IT contractor loses £70,000 IR35 appeal

An IT contractor who received an IR35-related £70,000 tax bill from HM Revenue & Customs (HMRC) has had his second appeal dismissed by a tribunal judge for a second time.

Project manager Robert Lee received a £70,000 tax demand in relation to a number of 'outside IR35' contracts he completed for Nationwide Building Society between 2012 and 2015, delivered through his limited company Northern Light Solutions.

HMRC argued that the manner in which Mr Lee operated for Nationwide meant his engagements should have been classified as 'inside IR35', and deemed he therefore should have been taxed as a 'disguised employee'.

Mr Lee unsuccessfully challenged HMRC on the matter through a First-Tier Tribunal in February 2020 and subsequently launched a second appeal at the Upper Tribunal hearing in May 2021, which has also failed.

The court notes suggest that the contract was neither clearly inside nor outside IR35, but that the contractor failed 'key IR35 status tests' - control; substitution and mutuality of obligation.

Status tests

The Tribunal agreed with HMRC on various points, including the high level of control which Nationwide exercised, including the hours and the place where Mr Lee worked.

They found against Mr Lee on the grounds that they disputed the claim that the contractors had a genuine right of substitution. Even though the contract contained a right of substitution, this was never exercised and it was felt that it would not have happened in reality.

The Upper Tribunal agreed with the First Tier Tribunal's view that mutuality of obligation existed in the working relationship for the duration of the contracts, but recognised that there was no obligation for Nationwide to provide work beyond the length of each contract. Nevertheless, the Tribunal felt that this was consistent with that of employment.

The Tribunal judge described Mr Lee as being 'part and parcel' of Nationwide's organisation and that the arrangement was one of 'employment' for tax purposes.

It is not known yet if Mr Lee will escalate the case further through the Court of Appeal.