An IT project manager contracting for Nationwide has lost an IR35 tribunal for the second time in just over a year.
Robert Lee received a £70,000 tax bill from HMRC in relation to services he provided for Nationwide Building Society between 2012 and 2015 through his limited company, Northern Lights Solutions Limited.
The taxman claimed Lee’s contract with the high street bank fell inside IR35, meaning he was liable to pay National Insurance Contributions (NICs) and Income Tax on earnings from the assignment.
Lee’s defence was centred on the fact that he had the right to provide a substitute, which can be key in determining whether a contract falls inside or outside IR35.
He initially challenged HMRC over the bill at the First-tier Tribunal in February 2020, which was rejected. Another appeal was lodged and heard by the Upper Tribunal over two days last month (May 2021).
However, the judge dismissed this on the grounds that Nationwide had a high level of control over how Lee worked. The case notes also show the judge disputed his argument that he had a genuine right to substitute as “they would not have a laptop, nor knowledge of the work” needed to be carried out.
Matt Fryer, employment lawyer at IR35 expert Brookson Legal, said the case highlights the “complexity and subjectivity” of IR35.
“One of the key turning points associated with this case is the apparent lack of an enforceable right for the contractor to provide a substitute,” Fryer explained.
“Whilst the contract included a valid right to provide a substitute, insufficient evidence was presented to convince the tribunal that this was enforceable.”
He added: “There is a misconception that a contract containing an unfettered right to provide a substitute ensures the contract is outside of IR35, even HMRC’s CEST tool alludes to this. In reality, it is important for the contract to be backed up by evidence from the working practices.”
Responding to the verdict, Seb Maley, CEO at Qdos, said: “This case was won and lost on fine margins, with many of the contractor’s terms pointing towards a genuinely self-employed relationship. So this is a surprise victory for HMRC who, let’s not forget, have a poor track record in tax tribunals.
“While a victory for HMRC may unsettle contractors and businesses, it’s important to make clear that this case will not set a precedent – given it could have gone either way.
“For businesses, who are now tasked with assessing IR35 status, the result also highlights the need for collaboration with the contractor when making these decisions. HMRC will always approach both parties – as they did in this case – which is why everyone must be completely aligned in their thinking.”