IR35 costs project manager £74,528
Robert Lee’s work for the Nationwide Building Society was found to fall within IR35, which led to a tax and NIC bill of £74,528, before the addition of interest and penalties.
Robert Lee was a project manager who worked through his personal services company: Northern Lights Solutions Ltd. He has lost his IR35 appeal [TC07594], with the FTT finding that factors such as control and lack of financial risk pointed to the relationship between Lee and his customer being a contract of employment.
Series of contracts
Except for a contract with the Lloyds Banking Group between November 2012 and April 2013, Northern Lights provided Lee’s project management services solely to the Nationwide Building Society during the periods under appeal.
Northern Lights entered into seven contracts with Nationwide via agencies between 1 February 2012 and 19 December 2014.
Nature of role
Lee was contracted to work on specific projects, typically of a regulatory nature. He would draw up a detailed plan of activity, determine the project’s cost, and would manage the plan until its delivery. The plan would be subject to review by the Nationwide project board and could be amended for factors such as cost, scope or timing.
Nationwide could not move Lee to another project other than the one described in his current contract (this was not the case with Nationwide employees).
Lee was paid a day rate and was required to work a professional week. In practice, Lee would work longer during most of the week to enable him to finish early on a Friday. He was required to work at Nationwide’s Swindon offices, and could be required to work in other Nationwide offices, with his travel expenses reimbursed.
As part of the contracts, Lee was given a furlough period over Christmas during which he could not provide services for Nationwide, and if he did, he would not be paid. Further, as a contractor, Lee was not entitled to any holiday, sickness, pensions or other benefits in kind.
Although there was a requirement for contractors to provide their own equipment, in reality, and for security purposes, Lee was provided with a laptop by Nationwide.
The contracts permitted Lee to provide a substitute for his services, and Nationwide could not unreasonably withhold consent for him to do so.
Following an investigation into the tax returns submitted by Northern Lights, HMRC issued regulation 80 determinations and section 8 notices for income tax and NIC amounting to £40,328 of income tax and £34,195 of NIC across the three years: 2012/13 to 2014/15.
The FTT heard the appeals for all three years together. It found that, on balance, the relationship in respect of all contracts between Lee and Nationwide was one of employment.
Several determining factors were at play.
The FTT found that there was MOO between the parties, but only within each contract. There was no obligation on either party to extend or renew a contract after one had finished.
Right of substitution
The FTT found that there was no substantive prospect of Lee asking for Nationwide, acting reasonably, agreeing to a substitute. HMRC argued, and the FTT agreed, that there were practical limits to the substitution. This was because it would have been difficult for Lee to offer a substitute with the relevant experience, security clearance and familiarity with the project that Nationwide would accept.
In terms of control, while Lee had a considerable degree of operational and personal autonomy, he was subject to overarching controls derived from Nationwide’s policies and the heavily regulated nature of its business.
The FTT found that, aside from the risk of not being engaged on a new contract with Nationwide (which happened rarely), Lee was not subject to any financial risk beyond that of an employee and in many respects, was part and parcel of Nationwide’s operations.
Accordingly, the appeal was dismissed.
A number of IR35 cases have now passed through the tribunals, as highlighted in our IR35 casebook. This case is one of the few to date where HMRC has been successful.
Although there were a few factors pointing to employment in this case, the FTT determined that the highly regulated industry in which Nationwide operates meant that Lee was subject to overarching control, which was indicative of an employment relationship.