'Unfortunate' Robert Lee loses IR35 case, owing £70,000 to HMRC

An IT contractor who project-managed at Nationwide for seven years has lost his second bid to beat IR35, cueing up HMRC to relieve him off £70,000 in employment taxes.

Robert Lee, whose Northern Lights Solutions Ltd was on-contract with the building society from 2007 until 2014, was last night said by a status advisory boss to be “unfortunate.”

Seb Maley of Qdos described Mr Lee as such after the advisory said in a statement following the Upper Tribunal ruling that his loss – and HMRC’s win -- was decided on “fine margins.”

'Could have gone either way'

Elaborating to ContractorUK on his meaning, Mr Maley said that on the face of some of the facts, the UT judges Timothy Herrington and Guy Brannan “could have gone either way.”

Mr Lee’s hypothetical contract had a substitution clause for example, and he could not be moved by Nationwide to work on other projects, indicating a lack of MoO (it was argued).

The PM was ‘unfortunate’ procedurally, too, given that his legal adviser simply “abandoned” appealing that Mr Lee was not ‘part and parcel,’ as an FTT judge found in 2019.


Similarly, the UT judgment records that the adviser made  more “wide-ranging” arguments as to why Mr Lee should be outside IR35 -- arguments not granted to be heard under the appeal.

Broadly, the arguments granted by the UT to challenge FTT judge Ian Hyde’s 2019 ruling were that he “erred” on Substitution, Control, Mutuality and Part and Parcel.

But while the latter fell away, potentially a cause of the May hearing being “treated as taking place in London” but actually taking place via remote video, the UT upheld the other three.

'Sufficient framework of control'

On the most historically determinative factor, Control, judges Herrington and Brannan found that Nationwide (‘NBS’) controlled “when” Mr Lee worked and “where” he worked.

While “how” he worked revealed the PM to have autonomy, the Talksport IR35 case was cited to say it means little amid a “sufficient framework of control” (as Ready Mixed Concrete initiated).  

The appearance of Mr Lee’s working practices regarding Substitution might similarly appear to have indicated a contract for services, he was undone by the ‘dominant feature’ test.

'Obligation for personal performance'

“The dominant feature of the right of substitution in the hypothetical contracts was that of personal performance by Mr Lee,” the UT explained.

“It was clear that NBS particularly valued Mr Lee for his specialist expertise and familiarity, gained over many years, with NBS and its processes.  

“Those factors lead us to conclude that the dominant feature of the hypothetical contracts, in this regard, was an obligation for personal performance.”

'Give your sub clause teeth'

The judges’ comments come after Adam Topham, a director at IR35 firm 34square, recommended to contractors online -- “give your right of substitution clause teeth.” 

Referring to HMRC’s Employment Status Manual, Mr Topham posted: “The inference is that if a clause is present but with no substance behind it, in terms of client buy-in and realistic capability to execute, it could even be a pointer towards personal service and an inside IR35 status.”

Mutuality, the remaining ground of Mr Lee’s appeal was three-fold, but the trio got dismissed by the UT, which hinted that if anything, the FTT undershot how much MoO was present.

'Basic, insufficient'

In fact, in the words of a former tax inspector at the time of the 2019 tribunal, the prior tribunal found only “basic MoO...insufficient” (on its own) to be determinative of inside IR35 status.

But sounding more aware that he was almost continuously on contract with NBS, the UT judges Herrington and Brannan rejected what Mr Lee’s legal adviser argued -- that there would be insufficient MoO where a project ended before the contract term expired.

They also suggested that the adviser had misled himself, by saying his claim that the PM could not be moved beyond his specific contracted task was more about Control, less about Mutuality.


And then the UT again signalled that it is keeping up with the times, because on top of citing the Talksport decision, the judges also quoted the PGMOL case to support their finding that Mutuality exists “where this an obligation to pay for work done and an obligation to do the work provided.” 

In the final stages of the hearing, ‘Financial Risk’ arguments were attempted by Mr Lee’s legal team (to assert he was exposed to it like any other bonafide contractor), though it was not one of the approved grounds of appeal. The judges declared: “We decline to consider them.”

“You could say this contractor was unfortunate,” Qdos’ Mr Maley said last night. “Having reviewed the case notes, this was one that could have gone either way”.

“And,” he added, “as unsettling as it might be, it certainly shouldn’t set a precedent, nor should it be enough to deter business from engaging contractors outside IR35.”

'Targeted HMRC enquiries'

The contract status reviewer is far from alone in trying to assess implications for contractors and other contractual parties under the new IR35 framework, which took effect in the private sector on April 6th 2021.

Referring to two separate surveys each finding one-third of contractors to be outside IR35 since the framework applied, WTT Consulting tax director Graham Webber said: “To find that ‘only’ 66% are inside will, I fear, bring about either a number of targeted enquiries [from HMRC], or worse -- more reform. Including perhaps the mandatory use of CEST, which we know is deeply flawed.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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