back to article HMRC claims victory in another IR35 dispute to sting Nationwide contractor for nearly £75k in back taxes

UK tax collector HM Revenue & Customs (HMRC) has won a case against a contractor who contested almost £75,000 in taxes and national insurance contributions under off-payroll rules. Robert Lee contracted with Nationwide Building Society through his limited company, Northern Lights Solutions, between 2007 and December 2014, …

  1. Anonymous Coward
    Anonymous Coward

    Wait? I'm a contractior now?

    "However, apart from not being able to move him to another project, the level of control exercised over Mr Lee in how he did his job was not inconsistent with him being a highly skilled professional employee.""

    So my years of unprofessionalism have caught up with me? Sneaking in late and leaving early, long lunches in the pub, not bothering to return from lunch on a Friday, not coming in when I'm doing my side gigs... I will need to speak to HR about discrepancies between my salary and my side gig day rate.

    In all seriousness - if being professional about how you conduct business is the measure of being an employee, I would suggest most contractors are employees while significantly more employees apparently aren't....

    1. Anonymous Coward
      Anonymous Coward


      Contractor mortgages are going to be a lot harder to obtain.

      1. KittenHuffer Silver badge

        Re: Nationwide

        Only because there will be fewer contractors to obtain them!

    2. jmch Silver badge

      Re: Wait? I'm a contractior now?

      Frankly, from what I can see, this type of job is exactly the type that IR35 rules were made to catch and block. The problem with IR35 is the ham-fisted way it's being implemented, and that it's being used as a catch-all even for true contractors, which in turn has a knock-on effect of discouraging companies from engaging contractors.

      1. Dave314159ggggdffsdds Silver badge

        Re: Wait? I'm a contractior now?

        There is no real problem with IR35, though. Just a lot of whinging from fake contractors who have been royally taking the piss, like this case.

        Seven years as a 'contractor' in the same role?! That's never going to fly.

        I've worked with lots of people who had temporary employment, or more than one part time job, and called it contracting, but it never was. IR35 isn't really a change in the rules, just in whether they're policed.

        1. Dr. Mouse

          Re: Wait? I'm a contractior now?

          "There is no real problem with IR35, though"

          You say that, but have you looked at the complexity involved in applying them? Have you seen how often HMRC, the people who should know the rules, get it wrong? How much trouble even large businesses are having in applying them correctly now?

          If they want to make the tax system fairer, make it fairer (and simpler). Get rid of NI and apply the same tax rates to all income. Allow people to run their business how they want, but even out the tax advantages so they can't "dodge" their "share". Remove the loophole by simplifying the system, not by making it more complex.

          1. #HMRCShambles

            Re: Wait? I'm a contractior now?

            If IR35 is made too simple you may not need as many civil servants. It's the only explanation I can think in continuing these utterly stupid tax rules.

        2. Cederic Silver badge

          Re: Wait? I'm a contractior now?

          There definitely are problems with IR35, the two primary ones being a lack of clarity on how to determine its applicability, and the limbo state of people caught in an 'employee with no benefits' situation by it.

          I'm perfectly fine with someone working for the same company for seven years without a single substitution being deemed an employee but lets not pretend that IR35 isn't broken.

        3. Nial

          Re: Wait? I'm a contractior now?

          "Seven years as a 'contractor' in the same role?! That's never going to fly"

          Yes, because no real business ever wants repeat work.

        4. steviebuk Silver badge

          Re: Wait? I'm a contractior now?

          I was technically called a "Contractor" and I worked for 7 years in the same roll at the same place, all because the arseholes didn't want to make me perm so they could get rid of me with only a weeks notice whenever they wanted. Luckily, I was paying NI and TAX so I'm safe but it is possible to be seen as a "contractor" yet still work in a place for years.

          Surely places like Nationwide should have to foot the bill or at least part of it? If this one was apparently a contractor scamming the system, then surely Nationwide were colluding.

      2. Anonymous Coward
        Anonymous Coward

        Re: Wait? I'm a contractior now?

        My biggest issue with this particular ruling is the one of substitution.

        In some cases, especially in the security field, it would be nigh on impossible to invoke a right of substitution for several reasons, and a client may want a particular contractor 'as a person' because of the specific knowledge they can provide which others (such as an alternate) would not.

        I don't know why this is a particular focal point for IR35, because I can think of other roles and scenarios where someone is taken on for their specific skill-set and knowledge where it is clearly a business relationship, not one of employer/employee.

        For example, if you hired a specific architect who specialised in a particular type of design, it would be impossible to for the architect to put someone else in his place unless they could satisfy the client that they had the same design specialisations as the original architect - in that scenario the client has the right of veto - but I doubt anyone would claim the architect was employed by the client.

        This is why I hate IR35, it just isn't consistent enough across all cases to be predictable, and therefore manageable in terms of risk.

        1. Dave314159ggggdffsdds Silver badge

          Re: Wait? I'm a contractior now?

          That's why there are several different factors to take into account. If substitution is permitted, that may be enough by itself, but it's not the only factor.

          FWIW, your hypothetical architect is probably neither an employee or a contractor of the client: they'll be working through an architectural practice, which may be a partnership, or may employ them. If they were really independent, maybe they'd have a personal services company.

          In general, what matters is whether something is a genuine difference or just a form of words. If you set up a PSC to avoid the unlimited personal liability that comes with being self employed, then there's a real transfer of risk, and the two positions are distinguishable as a result. If your self employment didn't have any risk attached, you'd find it much harder to justify using a PSC.

    3. katrinab Silver badge

      Re: Wait? I'm a contractior now?

      Professional, as in a skilled computer programmer being employed by someone who doesn't know how to program. Because you know how to do your job and your boss doesn't, instructions are inevitably going to be limited to the sort of outcome your boss wants to achieve from the program.

      1. bonkers

        Re: Wait? I'm a contractior now?

        I'm hoping that the judgement might be challenged by logic, on the basis that "could I just be a highly skilled employee" is a one-way function.

        Consultants are human, employees are human, so any position could be filled with either a skilled employee, or a consultant, therefore all consultants are employees. To argue otherwise requires you to be superhuman.

        Both sides are wanting a differentiator.

        Genuine consultants don't want their honest status to be subverted by artificial avoidance, like the train drivers (no harm to them they were forced into it) - who woke up to find they were independent train driving consultants.

        HMRC would find their life a lot easier if they could make a fair differentiation that everyone can accept. We all would - can we define terms that declare with certainty whether one should be taxed by method A or method B?

        Germany puts emphasis on working for more than one client within any given year - even if it's only 5% (my supposition). Also not having a fixed desk, a client business card, and a few other distinguishing terms HMRC could look to adopt.

        My differentiators would be "cross-pollination" and "short-lived expertise".

        Cross-pollination is a critical concept to the "value", in GDP terms, of the consultant/contractor market. Given the relatively slow flow rates of permanent employees between companies, the adoption of "best practice" can be, is, impeded.

        Consultants accelerate this process. In my line of work, the rigour of automotive design and production is greatly welcomed in the new medical fields, it's a carry-across of familiar know-how. It's not in any way a "stealing" of one company's IP into anothers.

        Conversely, the medical "life and limb" safety requirements and methodologies feed well into automotive ASIL ratings - the approaches, methodologies, burdens of proof.

        So, a prototype "cross pollination" metric might ask if you are engaged for your general problem-solving ability, as could be met by a highly skilled employee, or for your experience and know-how.

        Note that know-how is the third leg of IP:

        Copyright, Patent and Know-how.

        Some companies [RR] choose not to patent what they have discovered because patents only last 15-17 years and rely on full disclosure.

        Short-term expertise covers the ASIC design phase, most companies that benefit greatly from custom silicon ASIC design, need it only once. The experts involved move on, it is a lesser task to manage the various implementations of the working ASIC.

        It is a very much harder task, and therefore more valuable, to make ASICs that work.

        If that is your skill, a permanent employment will not exercise it to the full.

        By a similar token, contracting allows all highly skilled individuals to focus on their best skills, it is an imperative that one should strive to employ one's finest skills to the greater benefit of commerce and society.

        I don't think that booby-trapping the entire workspace with ad-hoc factors and weights, undefined till in court, is any way to proceed with regard to harnessing the innate talent of the British to invent and consolidate said invention.

        1. Mark 65

          Re: Wait? I'm a contractior now?

          Australia also uses multiple income sources as the indicator

  2. Gordon 10

    Rigged definition of an employee

    Its helpful when HMRC have basically rigged the definition of an employee to be be "anyone we think should have paid tax at an employees rate".


    1. Anonymous Coward
      Anonymous Coward

      Re: Rigged definition of an employee

      Does this mean that his "employer" is also guilty of not paying the required taxes for said employee, and also guilty of not providing benefits, etc?

      1. robidy

        Re: Rigged definition of an employee

        That's a very good question and worth exploring to see if it can be pushed...if it could then a lot of influential big companies would soon lobby the blond gobshit and his ^Hbulling cohorts...

      2. Tebbers

        Re: Rigged definition of an employee

        Quite. I think we are indeed likely to see more of this after April 6th. If someone is deemed inside IR35 after a few years of working for the client, what's to stop them then saying that they want years of holiday pay and benefits etc? There are rumblings of actions just like this on LinkedIn at the moment. HMRC can't say that they're inside IR35 but at the same time not an employee entitled to benefits etc. An interesting conundrum.

        1. Anonymous Coward
          Anonymous Coward

          Re: Rigged definition of an employee

          1. Chris Harden

            Re: Rigged definition of an employee

            I'm about 90% sure that's satire.....but I would also 90% not be suprised to read that on a recruitment agency website.

            1. Sir Runcible Spoon

              Re: Rigged definition of an employee

              I'm 100% certain it is a satirical site, yet it is also using the truth.

          2. Anonymous Coward
            Anonymous Coward

            Re: Rigged definition of an employee

   <-- Poe's law? Or written by a genuine sociopath? (aka Tory)

        2. Jon 37

          Re: Rigged definition of an employee

          Nope, the law says you can be an employee for tax purposes under IR35, while being a contractor for every other purpose (holidays, benefits, etc).

          1. Dave314159ggggdffsdds Silver badge

            Re: Rigged definition of an employee

            Er, the law says you're entitled to do something incredibly stupid if you want. You can refuse your employee benefits, although not the taxes, but obviously no-one in their right mind would do so.

            But it's there for you to choose if you want...

        3. David 164

          Re: Rigged definition of an employee

          Would it be HMRC decision. I. Would have thought that be down to the courts.

          1. NeilPost Silver badge

            Re: Rigged definition of an employee

            The courts apply the law as drafted and passed. They don’t make it up. If the legislation is poor that’s the fault of the Government who proposed it and the MP’s who passed it. Why the Lord’s is a great revision chamber, but much of what they recommend gets ignored by agenda’s to pursue and poor law ends up being passed.

            See Prorogation and Lady Hale as an example of appropriate good application. No difference for HMRC cases.

            1. RegGuy1 Silver badge

              Re: Rigged definition of an employee

              Spot on! UK law is something to be cherished.

              Are you listening, Daily Fail?

              1. Anonymous Coward
                Anonymous Coward

                Re: Rigged definition of an employee

                > Are you listening, Daily Fail?

                It doesn't involve underage children or immigrants so, no.

        4. streaky

          Re: Rigged definition of an employee

          what's to stop them then saying that they want years of holiday pay and benefits etc

          Depends how you look at it and it could go either way - one way is sure, employees were getting screwed in an inequitable contract arrangement and should be entitled. The other way, and this one will be common is to say that these people knew full-well or should have known full well because they're not morons what the implications of the arrangements they were entering into were. Suspect we're going to find out in court though, but not against HMRC: these cases/tribunals would need to be directed at the employer where they belong.

          Employment benefits isn't a matter for the HMRC, by the way.

          1. NeilPost Silver badge

            Re: Rigged definition of an employee

            “Employment benefits isn't a matter for the HMRC, by the way.”

            ... well only if they are not benefit in kind taxable ones anyway. Car,PHI, mileage etc

        5. SimonC

          Re: Rigged definition of an employee

          Something similar did happen, to HMRC themselves of all people.

          I think that from April, with the liability being on the employer, that what you're suggesting definitely could happen.

        6. Persona Silver badge

          Re: Rigged definition of an employee

          "what's to stop them then saying that they want years of holiday pay and benefits etc"

          Which is one reason why the employers don't want to employ them as a direct contractor.

          1. NeilPost Silver badge

            Re: Rigged definition of an employee

            I think the actions of many big employers literally ditching their contractors speak volumes about the moral bankruptcy of a large number of Contractors they use.... and not wanting to get shafted with the liability.

            Actions, not words.

      3. streaky

        Re: Rigged definition of an employee

        and also guilty of not providing benefits, etc

        That's literally half the reason IR35 exists - if you remember back to the time before this was a thing they were expecting the taxpayer to pick up the tab for things like sickness saving themselves a pile of money, and not paying the requisite taxes for those things in the first place - or put another way taxpayers were getting double screwed.

      4. katrinab Silver badge

        Re: Rigged definition of an employee

        "guilty of not paying the required taxes for said employee" - from 1st April 2020, yes, not before

        "guilty of not providing benefits, etc?" - no

      5. macjules

        Re: Rigged definition of an employee

        Exactly. Will Nationwide be paying Employer's Contribution for that period, or HMRC (as usual) not bother going up against someone bigger than them?

        1. NeilPost Silver badge

          Re: Rigged definition of an employee

          Not paid Employers NI.. up to April that would be you mate, not the Nationwide.

      6. SimonC

        Re: Rigged definition of an employee

        From April onwards, in the private sector, Yes. The rules are changing.

      7. NeilPost Silver badge

        Re: Rigged definition of an employee

        Self-evidently the “employer” is you.

        So have you not been saving up holiday money or paying into a pension, buying private health/dental or buying yourself a Tastecard??

        A Porsche Macan is not a benefit, other than in kind. Paying tax on that?? Paying your Child Benefits Back ??? Any ‘IT’ went through the business like say a kids iPad for Xmas ???

        1. Intractable Potsherd Silver badge

          Re: Rigged definition of an employee

          @NeilPost: "Self-evidently the “employer” is you."

          Self-evidently, the employer in this case is the Nationwide - the court just said so. Therefore, it doesn't matter that neither the employer or the employee thought the relationship was different - they were wrong. The employee has a *right* under EU law to four weeks' holiday for every year he was employed, or pay in lieu. He was also entitled to sick pay at a rate not less than the statutory minimum, regardless of any insurance he had.

          And what is it with you and Porsche Macans, FFS?

      8. EnviableOne

        Re: Rigged definition of an employee

        As of 6th April 2017 in the public sector YES

        As of the 1st April 2020 in the private sector YES

    2. streaky

      Re: Rigged definition of an employee

      Its helpful when HMRC have basically rigged the definition of an employee to be be "anyone we think should have paid tax at an employees rate".


      What HMRC have done is rigged the rules to say anybody who is pretending to be a contractor yet is for all intents and purposes is an employee for all intents and purposes for tax evasion purposes is an employee and should pay tax like an employee.

      It's not hard to guess why people are triggered though, given it doesn't apply to legitimate contractors..

    3. jmch Silver badge

      Re: Rigged definition of an employee

      HMRC are playing fast and loose with the definitions, however substitution is a big one. If Nationwide had a veto over this guys being substituted, then effectively he wasn't substitutable

      1. Joel Mansford

        Re: Rigged definition of an employee

        Whhhooooooooooooooa, so if I get a cleaner to come in 1day a week to my house is she now my employee?

        I'm pretty sure I have a veto on someone else having a key to my house and I would insist it's her, herself who comes in.

        Don't I direct what work she does?

        Shall I be expecting a tax bill next year for her?

        1. Dave314159ggggdffsdds Silver badge

          Re: Rigged definition of an employee

          Yes, cleaners are almost always employees according to employment law, let alone the taxman. That's why almost everyone pays them in cash.

    4. NeilPost Silver badge

      Re: Rigged definition of an employee


      HMRC or the tax dodgers not paying their fair dues?

  3. Mike 137 Silver badge

    Heads we win, tails you lose

    Taking at the HMRC argument at face value, it would be practically impossible for a contractor not to be classified as a "disguised employee", e.g. with respect to "control":

    • the requirement to work a professional day (most offices open and close at standard hours)
    • Nationwide’s right to require Mr Lee to work in locations other than Nationwide’s Swindon sites (a contractor or consultant has to work where the work has to be done)
    • the obligation to comply with statutory or other reasonable obligations (every consultant or contractor has to)
    • the obligation to inform Nationwide if the consultancy services cannot be performed (every consultant or contractor has to)
    • the obligation to provide a breakdown of services provided as verified by a representative of Nationwide (that's a standard part of every contract for services)
    • the right for Nationwide to terminate if Mr Lee fails to perform the services promptly, efficiently and with all skill and in a professional manner (a standard cause for termination of a commercial contract)

    Furthermore HMRC argued (contrary to precedent) that the right to substitute must be "practicable" as well as contractual, so as a need for individual specialist expertise or clearances (the very things required of contractors) automatically presume disguised employment.

    Admittedly there were a few other aspects of the contracts in this case that tended to suggest disguised employment, but for HMRC to rely on those I have listed above and succeed effectively means that no contractor can escape the net unless they refuse to cooperate with their client and fail to fulfil their statutory obligations. This shows just how devious and dirty the whole of IR35 really is - the criteria are fundamentally biased to result in an outcome of "within".

    1. Anonymous Coward
      Anonymous Coward

      Re: Heads we win, tails you lose

      But the description would be for a fixed term contract not a resource supplied through a service company or agency.

      Having been on both sides of the fence then I can see the benefits of both but you do(did) pay less tax and get far more money as a contractor than a full time employee or a fixed term contract employee.

      I've also employed people as a contractor through a limited company who were contracted directly for that person and had to come in to work and it was a fixed term - so not really outside IR35.

      But I've also employed contractors who have a project to do, with a set specification and a timeline with either fixed cost or billable hours. They could work from the office or from anywhere else other than when they needed to attend progress meetings. Clearly this isn't a project for a fixed term employee but could never be considered inside IR35.

      It's not difficult to set your contracts up to be genuinely outside IR35 if you genuinely are working in a consultant/contractor role through a personal services company. But if you are working for a fixed term equivalent to an employee then just adjust the rates to cover your sickness insurance (equivalent to what an employee would receive - i.e. a few weeks cover with death and injury benefit) and 6 weeks annual leave + your instability margin to get back on equal terms.

      The rates that I've employed contractors on compared to fixed term or regular employees would easily have covered this and more anyway.

    2. katrinab Silver badge

      Re: Heads we win, tails you lose

      If I hired a contractor to install new LED light fittings in the office:

      • Yes, they might have to work at specific times, could be when the office is open, could be when the office is not open.
      • Obviously they would have to work in the location where the lights are to be fitted
      • Of course they have to comply with health and safety requirements and all that stuff
      • And yes we would get rid of them if they are no use

      However, it would be perfectly normal for them to bring multiple members of staff to the job, and we would not get involved in their selection process.

      1. SimonC

        Re: Heads we win, tails you lose

        Basically comes down to SDC, you're not hiring contractor Bob, you're hiring Bob Service Ltd, so they could send anyone. Much like when I had my chimney swept with Pete The Sweep, I was dismayed to find the guy that showed up was in fact, not Pete himself. Of course, it did not matter.

        If I demand pete and only pete, then it's a red flag that my relationship with Pete The Sweet Ltd. is actually not a service/provider but potentially one of employment.

        However it falls away when other factors are revealed.

        The LED contract would purchases and fits the lights. This puts financial risk onto him, if the client changes their mind or is unable to pay (goes bankrupt), he'd be out of pocket. He also has to manage cash flow, if he's installing £3,000 of lights across the office, he needs to have £3,000 in cash while the invoice is paid. Financial risk is a big indicator. As an IT contractor, there's no risk of that type. Your only financial liabilities are car mileage, equipment, and insurances. But these aren't job-specific so it's hard to argue.

        The work he's providing is also strictly agreed, his job is to install LED lighting in all of the offices. It'll be a case of say, 30 lights must be fitted. He'll likely charge a fixed fee, therefore incurring additional financial risk because if there are delays or the work proves more difficult, or there are issues sourcing the lights, he will have to suffer the extra time it takes to complete. It's unlikely he would charge per hour for a job of that nature, whereas an IT contractor would.

        He probably also has additional jobs, not just one single job. This is consistent with a service company. He might order the equipment, do some other work in the morning, come in in the afternoon, etc.

        He chooses his own scheduling. They don't say, you must work from 9-5 every day, because that might not even be possible, and it might be impractical - if he is waiting for things to arrive, then he's not going to sit there on an office chair staring out of the window all day. An IT contractor might do exactly that.

        They can't move him to another project, for example if they say while you're here, could you just wire in a few new sockets? It's not part of his agreed work and it's not consistent with a service company if he says yes, unless a new contract is created/agreed or the existing one modified. Once he starts looking like a handyman, that's when he looks like an employee.

        I think HMRC has shot itself in the foot though going forward. I'm an IT contractor and I'll be moving onto a new Outside IR35 contract from April. Everywhere is super paranoid so they'll be coming up with a compliant statement-of-work driven model, I suspect that plunges nice and deep into service company territory so there's no ambiguity. And I'll continue to do what I've been doing for the past several years already, only this time HMRC will not be able to pull a 'gotcha' because it will be fully above-board using their own assessment tool. The tool that is designed deliberately to place you inside IR35 by being epically misleading will now backfire and mark everyone sensible enough to care about their IR35 status as safe. Wouldn't surprise me if they pulled it once they realised it's actually helping people prove they're outside.

        I'm currently on a fixed project, I work ~8-4pm occasionally work from home as I see fit. The client has a fixed budget so I'm not always called in, they just tell me to work less/more days to fit, which is a strong indicator of being outside IR35 (employees don't get told, work 3 days this week and we'll pay you less, 5 days next week and we'll pay you more). I'm working on a specific project, everything is timescaled and estimated, and I'll be gone when the project is completed unless they want to sign a new contract.

        But I am also insured up the wazoo in case I get investigated, which is annoying. I've heard of HMRC making life a living hell for people who are completely innocent just due to them investigating, demanding meeting after meeting, all kinds of documents, evidence, etc.

        It is quite hard to maintain an income when you're being called away all the time. Scary stuff.

        1. Anonymous Coward
          Anonymous Coward

          Re: Heads we win, tails you lose

          "employees don't get told, work 3 days this week and we'll pay you less, 5 days next week and we'll pay you more"

          Of course they do, it's called a zero hours contract and has been around for decades.

  4. Anonymous Coward
    Anonymous Coward


    I employ accountants on a contract basis, I assume they are compliant with IR35. If not, I will retrain as an accountant or tax inspector.

    1. IGotOut Silver badge

      Re: Accountants

      Do they work for you full time? Do you insist on dealing with one account and one alone?

    2. The Pi Man

      Re: Accountants

      “Employ” ? You’re screwed.

      1. Anonymous Coward
        Anonymous Coward

        Re: Accountants

        Whoop, I hoover my house...with a Dyson...AC in case Dyson come after me...I also ask for vodka and coke but prefer Pepsi...we all say employ a contractor...

        1. Graham 6

          Re: Accountants

          "We all say ... " no that's what got everyone into trouble with the HMRC

          ...also what's this "pay the same tax as an employee" business.

          These guys will be paying waaaaaay more tax from a contract rate than an employee on an employee rate.

          No this is not the "fair" system the HMRC keeps saying, it requires the contractor to pay far more tax, and they, as a business owner are already paying more tax that an employee of the client, by a big factor.

          I probably paid more tax last year than an employee of my clients actually earned.

          NOT FAIR AT ALL!!!

  5. Anonymous Coward
    Anonymous Coward

    A level playing field?

    Interesting that just as many contractor roles seem to be acquiring characteristics of employee positions, many actual employees are being increasingly subject to the vaguaries and insecurities previously associated mainly with contractors.

    In any case, it seems to me hard to defend such a difference in tax paid by two people performing similar (relatively long term) roles.

  6. Pascal Monett Silver badge

    "between 2007 and December 2014"

    That's seven years.

    Over seven years the company has largely enough time to train somebody in-house, get a knowledge transfer or acquire some expertise and bring it in-house.

    A contractor that lasts seven years is basically part of the woodwork. That's exaggerated.

    HMRC's approach to the problem is exaggerated as well, but seven years is a hell of a long time to not be part of a company you work at every day of the week.

    I've been a contractor for the past 25 years. I go in for a day, for a few days, a week, a few weeks. Rarely, for a few months. In all my career I've had two contracts that lasted around 18 months each. Those were very long contracts and I was glad to see the end of them.

    Seven years ? I think I'd go crazy. Hire me already and let's stop pretending.

    That being said, it certainly smarts being hit with £75K of back taxes. My sympathy to the guy who just tried to make a living.

    1. Richard 12 Silver badge

      Re: "between 2007 and December 2014"

      How many major projects take multiple years, and how many take several years longer than originally planned?

      "Terribly sorry, but we can't accept this contract extension because HMRC might decide that it makes me an employee.

      You'll have to hire another contractor to finish this project. Yes, I know that will delay it by another year or two while they get up to speed, but by then you can hire my company again."

      1. ExampleOne

        Re: "between 2007 and December 2014"

        Nothing prevents you using fixed term PAYE contracts. In fact the only fixed term contract role I have held was precisely like that.

        Also, tie the contract length to to project life rather than fixed terms and pay a fixed amount for it, which as I understand it puts the contract clearly outside IR35 (but also loads a LOT of risk onto the contractor).

        1. Richard 12 Silver badge

          Re: "between 2007 and December 2014"

          I'd never be stupid enough to sign a contract like that.

          Fixed payment for an entire project is a mugs game. Can only be time and materials, otherwise the risk of being paid 1 year of time for 5 years of work is way too high.

          Only organisations like Capita can afford the army of lawyers needed to enforce payment-by-change-request, a lone contractor can't.

          Yes, PAYE contracts could be used, but many clients refuse to do that because they would also have to provide the benefits of being an employee. IR35 is great, because the client can make you an employee for tax purposes and a contractor for rights purposes. Everyone loses! Yay!

          1. Anonymous Coward
            Anonymous Coward

            Re: "between 2007 and December 2014"

            "... but many clients refuse to do that because they would also have to provide the benefits of being an employee."

            I doubt there is an company that would balk at covering benefits if someone was working for them for a number of years. As long as the rate was reduced to the equivalent of an employee level to be fair.

            It would be the contractor who would complain about the drop in rate and the need to pay full taxes.

            It's hardly as though someone who has been working at a company for 7 years hasn't taken a holiday or probably even had some sickness. It just they would have to get their employer to pay for it rather than the company they are contracting to and that would be covered by the fees they charge.

        2. Dave 15

          Re: "between 2007 and December 2014"

          I have done fixed price work like you suggest but you end up with needing another person to manage the scope change inevitable in the real world outside the perfect processes. We should all stop dicking around, close our companies and walk away, this is the only way. If I am effectively an employee then I also require holiday, sick pay, redundancy, training and all the rest. It is not possible for HRC and companies to have it both ways IF we stand together

      2. Anonymous Coward
        Anonymous Coward

        Re: "between 2007 and December 2014"

        You can easily be a fixed term employee and get rolling contracts, or even just employ and then make redundant when the project finishes and they can't be moved to another project, like evry other employee?

        It's not as though onboarding an employee is difficult or onerous, the issue is just that there would have to be a massive wage drop for the 'contractor' or a massive rise for the other employees. That's where it becomes difficult. You can justify the higher contractor rate be 'contractor, innit'.

        1. Dave 15

          Re: "between 2007 and December 2014"

          The contractor higher rate is bullshit. By the time you remove all the pension, sickness cover, training, insurances, redundancy rights etc. And have to cover those and the public indemnity contractors are not actually paid enough any more. In fact for the last 40 years the boards of companies have awarded themselves massive packages by squeezing everyone below. This ir35 crud is really a blue touch paper and Hmrc are lighting it and the result will not be pretty for the little left of UK high tech

  7. Anonymous Coward
    Anonymous Coward

    Blanket Retrospection is but an act away

    I suspect HMRC will grow tired of these isolated IR35 cases given their low success rate and simply conduct a blanket assessment that everyone is in IR35 then sneak in a law hammering everyone with 20 years of retrospective charges.

    Of course I'm typing complete gibberish because such an idea is absolutely insane and would set a precedent.

    Oh wait.

    1. This post has been deleted by its author

  8. The Nazz

    Final paragraph.

    The case in question seems a reasonable and fair outcome, from what we know.

    However, i can't get my head around the final paragraph, letting three people off paying what has been determined to be due to HMRC simply because they and their advisors acted in "good faith." And everyone else acted in "bad faith"?

    And yet Christa Akroyd had to pay up, despite her claims that she merely did what the BBC told her to, gave her no option to do otherwise.

    Odd. Decidedly odd.

    1. tip pc Silver badge

      Re: Final paragraph.

      “ And yet Christa Akroyd had to pay up, despite her claims that she merely did what the BBC told her to, gave her no option to do otherwise.”

      That’s how they make an example of people and scare others into compliance, the establishment love making examples of people and care not about the individual consequences. Been happening for years to ordinary people & minorities, now their shining a light on celebs.

    2. Brewster's Angle Grinder Silver badge

      Re: Final paragraph.

      I haven't got time to look it up. But if the rules were opaque or missing, then the Tribunal may have had to "clarify" the law to the cover the case. In that situation, I would expect them to be let off as a matter of natural justice, provided they weren't taking the piss; there would be no way they could know they were in the wrong till a court adjudicated. And I would expect anybody who'd behaved in a similar manner to be let off prior to the precedent.

      DISCLAIMER: IANAL, but I have beaten HMRC at a Tribunal. :)

    3. Dave314159ggggdffsdds Silver badge

      Re: Final paragraph.

      The 'bad faith' part of the Ackroyd case was that she and the BBC were claiming she was two different things*, and each claimed the other needed to pay taxes but neither paid. It was reasonably presumed to be obvious to her, or her advisers, that this could not be legal.

      *The BBC characterised it as a PSC, which employed her and had to pay employer's taxes, NI, etc, while Ackroyd claimed to be working for the PSC as a self employed contractor. Frankly, it's astonishing she was advised to fight it, because this one's an open and shut case. The PSC was fine, but she was obviously employed by it - that's the meaning of personal services.

      Tbqh, Ackroyd and her accountants were lucky to escape criminal prosecution, because this isn't a loophole, or a grey area, or pushing the line, it's plain, straightforward tax evasion.

  9. The Nazz

    Presumably, similar tax reduction schemes no longer apply to Footballers?

    Manager : "Hey Joe, you're in the team for the cup match Sunday 16.30 kickoff. Be on the team bus by 14.00"

    Player : "But i'm a contractor, i was planning on turning up 21 minutes into the second half"

    1. tip pc Silver badge

      Re: Presumably, similar tax reduction schemes no longer apply to Footballers?

      The clubs tend to pay all the players taxes, not sure about their off pitch income though.

  10. Anonymous Coward
    Anonymous Coward, when are these 'disguised employees' going to get paid all the back dated holiday pay that they have not received from being an employee?

    When are HMRC going to refund the employ[ers] PAYE and NI contributions that they have paid all this time?

    1. VanguardG

      Apparently it doesn't work that way. Contractors are "disguised employees" for liability purposes (ie, taxes) but not for benefit purposes (holiday, sick leave, pay reviews) short, only in the ways that benefit the government by increasing tax revenue.

    2. tip pc Silver badge

      The sickness and holiday pay the contractors company should be paying the contractor?

      1. Dave 15

        But the whole point of the ir35 shit is that Hmrc do not consider the contractor does work for his company but as a direct employee of the end company, thus it is not the contractors company that should pay sick and holidays but the end company. One reason my pay from my company is not the same as the money paid for my contract is so that my company can continue to pay me while I am sick, on holiday or not working....just like every consultant company like Deloitte does. If Hmrc wants to wrap up a huge tax then they should tackle that, it is exactly the same, the end company interviews and employs specific people from the big company, has them at their premises, doing work as directed by the end clients manager on the end clients machines, I know because I have worked through a big consultancy before. This is simply have a go at contractors because they are individuals without a mass of lawyers so are easy meat. We need to get together to fight this

    3. Dave314159ggggdffsdds Silver badge

      That's not how it works when you get caught evading taxes. You insist you're not due any employee benefits, fine, that's up to you. You still owe the taxes due, though.

      1. Dave 15

        No tax evasion at all, we pay our tax and Ni just the same as you. Our companies also pay the required tax and Ni.

        It is neither criminal nor immoral to pay only what is due rather than pay more.

        The problem is that all flavours of gvmt in the Uk have for too long listened to British hating senior civil servants educated by Russian plants in Oxford and Cambridge and have poured the UKs money into foreign cars, planes, buses, expensive foreign software development for HMRC, NHS and the like which has left us with a low wage, low quality, I'll trained workforce, no industry, no production, no jobs and no money. Millions not in work and millions more needing tax credits to eek out a miserable existence with piss poor part time work. The fix is NOT to hound the few still working but to hang the advisers who have got it so wrong as the traitors they are and set about rebuilding the country. I don't see any politician with the skill or the balls to do this

        1. Dave314159ggggdffsdds Silver badge

          If you're falsely claiming an employment status that does not in fact apply to you, with the intent and effect of paying less tax than the law says is due, that's tax evasion. You are not paying what is due, you're lying to the taxman to wriggle out of your obligations.

  11. Anonymous Coward
    Anonymous Coward

    Easy fix.....

    Don't most of these jobs go via an intermediary? Legislate to remove their cut to the actual work they do - finders fee - and then charge them an admin fee of 2% or cost for the zero risk they take and with the rate increase it should be close.

  12. Ashto5 Bronze badge

    IR35 Victim


    Smacks of hypocrisy, maybe HMRC need to flip this around.

    Employee acting like a contractor should be liable for their own taxes, pass all the taxes to the disguised contractor.

    Still the unfortunate victim of IR35 can now claim holidays and all the other perks of being an employee, and surly both parties acted in good faith which is what the judgement in a prior case stated and therefore HMRC was not allowed to claim the tax.

    This totally looks like HMRC have decided that contractors as a group MUST have assets and is going after them.

  13. unbender

    Travel and lodging?

    What is going to happen to those that work on 12-18 month contract travelling from home every Sunday night and staying in a hotel? HMRC seem to be saying that those costs cannot be deducted pre-tax by the contractor, so are they to be added onto the day rate?

    It's going to hurt companies in remote places like Dounreay bigly.

  14. Lord Elpuss Silver badge

    On the merits stated in the article, this actually seems like a fair decision.

  15. Anonymous Coward
    Anonymous Coward

    Another case of the employee wearing the cost

    and the employer getting off scott free.

    Nationwide Building Society got him cheap, and now he has to pick up the bill.

  16. The Vociferous Time Waster

    Offset his holiday pay

    Surely if have declared this person an employee then there are large amounts of holiday pay and other benefits, not to mention a hefty redundancy payment.

    Can't have it both ways - or employees might soon find that they too are being taxed as an employee but treated like a contractor.

    1. keith_w

      Re: Offset his holiday pay

      Would not Redundancy, holiday and sick pay be a matter between the employer and the deemed employee, rather than involving HMRC, beyond collecting additional taxes on those items?

  17. aje21

    What about corporation tax which was paid?

    Not sure of the details of this case, but back when I did contracting (stopped doing so at the start of 2000 partly because of IR35) I took a nominal salary to cover for situations when I had no paid work and then took the balance of the income in the form of dividends. However, the company had to pay corporation tax on the profits (from which I took the dividends) though I could use that to offset some of the income tax I paid on the dividends I received. If it turns out that the money was ALL salary and liable for income tax and NI then would HMRC repay the corporation tax?

    What I remember of my contracting days, you could reduce your NI burden by taking a smaller salary and then dividends for the rest, but the total of corporation+income tax paid ended up the same as what you would pay for income tax if all the income was salary. With NI was that you were liable for both the employers and employees payments out of the money you made from working, so the actual amount of NI which I ended up paying wasn't much different to what I had contributed when an actual employee (though I know that I am not taking account of what my employer would have paid when I was an employee).

    I understand the motivation behind IR35 and that I was taking advantage of a loophole which existed at the time, but IMHO the amount the government made from me when contracting (due to the rate I was being paid being higher) was significantly more despite the loophole!

    1. Graham 6

      Re: What about corporation tax which was paid?

      Yes...all that corporation tax would surely have to be repaid by the HMRC if the person was not a business.

      ... and the Employers NI.

      I'd like to see how the HMRC try to get out of that one.

  18. JohnG

    Judge Hyde wrote: "The right to substitution was fettered with Nationwide having the final decision and effectively a right to veto."

    It is fairly obvious that any organisation would want to the contractual right to reject specific personnel sent by some services company, if they felt that that the individual concerned lacked the relevant skills, qualifications, experience or other some other requirement. It is no different to a customer being able to reject a product that doesn't meet requirements. Without such clauses, large service companies would routinely substitute experienced and expensive personnel with less experienced cheaper people.

    1. $till$kint

      You just described Accenture

      1. Anonymous Coward
        Anonymous Coward

        And IBM

        They're grad scheme's like The Apprentice.

  19. Dave 15

    One single option left

    All those working through Ltd companies must close the company and cease work. If we all did this today, every single one of us, then this ridiculous and unfair legislation would end immediately. MPs claim back and avoid far more tax despite doing nothing useful in their cushy nearly always renewed (especially by cabinet) employment. I know it sounds a bit like the old down tools mantra of the unions but the ONLY way that any government has ever listened to anyone other than its rich backers is when faced with concerted mass action.

  20. Anonymous Coward
    Anonymous Coward


    Does this mean that all ex-politicians on the after dinner speech circuit are subject to IR35 too? Surely, they can't subsitiute and are told when and where to work.

    1. Androgynous Cupboard Silver badge

      Re: Ex-politicians

      Nice try, but they also don't work for a single employer for seven years.

  21. Drewfusss

    Some one get Coronavirus into the HMRC already. Ruin the lives of all contractors trying to earn an honest crust to support their families. Love life scum

  22. Fw33dumb

    Riddle me this

    Most small businesses would struggle not to be seen as 'employees' for contracted work.

    Let's say a small five man business (Polly's Patter Ltd) win a contract to deliver a four training days a week over a three month period for Nationwide. Clearly there are meetings, prep, checks, amends, delivery across multiple sites across the country. It's expected to take 6 months, but actually takes 12 months.

    Rather than providing two 6 month fixed-term contracts, the contract is instead renewed on a quarterly basis. It's stipulated that all design and development must be done onsite at their head office as there'saccess to sensitive information. Some meetings are at other locations and as written delivery is at multiple locations across the UK. Anyone operating onsite will need to have gone through security vetting.

    Would Polly's Patter Ltd an employee of Nationwide? Almost everyone would say no, right?

    Clearly though there's not enough information.

    You need information on the employees of Polly's Patter.

    Polly is the Managing Director and won the contract. Her skillset lies in sales.

    James is Head of IT, which means he's computer literate.

    Paul is Polly's husband. He is a Director of the company, but owns is own business. He is therefore not an employee. He is a qualified Structural Engineer.

    Lynn is a learning specialist and has 10 years experience delivering face to face corporate training courses.

    Gregg's a graphic designer, with a good understanding of some elearning software.

    Finally, Jane, The Office Manager/Receptionist/Cleaner.

    So now, are PP Ltd and employee of Nationwide? Are Lynn and Gregg employees of PP Ltd or Nationwide?

    What happens if Lynn becomes longterm sick (just make her redundant?)? Noboday else within PP Ltd has her required skillset... they would have to find a suitable replacement, right, or not get paid.

    But given the client's security policy, any substitute could be vetoed by Nationwide.

    So tell me, where you believe PP Ltd (or those individuals within the company) become an employee of Nationwide.

    Is it when over 80% of their income comes from Nationwide?

    Once the rolling contract goes past a set length of time?

    When a certain percentage of PP Ltd staff are dedicated to working on the contract?

    When Nationwide veto Jane as a non-qualified replacement for Lynn?

    When Nationwide veto James for being on site as he has a historic criminal record?

    When Nationwide veto Paul onsite as he was made bankrupt 15 years ago?

    When PP Ltd subcontract/outsource to Another Co Ltd to fulfill the contract which actually goes against the contract signed?

    When HMRC spend taxpayers money to fight the case and a judge flips a coin?

    1. tip pc Silver badge

      Re: Riddle me this

      Pollys Patter cannot be seen as a disguised employee as it has its own clear business structure and is not a 1 man shop.

      Even if polly sent 1 person into nationwide for 7 years doing a job someone else in nationwide was doing its likely their person polly sent in was on PAYE and paid the correct taxes. If Polly was acting as an intermediary between nationwide and a contractor then I’d expect polly to be liable for stuff but Courts may well find nationwide liable especially now the rules are clearer.

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