ESM7325 - Case Law: Northern Lights Solutions Ltd v Revenue & Customs

UT 2020/000353

Point at Issue

Whether the relevant aspects of the intermediaries legislation contained in sections 48 to 61 of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA 2003”) and in the Social Security Contributions (Intermediaries) Regulations 2000 (the “Regulations”) applied to the services Mr Lee provided to the Nationwide Building Society (‘Nationwide’) via his personal service company Northern Lights Solutions Ltd.

Appeals had been dismissed by the FTT against decisions made by HMRC for the Tax Years 2012/13 to 2014/15. The decisions had been made under the intermediaries legislation, on the basis that there had been a direct hypothetical contract of service between Mr Lee and Nationwide.

The Facts

Mr Lee was engaged as a project manager for Nationwide and had been so near continuously since 2008 under a series of different contracts covering different projects.

Mr Lee had extensive knowledge of Nationwide’s policies and practices and was trusted to comply with these without the need for induction at the start of each new contract. 

Mr Lee was considered a specialist in his field by Nationwide and was usually required to work a standard professional week at Nationwide’s offices.


Contentions

The appeal to the Upper Tribunal was on the following grounds:

  1. Control – the FTT erred in finding that Nationwide’s inability to move Mr Lee from one project to another was consistent with a contract of employment.
  2. Mutuality of obligation – the FTT erred in concluding that sufficient mutuality of obligation would have been present in the hypothetical contract to render it a contract of employment. There was no obligation on Nationwide to provide work once the project described in the contract was completed even if the end date of the contract had not been reached. There was no obligation on Mr Lee to continue to provide his services once the project was completed even if the end date of the contract had not been reached. 
  3. Substitution – the FTT erred in concluding that, even though the hypothetical contracts would have contained a substitution clause, the right of substitution “might be seen as almost theoretical” as there was no (or no sufficient) evidence to support this finding.
  4. Part and parcel – the FTT failed to provide adequate reasons for its finding that Mr Lee was part and parcel of Nationwide’s operations.


The Decision

That an end user was unable to move a contractor from project to project is not inconsistent with a sufficient framework of control existing for the purposes of the Ready Mixed Concrete test.

There is no requirement for an ongoing obligation to provide work outside of the contractual period for mutuality of obligation to exist.

A contract which terminates in accordance with its terms, such as at the end of a project, is not inconsistent with mutuality of obligation existing during the currency of the contract.

The correct analysis for considering personal service and substitution clauses in IR35 cases is the dominant feature test as set out by Lord Wilson in Pimlico Plumbers.


Appeal dismissed.

Commentary

This case applies the principles introduced in Pimlico Plumbers v Smith [2018] ICR 1511 in relation to personal service and establishes it as a leading authority on personal service for tax purposes.

Where there can be a limited right of substitution, that does not distract from the dominant feature of the arrangement, and if that is for the personal service of a specific worker then that is consistent with a contract of service.  

The case also reaffirms HMRC’s longstanding positions on mutuality of obligation and control.