An IT builder who obtained an IR35-associated Number 70,000 tax invoice by HM Revenue & Customs (HMRC) has had his appeal pertaining to the case dismissed by a tribunal judge for a second time.
Project manager Robert Lee obtained a Number 70,000 tax demand in regard to a series of IT-related external IR35 contracts he completed Nationwide Building Society involving 2012 and 2015, delivered by his limited company Northern Lights Solutions.
However, HMRC asserts the way Lee worked with Nationwide supposed his engagements should happen to be categorized as inside IR35, which makes him liable to cover the same National Insurance Contributions (NICs) and Pay-As-You-Earn (PAYE) tax as a permanent employee would.
Lee initially tried to challenge HMRC on the topic via a First-Tier Tribunal in February 2020, but his appeal was dismissed. He was then granted consent in July 2020 to lodge another appeal, which paved the way for a two-day Upper Tribunal hearing in May 2021.
The results of the hearing has been made public, with all the Upper Tribunal judge confirming this second attempt at an appeal by Lee has also now been dismissed on several grounds, including the high levels of management that Nationwide had over the way Lee worked throughout his involvement.
Another reason why the appeal has been dismissed is because the tribunal disputed the claim that Lee needed a real right of substitution, which is thought to be a key determinant of whether a contract is out IR35 or not.
In an external IR35 context, contractors should be able to demonstrate that their end-client isn’t entirely reliant on them to deliver the services that they are being contracted to provide and a substitute with the same skills, and experience could be appointed and step in if desired.
Evidence shared at the tribunal notes suggests it wouldn’t be viable for Lee to”send someone else to do the work” because they wouldn’t”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 ContractorCalculator, has explained the outcome of the judgment as”somewhat unfair”, also said the outcome appears to be down to a lack of understanding by the tribunal judges concerning the reality of working in an IT job.
“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,” said Chaplin.
“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 properly implemented,” he said.
“However, many companies are one-man bands and provide their services personally. But that alone does not imply they’re employees.”