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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.

1st May 2020
Tax Writer
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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.

Tax enquiry

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.

Financial risk

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.

Replies (5)

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By dgilmour51
04th May 2020 12:25

I suppose one can assume, therefore, that Corporation Tax and employers NI Northern Lights was illegally taken and that interest will be settled before it is credited back, presumably at NPV.

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Replying to dgilmour51:
By cfield
04th May 2020 15:35

Too late! The 4 years is up. Always worth waiting 4 years before clobbering someone with IR35. I hope he emptied the company of money before the enquiry started and kept retained profits low. Make them go whistle.

Sounds like Robert Lee got a raw deal. They've obviously moved the goalposts on substitution. I always thought the contract was sacrosanct on this. So long as it is unfettered and capable of being exercised, it matters not if it has not been, or will not be, exercised. That's what I always thought and I've been dealing with IR35 for 20 years. I suppose they're arguing that the clause is incapable of being exercised, but difficult is not the same as impossible.

As for control, where on earth are they going to draw the line on this? Every self employed person is controlled by the client to some extent. You can tell a plumber to use copper pipes not plastic, to use moisture resistant plasterboard for your bathroom walls if you see him putting up cheap stuff or backerboard for the floor if he was going to lay plywood. Does that make him your employee? Let's hope not!

I always thought control excluded things that were required by law or company policy such as IT security. This guff about a "highly regulated business" sounds like a convenient excuse to me. All financial services are highly regulated now.

The FTT is becoming more and more capricious. It really does depend now on who hears the case. A bit more consistency would be very welcome. Unfortunately, it seems the FTT is becoming influenced by the views of politicians who really seem to have it in for contractors now.

Thanks (1)
By SteveHa
04th May 2020 13:49

I haven't read the case notes, but based on the above there are a couple of things that strike me as wrong, and which could be over-turned on appeal:

On the right of substitution, this was disregarded because "it would be difficult". I'm not so sure that ease or lack of is valid argument against something being possible.

And on control, "heavy regulation" would also appear to be a red herring. Gas fitters are also regulated, as are financial advisors, but no-one seems to be arguing that the regulation makes them employees.

I hope that he takes this to appeal.

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Replying to SteveHa:
Red Leader
By Red Leader
04th May 2020 15:21

Good points.

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By IrwinSchiff
20th May 2020 16:45

Absolutely absurd judgment, he should definitely appeal. For one thing, the statement 'Lee was not subject to any financial risk beyond that of an employee ' is completely untrue. He does not have the same job security as an employee, does not benefit from any pension contributions as an employee does and he does not get holiday, sick pay or pay for jury duty. His company can also held liable for negligence.

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