What Northern Light Solutions losing its IR35 appeal means for contractors
He’s been called “unfortunate” and yes his case is riddled with misunderstandings of how projects are organised, but this new IR35 judgment from the Upper Tribunal against Robert Lee’s Northern Light Solutions Ltd shows that those misunderstandings were not necessarily his, writes Kate Cottrell of IR35 specialists Bauer & Cottrell.
The key point is that this project manager’s end client – Nationwide Building Society (‘NBS’) - effectively told HMRC on two separate occasions:
- No he can’t substitute
- Yes we control him
- Yes there’s mutuality
Further unhelpfully to securing an outside IR35 determination, NBS also highlighted that the contractor had only minimal financial risk.
Get your client's take early on
When creating the hypothetical contract required by IR35, especially when there are agencies involved, it is vital to seek the views of the end-client at an early stage.
Projects are often spread over several years, of course. But a good IR35 contract review specialist would hear the alarm bells ringing after, at most, 18 months and at that point, seek to get the views of the end-client, especially where (as in this case) the client simultaneously employed Project Managers on an internal, full-time basis.
Hindsight is of course a wonderful thing, but this case emphasises the need for contractors to constantly keep their eye on their IR35 position throughout the engagement.
To my mind, the most shocking aspect of this case is the length of time it has taken to resolve and the awful uncertainty created for Mr Lee and his family. This is a repeat occurrence – something we’re unfortunately seeing all too often experienced by taxpaying contractors.
In Mr Lee’s case, HMRC spent some two years between meetings -- doing what one wonders? The Revenue’s position of allowing Mr Lee and his adviser to attend these meetings as “observers” is shocking. What happened to freedom of speech? Not raising disagreement with the subsequent notes of meeting was unfortunate. So the best advice I can give contractors if they ever find themselves in a similar situation is this -- record every question HMRC asks, not least so that you can identify leading questions, and take issue with them later on.
Making certain (so you can avoid a nine-year ordeal)
Looking at the case in the context of the now well underway IR35 reform, any contractor holding an outside IR35 Status Determination Statement should take heed of this decision, and make absolutely certain that outside IR35 is indeed the correct determination and gives certainty.
Whatever your views on the off-payroll rules, no one should have to suffer like Mr Lee and argue their case for nine years, as you should know the end-client’s views on the engagement up front -- providing that those views reflect the reality.
Finally, keep the evidence
For those contractors working for small or offshore businesses (i.e. businesses exempt from the April 2021 off-payroll rules) obtain the end-client’s views now -- and keep the evidence. Only then can you have any comfort – a recommendation I issued only last week to ContractorUK readers and which the Northern Light Solutions case illuminates the importance of.