Robert Lee provided project management services to Nationwide Building Society through his company, Northern Light Solutions Ltd.
Lee had worked on Nationwide projects since 2007. Northern Light was incorporated the following year and, apart from some breaks and a period working for Lloyds Bank Group, he continued supplying services to Nationwide until December 2014.
HMRC challenged two periods: February to October 2012 and April 2013 to December 2014.
The First-tier Tribunal found that the hypothetical contracts between Lee and Nationwide would have been contracts of employment. Northern Light appealed to the Upper Tribunal, which dismissed the appeal in 2021.
Project management work for Nationwide
Lee was an experienced project manager. During the first period under appeal, Northern Light contracted with Clarity Resourcing (UK) LLP, with another intermediary, Advantage AxPO, sitting between Clarity and Nationwide. When Lee returned to Nationwide in April 2013, Northern Light contracted directly with AxPO.
The engagements were covered by separate fixed-term contracts.
There were three Clarity contracts between February and October 2012. The final contract was due to end on 31 October but finished on 14 September after Nationwide cancelled the underlying project following a regulatory change.
Lee then worked for Lloyds Bank Group between November 2012 and April 2013 before returning to Nationwide.
There was no overarching agreement requiring Nationwide to offer him another project when a contract ended, and Northern Light was not required to accept further work.
Running Nationwide projects
Once assigned to a project, Lee prepared the detailed plan, worked out its expected cost and timetable and established the core team. He chaired weekly meetings, allocated work and monitored expenditure and project risks.
Nationwide did not direct his work from hour to hour.
Its projects did, however, operate within the Nationwide Change Framework. Lee’s plans went before a project board, which could require changes to cost, timing or scope. He supplied weekly progress reports and reported formally to the board each month.
Lee could not generally be transferred onto another project without agreement. His contractual work was tied to the project for which he had been engaged.
The First-tier Tribunal accepted that this restricted Nationwide’s control. It also found that Nationwide retained sufficient control within the individual project.
Lee’s freedom over how he organised and delivered the work was regarded as consistent with the autonomy that could be given to an experienced senior employee.
Read more about control and IR35.
Hours and place of work
The Clarity contracts required a “professional day” of 7.5 hours, five days a week.
Lee did not follow identical hours every day. He often worked longer earlier in the week and finished at lunchtime on Fridays, without charging extra for additional hours needed to keep a project on schedule.
He worked mainly from Nationwide’s offices in Swindon, although he also used its Macclesfield office and sometimes worked from home.
In practice, Lee notified Nationwide when changing his working pattern rather than seeking formal permission.
The tribunal nevertheless found that Nationwide had contractual rights over the professional day and the location from which the work was carried out.
Substitution
The contracts allowed Northern Light to propose another person to carry out Lee’s work.
Under the Clarity terms, Nationwide’s consent could not be unreasonably withheld. Under the later AxPO arrangements, Nationwide could reject a proposed replacement where it reasonably considered that person unsuitable because of their skills, experience, training or qualifications.
Lee never supplied a substitute.
His knowledge of Nationwide presented a practical difficulty. He had worked there for years, understood its systems and processes and had been engaged partly because of that experience. Any replacement would also have needed suitable project knowledge and security clearance.
The First-tier Tribunal accepted that a contractual substitution provision existed.
Before the Upper Tribunal, Northern Light argued that insufficient weight had been given to it. The Upper Tribunal considered the Supreme Court’s decision in Pimlico Plumbers Ltd v Smith and looked at the dominant feature of the hypothetical contracts.
It concluded that personal performance by Lee remained the dominant feature of the arrangement.
Nationwide’s ability to reject an unsuitable replacement, combined with the importance attached to Lee’s own knowledge and experience, was consistent with that conclusion.
See our guide to substitution and IR35.
Mutuality of obligation
Each engagement had its own fixed term. Nationwide was under no obligation to offer another contract afterwards, and Lee was free to go elsewhere.
That happened in 2012, when the Nationwide project ended early and Lee subsequently worked for Lloyds.
The tribunals nevertheless found the necessary mutual obligations while each individual contract was running. Lee had agreed to provide his services during the engagement and Nationwide had agreed to pay for them.
Northern Light argued that the project-based nature of the work and Nationwide’s ability to end an engagement when a project finished pointed away from employment.
The Upper Tribunal did not accept that those features prevented mutuality from existing during the contract itself.
Nationwide also operated a contractor shutdown over Christmas and New Year. Lee could not work during the shutdown and Northern Light was not paid.
The First-tier Tribunal treated this as a temporary suspension of the obligations to work and pay rather than the termination of the underlying engagement.
Read more about mutuality of obligation.
Lee’s position within Nationwide
Lee received none of Nationwide’s employee benefits. There was no holiday or sick pay, pension entitlement or employee appraisal, and he used a contractor pass.
Nationwide did not provide him with ongoing training. Northern Light also maintained contractor insurance, including professional indemnity cover.
The equipment position was less distinctive. Nationwide supplied Lee with a laptop because of its security requirements, while Northern Light provided little equipment beyond his home office and vehicle.
Lee carried little financial risk on the Nationwide work. Northern Light was paid a fixed day rate and Lee worked full time during the contracts.
The length of the relationship also formed part of the FTT’s findings. Apart from breaks and the Lloyds engagement, Lee had spent several years working on Nationwide projects and had developed detailed knowledge of the organisation.
The FTT found that he had become part and parcel of Nationwide’s operations in a number of respects.
See our guide to part and parcel and integration.
The Upper Tribunal appeal
Northern Light appealed on grounds covering substitution, control, mutuality of obligation and whether Lee had become part and parcel of Nationwide’s organisation.
There were findings in Lee’s favour.
Nationwide could not normally move him from one project to another. He had substantial freedom over the way projects were managed, no entitlement to employee benefits and no guarantee of another contract when an engagement finished.
The Upper Tribunal did not find that the FTT had made an error of law in weighing those facts against the rest of the relationship.
Nationwide retained a sufficient framework of control, while Lee’s personal performance remained central to the contracts. The FTT had also been entitled to take account of his limited financial risk and his established position within Nationwide.
The Upper Tribunal upheld the finding that the hypothetical contracts would have been contracts of employment. Northern Light’s appeal was dismissed and the engagements remained inside IR35.
You can find Northern Light alongside the other decisions in our IR35 case law guide.
Judgment
The Upper Tribunal heard the appeal remotely on 6 and 7 May 2021.
Northern Light Solutions Limited v The Commissioners for HM Revenue and Customs [2021] UKUT 0134 (TCC).
The tribunal was Judge Timothy Herrington and Judge Guy Brannan.
The decision was released on 21 June 2021 and Northern Light’s appeal was dismissed.