In Northern Lights Solutions Limited v HMRC [2020] TC7594, the First Tier Tribunal (FTT) held that IR35 applied to a project manager’s Personal Service Company. He was subject to overarching controls consistent with being a highly skilled employee.
Robert Lee worked as a project manager for the Nationwide Building Society through his Personal Service Company (PSC) Northern Lights Solutions Limited (NLS).
- He started working for them in 2007. Other than a few short breaks he worked continually.
- He had responsibility for allocation of tasks to the project team, a mixture of employees and contractors and for determining the cost and timescales for delivering the project.
- All work was subject to the governance standards of the Nationwide Change Framework (NCF). This directed how the project was to be managed and required weekly reports.
- He was required to work a 7.5 hour day for a fixed day rate. He did not but met his weekly hours targets.
- Each year in December Nationwide insisted on a 2-3 week ‘furlough’ period when Mr Lee was not at work, or if he did, would not be paid.
- Each contract was for a fixed term. There was an unexercised right of substitution subject to Nationwide’s consent.
- Following an enquiry into PSL’s tax returns, HMRC issued Regulation 80 Income Tax determinations and section 8 NIC notices for 2012/13 to 2014/15. NLS appealed.
The FTT found that the contract was one of employment and dismissed the appeal.
- In practice it was difficult to send a substitute due to the level of specialist experience required and in any event the right to substitute was qualified as Nationwide’s approval was required.
- Nationwide did not have the right to move Mr Lee to another project during a contract. Whilst in practice he had a considerable degree of operational and personal autonomy he was subject to overarching controls consistent with being a highly skilled employee.
- Outside of the fixed term contracts there was no Mutuality Of Obligation (MOO). However, the judge said the test was satisfied in the limited sense of there being mutuality within the contract for Mr Lee to provide services and for Nationwide to pay him and he had worked for Nationwide full time for a number of years in what was substantially the same role.
- Mr Lee took very little financial risk and had few expenses. His financial exposure was similar to a full-time employee on a fixed term contract.
Whilst the FTT disagreed with HMRC’s view that only a contract between the parties is required to satisfy the mutuality of obligation test, they also commented that the threshold for the test is very low. The judge said that the furlough periods did not affect the test as the contracts continued despite the obligation to work and the obligation to pay being suspended for a fixed period.
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Employment status & detailed checklist
The employment status of an individual worker depends on whether the individual is engaged by the engager under a 'contract of service', or a 'contract for services'.
IR35: off-payroll working
The IR35 tax rules apply when a worker supplies his personal services through an intermediary trading vehicle such as a company or partnership to an end client.
Mutuality Of Obligation
Mutuality of obligation has two components; an engager is obliged to offer work to the worker while a worker is obliged to do the work offered.
Personal Service Company (PSC) tax
HM Revenue & Customs (HMRC) define a service company as a company that generates the majority of its income from supplying services rather than goods to clients
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