In George Mantides v HMRC [2021] UKUT 205, a hospital locum successfully challenged part of the First Tier Tribunal’s (FTT) reasoning in his ongoing IR35 appeal as to the terms of the hypothetical contract. The Upper Tribunal (UT) found that the FTT was not entitled, on the evidence, to make certain findings as to the notice periods and working hours. 

The Upper Tier decision was only part of the case. The final part of the appeal has yet to be resolved and the parties await the Court of Appeal judgement in the Professional Game Match Officials Limited case.

HMRC challenged the Personal Service Company (PSC) of a hospital locum on the basis that the services provided to the hospitals fell within the Off-Payroll IR35 rules and decided on a different outcome for each of the two hospital contracts.

On appeal, the FTT reviewed the evidence of Employment Status and the agency contracts between the PSC and Royal Berkshire Hospital (RBH) and Medway Maritime Hospital (MMH) and determined the terms of a hypothetical contract between the worker and the end client. If Mr Mantides had been directly engaged by each hospital would he be employed or self-employed?

The FTT decided that the two contracts were different. As a result, he was self-employed when he worked for MH and employed in respect of RBH.

Following the judgment, Mr Mantides made a new Appeal on the following grounds:

(1) The FTT made an error of law in that it found that the hypothetical contract between RBH and Mr Mantides would have contained a provision that RBH would have to give at least a week’s notice to terminate it early. That was an error of law because it was not a conclusion available to the Tribunal on the evidence before it.

(2) The FTT found that in the hypothetical contract, RBH would have been under an obligation to use reasonable endeavours to provide 10 half-day sessions in a week. That was a conclusion which was not available to the Tribunal on the evidence.

(3) As a result of these errors, the FTT erroneously concluded that the notional contract would be one of employment. That was an error of law.

(4) The FTT failed to have proper regard to Muschett v HM Prison Service [2010] EWCA Civ 25, and, as a result, erred in law in its characterisation of the hypothetical contract between RBH and Mr Mantides.

HMRC made a Late Appeal, this was not allowed.

Mr Mantides sought to amend aspects of his grounds for appeal. The UT only partly allowed the application, rejecting amendments to the initial grounds on the basis that the taxpayer has legal representation and there was no excuse for failing to amend the grounds before the FTT appeal.

Due to the fact that the Court of Appeal was hearing the appeal against the decision in HM Revenue & Customs v Professional Game Match Officials Limited [2020] UKUT 147 (TCC) (PGMOL), both parties accepted that Ground 3 will be considered at a subsequent hearing where the UT will take submissions from the parties in light of the judgment of the Court of Appeal in PGMOL.

The UT reviewed the FTT decision with regard to the evidence presented and the conclusions drawn. It acknowledged that the evidence before the FTT, in particular contemporary documentation, was distinctly lacking and incomplete. Upon review, it confirmed that the FTT was not entitled to make the findings that it did and appeal grounds (1) & (2) succeeded.

The UT did not find that the Muschett case was relevant and the ground for appeal (4) was dismissed.

The parties now await the PGMOL judgement to decide the appeal on grounds (3).

Useful guides on this topic

Employment intermediaries legislation, 'IR35'
What is IR35? How does it work? How is the deemed payment calculated? What expenses are deductible?

Off-Payroll Working
The 'Off-Payroll Working' rules move IR35: the responsibility to assess a worker's employment status and to deduct Pay-As-You-Earn (PAYE) and National Insurance Contributions (NICs) from a worker's fees, away from the worker's company to the End-Client in the labour supply chain.

Personal Service Companies & tax
What is a PSC?  What are the tax implications for a PSC? 

Employment status
You may think that you have 'an IR35 proof contract' but if the parties act differently their actions will override written provisions. Any changes agreed by the behaviour of the parties may be enough to vary terms.

Mutuality of Obligation
What is mutuality of obligation? Why is mutuality of obligation not considered by HMRC's Check Employment Status for Tax tool?

Appeals
Disagree with a HMRC decision? How to appeal, what type of decision can you appeal, what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

Appeals: Late
When can you make a late tax appeal? What conditions must be met?

 External links

George Mantides v HMRC [2021] UKUT 205


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