Weight Watchers Dramatic Loss of Pounds

Weight Watchers (UK) Ltd (WW) are facing a tax bill of £23M after losing its appeal against HMRC’s re-classification of Leaders as employees during the period April 2001 – April 2007, at the First Tier Tax Tribunal.

WW Leaders run the weekly meetings that take place in Britain which can reach as many as 6,000 in any one week. Those meetings involve thousands of individual members.

All Leaders were engaged on a self-employed basis and were given WW ‘Self-employment and income tax booklet’. This highlighted the position of the self-employed with regard to income tax and NICs and that Leaders did not receive any company benefits. It also stated, however, that all workers were entitled to receive holiday pay and there was evidence that this was actually paid!

As well as taking meetings, Leaders acted on behalf of WW in a variety of capacities, such as reaching agreements with a landlord for the hire of venues and promoting and selling WW goods at meetings.

One of the documents produced as evidence was ‘Conditions relating to WW Leaders’ which contained an unusual clause requiring a Leader to maintain her appropriate weight. The Tribunal viewed this as a significant limit on personal life and an obligation that went beyond aspiration. This document also purported to give a Leader discretion over the time, date and place of a meeting but contradicted itself. “Absolute” discretion was supposedly afforded the Leader as to how any particular class was conducted. This width of discretion was, however, rejected by the Tribunal as Leaders have a Programme to follow and deliver.

Whilst there existed a substitution clause in the contractual terms, the reality was that if a replacement Leader was used for any meeting the contract was then between WW and the substitute Leader who would receive payment from the proceeds collected from each member and would not be paid by the traditional Leader. Any right of substitution was therefore not genuine.

There was no dispute that mutuality existed between WW and Leaders, although there was a dispute about the extent of that mutuality.

The Tribunal decided that WW had a considerable degree of control over every Leader to ensure that she delivered the WW Programme and only that Programme at every meeting. Furthermore, Leaders were prevented from delivering any other weight management service at the same time. This degree of control, together with the requirement of personal service were enough for the Tribunal to find for HMRC.

It is expected that, with such a considerable amount of tax at stake, WW will appeal this decision