This impression is reinforced by the terms of clause 7.2, which reserved to ASL the power to decide what should happen when an ASL employee was accused of major or gross misconduct. Further, the fact that by clause 3.5(h) of the SA Barclays granted ASL the power to operate grievance procedures in respect of seconded staff indicates that ASL could, through the operation of such procedures, require withdrawal of management instructions or redeployment of staff (since these are typical measures to which the operation of an employment grievance procedure could give rise). That clause combined with clause 7.4 granted to ASL the principal power to appraise the performance of seconded ASL employees and take decisions arising in relation thereto (which would appear to include decisions as to promotion or demotion and assessment of suitability for particular tasks, and assignment to such tasks).
73. Under clause 3.1, the scope of the secondment of ASL employees was limited to the provision of services in connection with the outsourced IT function. Unlike under a simple secondment arrangement, Barclays did not have any right to assign them to other tasks within their competence. Once an ASL employee was seconded to work on that function, clause 3.2 provided Barclays with a right which was attenuated in nature (since it was exercisable only through the Bank Staff Deployment Forum – "the Forum" - and only upon giving one month's notice) to bring that individual's secondment to an end. This was not a power of direction regarding what the employee should do while seconded, and even from a wider perspective did not constitute a particularly immediate or extensive power of control in relation to such employee.
74. Clause 3.3 stated that seconded ASL employees should report directly to Barclays. This did not preclude them from reporting also to ASL and AUK, and since under the MSA AUK had responsibility for providing Barclays with management information about the outsourced IT function and since in practice the managerial chain of command to whom individuals would report would comprise other ASL employees (acting as persons seconded to Barclays) and, ultimately, AUK employees responsible for managing the outsourced IT function, this aspect of clause 3.3 does not have great significance in the overall scheme of the arrangement.
75. The latter part of clause 3.3 provided that Barclays "shall be responsible for the direction, supervision, management and performance of the [ASL] Employees". In so far as this conferred upon Barclays rights of management in respect of seconded ASL employees, it did so in terms attenuated by the requirement that such rights were to be exercised "using the [Forum]" and as implicitly limited by the other, specific terms of the SA as reviewed above.
76. Schedule 6 to the SA made provision in respect of the Forum as follows:

"1. Structure

The parties agree that there shall be established during the term of this Agreement a Bank Staff Deployment Forum. As a minimum there will be a named representative from each of the Bank and AS at the Bank Staff Deployment Forum.

2. Terms of Reference

In relation to this Agreement the Bank Staff Deployment Forum shall decide on the following:

(a) agree which aspect of services the Employees shall work on and the duration of the secondment of such staff; and

(b) agree a change or variation in the scope of such secondment (other than a change which would amount to a variation of the Agreement).

3. Meetings

3.1 The Bank Staff Deployment Forum shall hold regular meetings at least once each calendar month, or more frequently as the members may agree, to discuss any variations or changes to the scope of the deployment of the Employees subject to the terms of reference set out in paragraph 2 above.

3.2 A meeting shall only be quorate if at least one representative of each of the Bank and AS is present. …

5. Decisions

5.1 The Bank Staff Deployment Forum shall attempt to reach unanimous decisions, but the Bank shall have the deciding vote on secondment of the Employees.

5.2 In the absence of unanimity the Supplier shall not be required to agree to the allocation of existing secondees to different projects, or to different roles on existing projects, than those they were originally assigned to (but this shall not prevent the Bank from terminating the secondment of any Employees).

5.3 It is acknowledged that the Supplier may make recommendations to the Bank, but the ultimate approval for the secondment of Employees shall at all times remain with the Bank."

The term, "the Supplier", was not defined in the SA, but since ASL was defined as "AS" it appears to be a term which refers to AUK, which was defined as "the Supplier" in the MSA, to which the SA cross-referred (e.g. at clause 14.2). Section 5 of Schedule 6 to the SA therefore assumed a close linkage between ASL and AUK in dealing with Barclays in relation to the secondment arrangement, and in respect of the power of direction and control in respect of what seconded ASL employees should do in relation to the outsourced IT function.

77. An issue arose between the parties as to the extent to which the terms of reference of the Forum in paragraph 2 of Schedule 6 were effective to cover the full range of management powers covered by clause 3.3. Mr Hitchmough submitted that the operation of the Forum was limited by the terms of paragraph 2; those terms did not include use of general, day-to-day management powers in respect of ASL employees (but only extended to questions of secondment and broad allocation to particular tasks under the secondment); and the requirement in clause 3.3 that Barclays should use the Forum when directing, supervising, managing and reviewing the performance of such employees should be read as implicitly qualified by the words, "where appropriate". This submission was intended to suggest that there was a substantial area of management control reserved to Barclays alone, and not attenuated by having to be filtered through the mechanism of the Forum.
78. I do not accept this submission. Clause 3.1, 3.2 and 3.3 all refer to the Forum in the main part of the SA, indicating in clear terms what role the Forum was to play. The more natural reading of the SA is to construe Schedule 6 in the light of those provisions, rather than the other way round. It is possible to do so, by giving a wide rather than narrow interpretation to the words in paragraph 2(a) of Schedule 6 requiring agreement on "which aspect of services the Employees shall work on", so as to include all matters relating to what tasks ASL employees might be required to carry out, including supervision of them and assessment of their performance in relation to such tasks. Schedule 6 limits Barclays' management rights under clause 3.3 by requiring it to seek unanimity within the Forum (on which both Barclays and ASL have representation) in relation to all matters (including whether an employee should continue on secondment or not), and by providing for Barclays to have an ultimate power of decision only in relation to agreeing to a secondment or its termination, not in relation to other matters regarding control of an employee's activities whilst on secondment (contrast paragraphs 5.1 and 5.3 with paragraph 5.2 of Schedule 6).
79. Schedule 6 does not seem to contemplate that the Forum should sit in permanent session, so it does not appear to be intended to be an instrument of immediate, day-to-day management of seconded ASL employees. But it is not altogether clear what the significance of this might be. Two points should be made. First, on the proper interpretation of clause 3.3 and Schedule 6 the Forum is intended to operate as an overarching filter and limitation of control in relation to decisions to be taken by Barclays. If any serious difference arose as to what instructions should be given by Barclays to an employee, that could be referred to and it seems should be resolved by the Forum according to the procedure set out in Schedule 6. Secondly, since in clause 3.3 the responsibility of Barclays for the direction etc of ASL employees is conditioned by the requirement that Barclays use the Forum, it seems to me that the more natural inference is that the parties intended Barclays to have such responsibility only at the level at which it made sense and was appropriate to use the Forum, rather than in relation to the immediate, day-to-day management of those employees at a level where it would not be appropriate to use the Forum. That interpretation also accords better with the general scheme of the SA in other respects, where aspects of ordinary management control of ASL employees are reserved to ASL: see para. [72] above and para. [82] below.
80. In addition, the significance of the latter part of clause 3.3 of the SA has to be assessed in light of the overall arrangement between AUK, ASL and Barclays, which was intended to confer primary rights of management upon AUK. To the extent that AUK sought to exercise its powers of management under the MSA through its control of ASL, Barclays could not rely on clause 3.3 of the SA to prevent AUK and ASL from exercising effective management control over the seconded ASL employees. Clause 49.1 of the MSA prevents an analysis according to which AUK might act as agent for Barclays in respect of clause 3.3 of the SA. Accordingly, the practical effect of clause 3.3 appears to me to be very limited. This feature of the overall arrangement also supports the interpretation of clause 3.3 referred to in para. [79] above.
81. Clause 7.5 of the SA does not correspond to any sort of provision which one would expect to find in a simple secondment arrangement. Under such an arrangement, it would be a matter for the recipient company to organise provision of working facilities for seconded employees without that being made a subject for any obligation owed to the supplying company. The obligation contained in clause 7.5 is necessary to ensure that seconded ASL employees are enabled to carry out the services required to be provided by AUK under the MSA. It therefore reinforces the impression that the SA is linked to the MSA, and is an aspect of the provision of an outsourced IT function managed by AUK.
82. Clause 7.6 is also a provision which reinforces that impression. It marries up with the provisions in Section 3 of Schedule 15 to the MSA reviewed at para. [68] above, regarding the training which "Accenture" (AUK and ASL) would provide for the transferred employees. It is also a significant indicator in itself that, even under the terms of the SA, it was intended that ASL should retain substantial management control in relation to such employees: being able to instruct an employee when to take holiday and when to attend a training course is an important power of direction.
83. Clause 5.1 of the SA is a provision which places part of the risk associated with actions by seconded ASL employees on Barclays, as opposed to ASL. This could be taken to support an argument that the parties intended Barclays to enjoy a fuller degree of control over such employees than is indicated by other aspects of the SA and MSA reviewed above. However, this feature of the SA again needs to be assessed both in the context of the general scheme of the SA (according to which important management rights are reserved to ASL) and in the context of the overall arrangement between AUK, ASL and Barclays. Under that arrangement, by virtue of the MSA, AUK had assumed responsibility for the management of such employees. Accordingly, if through managerial misdirection they took action which resulted in Barclays being treated as liable for the conduct of such employees by virtue of clause 5.1 of the SA, Barclays would in turn have recourse against AUK. This greatly diminishes the significance to be attached to clause 5.1 of the SA as an indicator of where the three parties intended management control of ASL employees to be located.
84. The linkage between the service to be provided by AUK and the operation of the SA was further underlined by clause 10.1 of the SA, which provided for the SA to be brought to an end at the end of the provision of the outsourced IT function by AUK under the MSA.
85. Schedule 4 to the SA set out the terms of a letter to be sent on behalf of ASL (but by an AUK employee and, it would appear, on AUK stationery) to new employees of ASL who had transferred from Barclays. The letter referred to AUK's outsourcing agreement with Barclays as "our" agreement. It continued:

"Upon your transfer to Accenture, you will be assigned to Barclays Bank PLC as part of the Accenture team delivering the Project Services Outsource Programme. Your work location will continue to be the Barclays office located at [site location]. Whilst working on this outsourcing engagement you will be required to adhere to local site policies such as hours of work and health and safety. These policies will be detailed in the 'Day One Pack' which you will receive on your first day with Accenture.

I look forward to working with you and I am extremely enthusiastic about our work ahead and the contribution that we can make together towards the future success of both Barclays and Accenture.

On behalf of myself and the rest of the management team, may I say that we are very much looking forward to working with you."

86. The form of this letter is significant, because it ran together AUK and ASL as "Accenture" and further reinforces the impression that ASL staff were to be supplied to Barclays to be managed by "Accenture" (AUK, acting as necessary through ASL) as part of the outsourced IT function to be provided by "Accenture". The 'Day One Pack' referred to, extensive extracts from which were set out at paragraph 65 of the First Decision Letter, represented an attempt to inculcate the transferred employees into the new "Accenture" culture which was intended to be part of the method by which AUK could provide efficiency savings for Barclays (i.e. a culture distinct from the previous arrangements under which they had worked for Barclays) and reflected the provisions of the MSA (in relation to such matters as data security) and the SA (in relation to such matters as moving staff "onto the Accenture grievance and disciplinary procedures" and "onto the Accenture Career Development and Career Management Framework", including decisions on promotion, and "Accenture" making decisions regarding staff holiday requests). The 'Day One Pack' did not give any impression that the transferred staff were to be managed by Barclays; on the contrary, the strong impression it gave was that they were to be managed by "Accenture". So, for example, in relation to sickness, staff were told: "You will need to complete a Statement of Absence form on your return to work, which should then send this form to Accenture [Human Resources] Services". This impression was reinforced by the fact that the covering letter was to be signed by an employee of AUK, who described himself as part of the "management team", and was to be sent apparently on behalf of AUK as well as ASL.
87. Finally, I turn to review the Employment Contract. This was the form of contract entered into by ASL and the former Barclays staff who transferred to ASL. AUK was not a party to the Employment Contract, although it was clearly dependent on ASL exercising its powers under that contract to direct the transferred staff to work on delivering the outsourced IT function to Barclays. Since there was no contract between AUK and ASL whereby AUK could compel ASL to direct the transferred staff so to work, this feature of the case reinforces the impression that AUK was confident it could produce the necessary allocation of staff through reliance on its own powers of control over ASL as its wholly owned subsidiary.
88. Clause 1 of the Employment Contract (headed "Duties") and clause 5.1 and 5.2 (under the heading "Normal Place of Work") stipulated:

" 1. You will provide your services to the Company [i.e. ASL] and to any Associated Company [i.e. including AUK] as directed by the Company in the capacity of [appropriate details] or in such other capacity and undertaking such duties as the Company may reasonably require from time to time. …

5.1 Your normal place of work is as indicated on the front page of this document. You are required to attend the office(s) of the Company or any Associated Company as and when requested by the Company or when necessary. The Company reserves the right to transfer you to another location on giving reasonable notice of any such change.

5.2 In the course of certain project assignments, you hereby agree to perform duties at other premises of the Company or Associated Companies or at the premises of clients of the Company or Associated Companies when so reasonably requested or directed. …"

89. Clause 23.2 provided that if the employee was a "new joiner", the contract should be read in conjunction with their offer letter, which would contain some additional terms applying to them. At the hearing, this was taken to be a reference to the letter set out in Schedule 4 to the SA and its enclosure.
90. According to these provisions of the Employment Contract, an ASL employee seconded to work in the outsourced IT function agreed only to work for ASL or, if so directed, for AUK. They did not agree to subject themselves to managerial control by clients of AUK, such as Barclays. In my view, therefore, the terms of the Employment Contract strongly support the overall impression that seconded ASL employees worked under the control of ASL and AUK (which was dependent on the exercise of powers of direction by ASL), and not under the control of Barclays.
91. Part of the witness evidence relied upon by Mr Sinfield before me (but not available to HMRC at the time it made its decision) was the witness statement of Mr Murison of Barclays. In that witness statement he suggested that seconded ASL employees would be supervised by team leaders from amongst the group of such employees, but acting "in accordance with Barclays' needs or wishes", and that control exercised by AUK would be exercised under authority which "would flow (by delegation) from Barclays". In light of the terms of the MSA, I suggested to Mr Sinfield that it would appear more accurate to say that management of the seconded ASL employees would be in accordance with AUK's needs or wishes and that AUK exercised its own authority, rather than any delegated authority emanating from Barclays. Mr Sinfield accepted that this was correct. In my judgment, it is clear that this was the true position.

(v) Conclusions

92. Having regard to the terms of the MSA, SA and Employment Contract as reviewed above, I reach the following conclusions.
93. First, Condition (a) was not satisfied, because ASL did not act as an "employment business" as defined in s. 13(3) of the 1973 Act. ASL supplied its employees to Barclays, but they did not come under "the [predominant] control" of persons other than ASL. Barclays clearly did not itself acquire predominant control over them. The position in relation to AUK is less clear, since in broad terms AUK was to manage the outsourced IT function. However, as explained above, the mechanism by which that occurred was indirect, by AUK being able to exercise control over the seconded ASL employees through ASL's powers of control over them (relying on AUK's ability to exercise control over ASL). In my judgment, the correct view of this arrangement is not that AUK is to be regarded as a different controller of the employees than ASL itself, but that AUK's practical control of the employees is for the purposes of s. 13(3) to be regarded as control by ASL. On this approach, ASL retained predominant control over its employees.
94. In reaching that conclusion, I recognise that there might well be scope for a good deal of argument about the proper interpretation and effect of the individual provisions I have reviewed above in a contract action between Barclays and AUK, or between Barclays and ASL, or between ASL and its employees. The three agreements in issue here are elaborate and complex. They are not completely perspicuous in their effect even taken alone; still less when taken together, since the way in which they were intended to operate as a package was not fully and clearly spelled out (despite their length). However, reading them as a whole I consider that the overall picture is clear. Since this is the court's own assessment of the situation, it follows that the complaint that HMRC reached an irrational conclusion that Condition (a) was not satisfied falls to be dismissed. More clearly still must this complaint be dismissed when one applies the approach identified in paras. [34]-[37] above. I consider that HMRC were well entitled to conclude that ASL could not satisfy Condition (a).
95. Secondly, in my view ASL also failed to satisfy Condition (b). I reach this conclusion with still more confidence than my conclusion in relation to Condition (a). It is clear that the seconded ASL employees did not "come under the [predominant] direction" of Barclays. In relation to the outsourced IT function they were predominantly under the direction of AUK and ASL.
96. Again, since this is the court's own assessment of the situation, it follows that the complaint that HMRC reached an irrational conclusion that Condition (b) was not satisfied falls to be dismissed. More clearly still must this complaint be dismissed when one applies the approach identified in paras. [34]-[37] above. As with Condition (a), I consider that HMRC were well entitled to conclude that ASL could not satisfy Condition (b).
97. On the basis that neither Condition (a) nor Condition (b) was satisfied, ASL's supply of staff to Barclays did not fall within the terms of the Concession, and HMRC were entitled to require ASL to account for VAT in respect of that supply.
98. For these reasons, the claim for judicial review in relation to the First Decision Letter is dismissed.