[UK] IT contractor loses second appeal against £70k tax bill at IR35 tribunal

An IT contractor who received an IR35-related £70,000 tax bill from HMRC has had his second appeal dismissed by a tribunal judge, Computer Weekly reports.

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

HMRC contends that the way Mr Lee worked with Nationwide meant his engagements should have been classified as inside IR35, making him liable to pay the same National Insurance Contributions and PAYE as a permanent employee.

Mr Lee reportedly challenged HMRC through a First-Tier Tribunal in February 2020, but his appeal was dismissed. In July 2020 he was granted permission to lodge another appeal, which paved the way for a two-day Upper Tribunal hearing in May 2021.

The outcome of that hearing has now been made public. The Upper Tribunal judge confirmed that the second attempt at an appeal by Mr Lee has also been dismissed on grounds that include the high levels of control that Nationwide had over the way Mr Lee worked during his engagement.

An additional reason for the appeal’s dismissal was that the tribunal disputed the claim that Mr Lee had a genuine right of substitution; which is considered a key determinant of whether a contract is outside IR35 or not.

In an outside IR35 context, contractors should be able to demonstrate that their end-client is not solely reliant on them to deliver the services they have been contracted to provide and that a substitute with the same skills and experience could be appointed and take over if needed.

Evidence shared in the tribunal notes suggests it would not have been viable for Mr Lee to “send someone else to do the work” because they would not “get through security, they would not have a laptop nor knowledge of the work. The reality was that it was not going to happen.”

Dave Chaplin - CEO of contracting authority Contractor Calculator - described the outcome of the tribunal as “somewhat unfair”, and said the decision appears to come down to a lack of understanding by the tribunal judges about the reality of working on an IT project.

“Lee’s contract did include a legitimate unfettered right of substitution, but it was never exercised, and the client never gave witness evidence to back it up as a genuine right,” Mr Chaplin said.

“The judges chose to disregard those substitution clauses. Substitution is no silver bullet to definitively proving a worker is not employed unless it has taken place.

“While I have some misgivings about some of the conclusions drawn, the law appears to be correctly applied,” he continued.

“However, many businesses are one-man bands and deliver their services personally. But that alone does not mean they are all employees.”

Source: Computer Weekly

(Quote via original reporting)

An IT contractor who received an IR35-related £70,000 tax bill from HMRC has had his second appeal dismissed by a tribunal judge, Computer Weekly reports.

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

HMRC contends that the way Mr Lee worked with Nationwide meant his engagements should have been classified as inside IR35, making him liable to pay the same National Insurance Contributions and PAYE as a permanent employee.

Mr Lee reportedly challenged HMRC through a First-Tier Tribunal in February 2020, but his appeal was dismissed. In July 2020 he was granted permission to lodge another appeal, which paved the way for a two-day Upper Tribunal hearing in May 2021.

The outcome of that hearing has now been made public. The Upper Tribunal judge confirmed that the second attempt at an appeal by Mr Lee has also been dismissed on grounds that include the high levels of control that Nationwide had over the way Mr Lee worked during his engagement.

An additional reason for the appeal’s dismissal was that the tribunal disputed the claim that Mr Lee had a genuine right of substitution; which is considered a key determinant of whether a contract is outside IR35 or not.

In an outside IR35 context, contractors should be able to demonstrate that their end-client is not solely reliant on them to deliver the services they have been contracted to provide and that a substitute with the same skills and experience could be appointed and take over if needed.

Evidence shared in the tribunal notes suggests it would not have been viable for Mr Lee to “send someone else to do the work” because they would not “get through security, they would not have a laptop nor knowledge of the work. The reality was that it was not going to happen.”

Dave Chaplin - CEO of contracting authority Contractor Calculator - described the outcome of the tribunal as “somewhat unfair”, and said the decision appears to come down to a lack of understanding by the tribunal judges about the reality of working on an IT project.

“Lee’s contract did include a legitimate unfettered right of substitution, but it was never exercised, and the client never gave witness evidence to back it up as a genuine right,” Mr Chaplin said.

“The judges chose to disregard those substitution clauses. Substitution is no silver bullet to definitively proving a worker is not employed unless it has taken place.

“While I have some misgivings about some of the conclusions drawn, the law appears to be correctly applied,” he continued.

“However, many businesses are one-man bands and deliver their services personally. But that alone does not mean they are all employees.”

Source: Computer Weekly

(Quote via original reporting)