The case relates to Lee’s personal services company Northern Light Solutions  UKUT 134 (TCC). In February last year Lee went to the first tier tribunal to challenge HMRC’s opinion that his contract with Nationwide Building Society belonged inside IR35.
This initial appeal was rejected, leading Lee to attempt at overturning it again, this time at the UTT. However, the judges largely agreed with the conclusions drawn in the FTT, which took the view that the contract didn’t include a genuine right of substitution, that mutuality of obligation (MOO) existed and Nationwide held substantial control over the working relationship.
This means the engagement effectively ticked all the boxes for an inside IR35 contract. But was it so cut and dried? And what can accountants take away from a tribunal win for HMRC?
Contract must reflect working practices
A major issue for Lee was that his contract included substitution, which suggests on the face of it that he didn’t provide a personal service, like employees do. But while many contractors have won IR35 cases in the past due to their right to sub in another contractor when required, substitution actually contributed to Lee’s defeat.
This substitution clause hadn’t been exercised. Notes from a meeting between HMRC, Nationwide and the agency that had placed the contractor also showed that neither the client nor the recruiter believed that substitution was realistic - due to the security checks needed and the understanding of what was required to deliver the services.
Register for free to continue reading
It’s 100% free and provides unlimited access to the latest accounting news, advice and insight every day. As well as access to this exclusive article, you can: