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It has been revealed that HMRC missed the opportunity to overturn an IR35 case defeat at the Upper Tier Tribunal after missing the deadline to submit an application to do so. This means any chance the tax office had of winning this long-running IR35 case are now all but over.
In the same Tribunal, which focused on two separate contracts held by one contractor, the judges delayed delivering a verdict on the second contract until a decision has been reached in another tax case, such is its importance.
The contracts in this UTT involve locum urologist George Mantides. He provided his services through George Mantides Ltd as a specialist urologist to Royal Berkshire Hospital (RBH) from March to August in 2013, and to Medway Maritime Hospital (MMH) from September to October 2013.
In 2019 at the First Tier Tribunal, (FTT) a split verdict was delivered. Mr Mantides’ contract with RBH was deemed caught by IR35, with the MMH engagement viewed as outside IR35.
At the recent UTT, heard on 15th July 2021, Mr Mantides was looking to overturn the RBH decision, while HMRC would have challenged the MMH verdict, should it have lodged its permission to appeal in time.
Let’s start with HMRC’s failure to meet the deadline to appeal the MMH contract.
Despite losing this case at the FTT on the grounds that Mr Mantides’ contract included the right of substitution (which had been exercised) and that just one day of notice had to be given to terminate the engagement, HMRC sought permission to appeal this at the UTT.
However, and crucially, the application was submitted late and no extension time was granted to the tax authority. In short, this means HMRC has lost its chance to overturn the outside IR35 verdict, which has been upheld.
Unsurprisingly, expert reaction to this blunder from HMRC has not been forgiving, with our own CEO, Seb Maley, describing it to Contractor UK as a “calamity”, that “will not have done their reputation any favours.”
The second engagement, concerning the RBH contract, turned out to be a more complex matter.
The UTT did rule in favour of Mr Mantides on grounds 1 (the one week termination period) and 2 (an obligation to deliver 10 half day sessions per week) of his appeal, however it was agreed by both parties and the judges that ground 3 (which focused on Mutuality of Obligation) cannot be considered full until the recently heard PGMOL v HMRC verdict is published.
But why is this? It’s clear that Mutuality of Obligation (MOO) is key to the outcome of this contract. By this we mean the obligation (or lack of) that Mr Mantides had to work for RBH and the obligation that RBH had to provide him with paid work
In the £584,874 PGMOL case, HMRC unsuccessfully argued at an UTT that professional football referees were employees of the refereeing body. It was recently escalated and heard at the Court of Appeal.
Like Mr Mantides, the outcome of this decision, which is expected soon, rests largely on MOO. In the UTT hearing for the PGMOL case, HMRC failed to convince the judges that MOO exists in all working relationships.
Given the deemed importance of the PGMOL verdict, it accepted that this verdict would have a “significant bearing” on both Mr Mantides’ and HMRC’s argument, which is why a decision has not yet been made.
The PGMOL outcome could also have major implications for the future of HMRC’s IR35 tool, CEST.
If it’s decided that the tax office’s interpretation of MOO is not correct and that this aspect of IR35 case law doesn’t automatically exist in all engagements, status decisions based on answers provided by CEST - which works on the premise that MOO is present - will be cast in doubt.
Given this tool has been used over 1m times in the past year alone, needless to say the consequences of HMRC failing to overturn this loss at the Court of Appeal could be huge.
While no date has been given for the PGMOL verdict, which could determine the outcome of Mr Mantides’ IR35 case, a decision is expected in the coming months.
As always, Qdos will keep you updated.
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