Robert Lee, who worked under the company Northern Light Solutions, challenged an earlier ruling which found he was considered an employee of the mutual according to the HMRC.
Lee managed projects for Nationwide Building Society for different periods since 2007. The tax years under appeal covered 2012 to 2014.
On 6 and 7 May 2021, the First-tier Tribunal denied his appeal after it ruled Lee would have been considered an employee of the mutual during these periods according to section 49 of the Income Tax (Earnings and Pensions) Act 2003.
It found that the circumstances of the employment relationship would have still existed if Lee was providing his IT services directly, rather than through Northern Light Solutions.
It also found that Northern Light Solutions could provide a substitute professional to carry out Lee’s responsibilities according to his contract but because of his skills and knowledge of the mutual’s governance standards, it was unlikely that Nationwide Building Society would allow a replacement.
Part of the IR35 rules suggest that if a contractor can be substituted, it confirms that they are self-employed.
Judges Timothy Herrington and Guy Brannan made the final ruling.
The First-tier Tribunal concluded: “Looking at the nature if the relationship in the round, in my view Mr Lee’s relationship with Nationwide Building Society is one of employment. There was a mutuality of obligation between the parties but only within each contract.
“Mr Lee was engaged under separate contracts with no obligation on either party to extend or renew. However, with few gaps Mr Lee has worked for Nationwide Building Society for number of years full time in substantially the same project management role.”
It continued: “Mr Lee had in practice a considerable degree of operational and personal autonomy but was subject to overarching controls primarily concerned with Nationwide Building Society’s need as a highly regulated business to monitor the progress of the relevant project consistent with Mr Lee being a highly skilled employee. However, Mr Lee could not be moved to a different project without his consent.
“During the time of Mr Lee’s series of contracts with Nationwide Building Society, aside from the risk of not being engaged on a new contract (which happened rarely), he was not subject to any financial risk beyond that of an employee and in many respects, was part and parcel of Nationwide Building Society’s operations.”
Earlier this year, the Association of Mortgage Intermediaries (AMI) urged the sector to review their structures and make sure firms were compliant with the rules which came in this April.
Robert Sinclair, CEO of AMI said of the recent ruling: “AMI continues to follow developments in court cases relating the self-employed and contractors being challenged by the Inland Revenue on their tax status.
“All involved should take specialist tax and legal advice based on their particular circumstances. This applies to both the firm offering work and those offering their services.”