A healthy understanding of IR35
George Mantides Limited v The Commissioners for Her Majesty's Revenue & Customs
Background
George Mantides, a urology specialist, provided locum services to two hospitals, Royal Berkshire Hospital (RBH) and Medway Maritime Hospital (MMH).
Mr Mantides provided his services through a 'personal services company' (PSC), called George Mantides Limited (GML).
HMRC asserted that GML's engagement fell foul of IR35 legislation and ordered Mr Mantides to pay £29,613.33 of underpaid Income Tax and NICs.
The revenue said that, under hypothetical direct contracts between Mr Mantides and RBH and MMH (i.e. ignoring the existence of GML), Mr Mantides would be most properly classified as an employee, as opposed to self-employed.
The First Tier Tribunal (Tax Chamber) (FTT) was required to consider the engagements with RBH and MMH.
As this dispute concerns the tax year 2013/14, it pre-dates the 2017 public sector legislative change that shifted IR35 compliance responsibility from individuals, such as Mr Mantides and his company GML, to the end user – in this case, the hospitals Mr Mantides provided services to.
Decision
Despite very similar facts, the FTT held that Mr Mantides would have been classed:
(a) As an 'employee' for his engagement with RBH; and
(b) As 'self-employed' for his engagement with MMH.
The key deciding factor in this case seems to have been the existence of a professionally drafted written contract for the engagement between MMH and GML, whereas there was no written contract between RBH and GML.
The FTT drew on the following distinctions between the MMH and RBH engagement:
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For MMH, Mr Mantides had a right to send a substitute (subject to approval), that was not permissible for RBH.However, there was no evidence of substitution in either engagement. The existence of a written contract with MMH (versus no written contract with RBH) therefore appears to have been determinative here.
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The MMH contract was terminable on one day's notice, whereas the RBH contract required a week's notice.
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There was no mutuality of obligation between Mr Mantides and MMH, whereas he had to make himself available for 10 half-day sessions a week to RBH.
The FTT found, as regards MMH, that Mr Mantides had "to be available for at least 37½ hours per week, but that MMH were not obliged to provide 37½ hours per week".
In IR35 assessments, case law requires the FTT to focus on the reality of an engagement.
In reality, Mr Mantides routinely worked between "35½ and 39.17" hours per week for MMH.
The FTT's decision could be seen as surprising in these circumstances, with weight seemingly given to the contractual provisions over the reality of the engagement with MMH.
This decision underlines the importance of contractual provisions when it comes to IR35.
Contracts cannot (usually) save someone who is otherwise clearly breach of IR35.
Here, however, in what the judge clearly considered to be a marginal case, the existence of the written agreement with clear and helpful terms (from an IR35 perspective) tipped the balance.
For those in the healthcare sector grappling with IR35, either the public sector reforms that took effect in April 2017 or the private sector reforms taking effect from April 2020, this is a useful reminder of the principles being applied.
A final point of note
Regulatory requirements (such as those in the healthcare sector) often cause confusion when considering IR35.
'Control' is a significant factor when assessing 'employment status' for the purpose of IR35.
Control is however a necessity of certain engagements, such as healthcare. In the circumstances, it would seem an unfair determiner.
Helpfully in this decision, the control necessitated over a medical professional was largely disregarded for the purposes of the IR35 assessment.
It has previously been noted that CEST (HMRC's online employment status checker) struggles to cope with the 'regulatory overlay' of engagement.
Professional advice on status is, in these circumstances, incredibly useful.