Nature of worker’s hypothetical contracts

The taxpayer Northern Light Solutions was the personal service company of L who was engaged as a project manager for a building society (NBS) for several periods since 2007.

HMRC considered that the intermediaries legislation (IR35) applied so that L should be treated as an employee of NBS. The taxpayer appealed.

The First-tier Tribunal held that under the terms of the hypothetical contract envisaged by ITEPA 2003 s 49 L would have been an employee of NBS during the relevant periods.

The taxpayer appealed on the grounds that the First-tier Tribunal had erred on the questions of mutuality of obligation degree of control and right of substitution.

The Upper Tribunal did not agree that there would be insufficient mutuality of obligation in the hypothetical contracts because NBS was not obliged to offer work - or L to accept it - if a particular project ended...