JLJ Services Limited v HMRC (2011) - FTTT


Mr Spencer, an IT specialist, provided services to Allianz Cornhill Management Services Ltd (“Allianz”) through his own limited company, JLJ Services Limited (“JLJ”) between 2000 and 2007.

After attending a telephone interview, Mr Spencer originally agreed a 6-month engagement commencing in May 2000. Prior to this, Mr Spencer was out of work. He was initially contracted to provide services to Allianz through Highams Recruitment Limited (“Highams”) and perform services on specific projects but the relationship evolved at the end of 2003 when Mr Spencer was offered either employment or an indefinite engagement. The work then renewed on a new annualised basis as opposed to a project basis.

HMRC claimed he was inside IR35 for all seven years of the contract and insisted on a settlement of unpaid income tax and National Insurance Contributions (NICs), interest and penalties of £141,000.

IR35 Indicators

The wording of the two written contracts between JLJ and Highams, and between Highams and Allianz were virtually identical. The contracts had mirroring substitution clauses which were deemed irrelevant by the Judge as JLJ had no other employees to offer as substitutes and Allianz was interested in the qualifications and suitability of Mr Spencer. No substitute was ever offered in 7 years of work. Whilst the Judge stopped short of declaring the contracts a complete sham the view was taken that the clause had been inserted to achieve the desired tax purpose and had virtually no bearing on the decision.

Control was limited up until the end of 2003, when Spencer “ceased to be engaged for identified projects” and was in reality, more controlled by the client. It was accepted that during the first 3 years of engagement, where the work was related to particular tasks and projects, the control over Mr Spencer’s work was limited. However, when the work was no longer project based and Allianz required the services of Mr Spencer indefinitely, the Tribunal took the view there would be greater opportunity for control.

Mutuality of Obligation
The Judge put forward that the mutuality of obligation test is ‘nearly meaningless’. Although there was a difference between Mr Spencer’s circumstances up until the end of 2003, when he was exposed to the risk of gaps between assignments and post 2003 when this was no longer the case. This was significant in supporting that there had been a change in the relationship.

Financial Risk
Mr Spencer failed the ‘in-business on own account’ test as there was, in the Judge’s view, no opportunity to profit and Mr Spencer was “simply paid for hours worked”

The parties’ intentions were also dismissed by the Judge as having “very little or no importance”. He stated that Mr Spencer and Allianz opinion on what is a matter of realistic construction of the overall facts is of very minor significance.”


The Tribunal held that when it became clear that Allianz wanted Mr Spencer’s services permanently, he became one of Allianz’s key computer experts, who was available for any work they offered and it would have been appropriate to regard the notional relationship from January 2004 onwards as one of employment.

Judge Howard Nolan ruled that IR35 did not apply for the first three years of the contract, but after that, Mr Spencer had then taken on all of the characteristics of an employee.

This case emphasises the importance of considering your IR35 status periodically whilst an assignment is ongoing. Over time, the nature of a relationship can change and this can have a damaging effect on a contractor’s independent status.

In this case, it was the client’s shift towards wanting to engage Mr Spencer on an ongoing basis which had a detrimental impact on his IR35 status. This also highlights the importance of demonstrating that a contractor is engaged on a project basis, in order to dispel there is no mutuality of obligation and to highlight a lack of control.

In this case, it was the client’s shift towards wanting to engage Mr Spencer on an ongoing basis which had a detrimental impact on the change in status. Also, this is a further case which shows the importance of demonstrating that a contractor is engaged on a project basis in order to dispel mutuality of obligation and highlight a lack of control.