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What can we learn about the Robert Lee IR35 case?

Mon 21st Jun 2021

It was reported this month that a tribunal judge had dismissed an IT contractor’s appeal against an IR35-related £70,000 tax bill for a second time.

Robert Lee, who worked as a contractor for Nationwide Building Society under the company name Northern Light Solutions between 2012 and 2015, received the tax demand in relation to a series of IT-related contracts deemed to be inside IR35. As a result, Lee is liable to pay the same National Insurance Contributions (NICs) and Pay-As-You-Earn (PAYE) that a permanent employee would, amounting to £74,523.

In February 2020, Lee challenged the matter through a First-Tier Tribunal, but the appeal was dismissed. Following this, Lee was granted permission to lodge another appeal, resulting in a two-day Upper Tribunal hearing in May 2021, with the results made public in June.

Why ‘inside’?

The appeal was dismissed on several grounds. The main points include:


Control is a factor if the end client dictates the work a contractor does and how they go about doing it. It also applies if the end client has the power to move the contractor from task to task as priorities shift.

It was found that Nationwide Building Society was in control of “when” and “where” Lee worked. While it was argued that Lee had autonomy on “how” he worked, it was concluded this wasn’t enough to demonstrate a sufficient framework of control.


The right of substitution is a crucial factor of whether a contract is outside IR35 or not. For a contractor to be outside of IR35, they must demonstrate that their end client is not solely reliant on them to deliver the services they are contracted to provide. Essentially, a substitute possessing the same skills and experience could be appointed and step in if required.

In the case of Lee, the ruling stated that it would be impractical for Nationwide to accept substitutes due to the “necessary restrictions on access to systems and restricted site access”. It went on to say that any substitute would need to go through “vetting checks and an interview to get up to speed on the project.”

Exercising the right of substitution

Contractors need to be aware of the role that substitution can play in determining IR35 status. If you can substitute someone else in your place, it demonstrates that you are not providing a personal service to the end client.

The unfettered right to substitution, where the client can’t object or doesn’t indicate you, the contractor, is expected to carry out all of the work, is considered by many IR35 experts to be the silver bullet against IR35.

Unfettered is key here. If a client gets involved in the process of the substitution process, it can indicate an element of control by the client, making the substitution invalid in the eyes of HMRC and the courts. In short, make sure your contract includes this vital point and that it’s actually exercised.

Need some help?

Our team at NWM are experts in IR35 and other relevant legislation, ensuring you remain informed and always on the right side of the law. If you’re a contractor and have any questions or want to find out more, contact the team on 0330 333 4240 or head over to the NWM website.

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