IR35 and the Mantides Case: Upper Tribunal finds that a locum doctor’s services were within IR35 following Supreme Court’s PGMOL judgment

This article briefly considers the Upper Tribunal’s (UT) decision in the case of George Mantides Ltd v HMRC.

The UT considered whether Dr. George Mantides, a urologist, who in 2013 provided services through his personal service company (PSC) to two NHS hospitals, Medway Maritime Hospital (MMH) and Royal Berkshire Hospital (RBH), fell inside or outside the “IR35” legislation.

If found to be inside the IR35 legislation, Dr. Mantides’ income would be subject to income tax and national insurance, and if it fell outside of the legislation, it would not. To make this determination, the UT had to determine whether – if he had not provided his services via a PSC – Dr. Mantides would have been considered an employee by the Trusts.

Background

In 2019, the First-tier Tribunal (FTT) had considered Dr. Mantides’ engagements and delivered a split decision:

• MMH Engagement: Determined to be outside IR35, citing factors like the right of substitution and minimal notice periods.

• RBH Engagement: Found to be inside IR35, suggesting an employment-like relationship. Key factors influencing this decision included the FTT’s findings that RBH had to provide one week’s notice of termination and use reasonable efforts to offer Dr. Mantides 10 half-day sessions per week. It found that these factors supported the existence of mutuality of obligation.

Dr. Mantides appealed. HMRC sought to appeal the MMH judgment but did so out of time. The UT therefore only considered the RBH engagement. It identified errors in the FTT’s reasoning. However, it deferred a final decision pending the outcome of the PGMOL v HMRC case, which addressed the critical concept of mutuality of obligation (MOO). After a four-year delay, the UT revisited the case.

Decision

The UT held that the FTT had been wrong to find that the RBH was contractually required to give Dr. Mantides at least one week’s notice or that it was under an obligation to provide him with 10 half-day sessions per week. Accordingly, the FTT’s decision was set aside. However, after excluding the FTT’s faulty reasoning, the UT still came to the same overall conclusion. finding that Dr. Mantides should be treated as an employee for tax purposes in respect of his work for RBH.

The UT applied the test in respect of employment status from the well-known case of Ready Mixed Concrete, namely:

• Stage 1 – For there to be an employment contract, there must be both personal service and a mutuality of obligations; and

• Stage 2 – For there to be an employment contract, the engager must have sufficient control over the worker.

• Stage 3 – Unless one or more of the previous two tests has definitively led to the conclusion that there is not an employment contract, the status of the contract is to be determined by considering the contract in the light of the wider factual matrix.

It found that:

1. Mutuality of Obligation (MOO) – The UT accepted that there was not an obligation on RBH to provide Dr. Mantides with work or use reasonable endeavours to provide him with work. It also accepted that the contract was terminable without notice.

Whilst the UT accepted that these factors pointed towards self-employment, it found that these were not “particularly strong pointers” in the context of a short and temporary engagement. Instead, it found that there was MOO in the sense of the ‘work-wage’ bargain (as discussed in PGMOL).

2. Control – RBH had a high degree of control over how and when Dr. Mantides worked. It set the schedule, expected him to follow hospital protocols, and supervised his clinical duties—fitting the pattern of an employee-employer relationship.

3. Wider factual matrix – When considering the wider factual matrix:

Analysis

We are now seeing the impact of the PGMOL judgment in IR35 situations. This has led to an unwelcome outcome that two nearly identical engagements (RBH and MMH) have resulted in different findings in respect of IR35 (although one suspects that this may not have been the case had HMRC submitted its appeal in time).

It is clear that following PGMOL, Tribunals will apply less significance in respect of stages 1 and 2 of the Ready Mixed Concrete test (although the Supreme Court in PGMOL did make it clear that these stages remain necessary conditions to be satisfied if there is to be an employment relationship). Instead, Tribunals can consider the wider factual matrix (namely, Stage 3) and consider control, personal service and MOO at this stage too.

Clearly, contractors will now face difficulties in arguing that their engagement does not fall within IR35 because of a lack of MOO – previously this was seen as a key factor pointing away from hypothetical employment and historically has been heavily relied upon by contractors. PGMOL made it clear that the absence of any mutual obligations between assignments is not a relevant issue in finding MOO. In Dr. Mantides’ case, despite the lack of an obligation to provide work to a contractor and the lack of a notice period, MOO was found to exist. As such, contractors arguing that they are outside the scope of IR35 purely due to a lack of MOO do so at their peril.