Split decision in recent IR35 case

A win and a loss for HMRC in the tax tribunal but a much-needed victory for slef-employed professionals in the health care industry

Self-employed professionals providing services in the health care industry have always been presented with difficulties in defending their self-employed status. The difficulties are generally due to the levels of control which are inherent when working in environments such as hospitals. 

When IR35 reform in the public sector was introduced in April 2017, the NHS took the final decision to take a ‘blanket approach’. This deemed all self-employed NHS workers inside of IR35. We believe this is an unfair approach and HMRC has even stated it is incorrect. It appears that a case involving the supply of independent professional services to an organisation such as the NHS, is much needed.

George Mantides Ltd

Earlier this year on May 10th, George Mantides, a urologist operating through his own Ltd company ‘George Mantides ltd’ decided to appeal against HMRC. George Mantides appealed the decision that contracts with Royal Berkshire Hospital (RBH) and Medway Maritime Hospital (MMH) were caught by IR35. Whilst tax tribunal cases do not set a legal precedent, they can be relied upon in defending IR35 enquiries.

George Mantides Ltd provided specialist urology services at RBH between March and August 2013 and at MMH between September and October 2013. Services were also provided at the Royal Shrewsbury Hospital during 2013/14. The company was engaged via an agency meaning he did not have to be interviewed by the hospitals before he was able to commence work, as all the necessary checks would be undertaken by the agency.

Inside or Outside IR35?

George Mantides Ltd would run outpatient clinics, which included being given a list of patients with a time limit interval being assigned to each patient. Surgical work would also be undertaken utilising the hospital’s theatres and equipment. Mr Mantides was not required to attend all staff meetings but did attend a monthly meeting and although he was not given responsibility for junior consultants, he did advise them when requested. There was an expectation that Mr Mantides would discuss more difficult cases with a senior consultant and may discuss his proposals for surgery with a team of consultants.

George Mantides Ltd paid the cost of its GMC registration (the medical register) and had to pay for rented accommodation when providing services at the hospitals due to the distance away from home.  Additionally, as a stipulation of George Mantides’ contract, he was required to have Professional Indemnity Insurance in place, which was also paid for by George Mantides Ltd.

Contract with MMH

George Mantides Ltd did have a contract with MMH which indicated that Mr Mantides would be made available to MMH. The contract stated when the engagement would start and end and that if necessary, the contract could be terminated upon one days’ prior notice and that Mr Mantides would be on call. The contract also included a warranty in that George Mantides Ltd had to warrant that the Temporary Contractor, defined as George Mantides, was a director with control over the limited company.

The contract also contained a right of substitution clause. This was challenged by Mr Best at MMH who stated that he wasn’t aware of the clause or that substitution had even occurred in practice. Mr Mantides claimed that he had a list of 5 other urologists who could be used as substitutes. He further proved that he himself was used as a substitute in 2013 by another locum urologist.

Although this agreement was for a duration of 3 months it was terminated after only 5 weeks. Evidence given by Mr Best at MMH was that Mr Mantides’ work would be “overseen by the urology consultants.”

Contract with RBH

No formal contract was presented as evidence between George Mantides Ltd and RBH. Written evidence of the engagements was in the form of booking confirmations, covering the main details of the engagement such as location and payment terms etc.

The booking confirmations did not contain any provisions for terminating the contract but Mr Jones at RBH gave written evidence which stated the agreement could be terminated at any time, should the services no longer be required.

Mr Jones from RBH advised that Mr Mantides would not be able to provide a substitute and that his personal service would be required. Mr Mantides however firmly believed that he would be able to exercise a right of substitution should the need to do so have arisen. In practice, the Judge concluded that it appeared unlikely that RBH would have accepted a substitute. Additionally, Mr Jones stated that Mr Mantides’ work would be checked but “from a distance”.

Conclusion

MMH

This contract was determined not to be one of employment and therefore outside of the IR35 rules, based on the contract being for a fixed term which could be terminated upon one days’ notice.

There was a right to provide a substitute albeit somewhat fettered, in that the substitute could only be provided if accepted by the agency and hospital. However, this was cited by the Judge as a pointer away from employment. There was no obligation on the part of MMH to provide work for George Mantides Ltd.

The Judge recognised the similarities with both cases but stated that the agreement with MMH contained 3 elements which set it aside from the contract with RBH; the right to provide a substitute, termination of the contract upon one days’ written notice and a lack of mutuality of obligation.

Despite only one contract being deemed to fall outside of IR35, this is a hugely successful outcome for those workers operating via their own limited companies on an outside of IR35 basis for organisations such as the NHS. Control, as you’d expect, was a strong feature of the case but it’s important to remember that IR35 status is not determined on one factor alone.

This outcome will undoubtedly resonate with the NHS, who based on the outcome of this case, may wish to re-think their stance on off-payroll rules and that the ‘blanket approach’ may not be for the best.

 RBH

The Judge concluded that based on the evidence George Mantides Ltd’s contract with RBH would have been one of employment and was therefore caught inside IR35.  This is because there was a requirement for personal service, meaning there was ‘a measure’ of control exercised by the hospital. The Judge stated that, “it would not be control in all aspects of his work but some of his activities would be dictated in part by the hospital or to some degree supervised.”. The Judge believed there was sufficient mutuality of obligation. On the point of control, the Judge did find that although the hospital did not exercise tight control over Mr Mantides, they did have a right to do so, however this was not considered to be a strong pointer towards employment.