IR35: Partial win for NHS locum

15th Jul 2019
Partner RSM UK
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Doctor in hospital background

The first tier tax tribunal examined the contracts between an NHS locum and two hospitals and found that while one contract fell inside the IR35 rules, the other fell outside.

The IR35 or intermediaries off-payroll legislation is designed to ensure that individuals who ought to pay income tax and NIC as employees cannot use a corporate structure to reduce their tax liabilities.


In George Mantides Ltd (GML) v HMRC (TC07202), the tribunal judge had to determine whether the features of each contract pointed towards an employment or a self-employment status, and therefore whether the contract fell within the IR35 rules or not.

Although the tax and NIC at stake in this case was only around £30,000, it has wider relevance to those operating the off-payroll rules in the public sector. It will also be pertinent to contracts in the private sector where the reformed IR35 rules will apply from April 2020, as outlined in the draft Finance Bill 2019/20.

When the off-payroll rules were introduced for the public sector, it was widely reported that some engagers were making blanket decisions on employment status, but the outcome of this case reinforces that individual decisions are needed.

The facts

George Mantides was a urologist who operated through his own personal service company (PSC), providing services to the Royal Berkshire Hospital (RBH) and Medway Maritime Hospital (MMH). HMRC argued that both arrangements were caught by IR35 as deemed employments.

The first tier tribunal (FTT) considered the engagements with each hospital separately. It concluded that the hypothetical contract between RBH and Mantides would, on balance, have been one of employment (IR35 not apply). With MMH, there were sufficient indicators of self-employment for the tribunal to allow the appeal, so IR35 did not apply.

It is understood that HMRC is currently deciding if they wish to appeal the outcome in relation to MMH.


At both hospitals, Mantides worked as a locum seeing patients according to a rota, ordering and reviewing x-rays, carrying out minor surgical procedures and dictating letters to the patients' GP, using facilities and equipment provided by the hospital.

Minimal direct supervision was required as he had sufficient expertise to carry out the work. He was required to attend only one regular meeting. The MMH contract was terminated early. The PSC invoiced only for the hours Mantides worked.

Employment benefits

There was no entitlement to sickness, pension or holiday pay. The PSC, which had a written contract with MMH only, paid for Mantides' professional indemnity insurance and General Medical Council registration.

Split decision

The case centred on three important respects in which the work for MMH differed to the work for RBH. These were what resulted in the split decision.

The notional contract with MMH contained:

  • a valid substitution clause such that any substitute proposed had to be suitable on the basis of the hospital’s usual criteria.
  • a one-day notice period. This contrasted with the RBH contract, under which at least a week’s notice had to be given. The judge commented that one day's notice is almost illusory and does not point to employment.
  • no obligation on MMH to try to provide either 37.5 hours or 10 half-day sessions in a week. There would not have been even a qualified obligation to provide work.


Judge Hellier concluded that, given the doctor's expertise, in many respects the circumstances of the MMH engagement would be the same as those of the RBH engagement.

There was almost no direct oversight of his work. He did not report to anyone on a daily basis. There was no indication that he was subject to control over how to perform any part of his work and whilst there was some review of his work there was no direct/close supervision of his work.


The case also raises the significance of mutuality of obligation (MOO). In the engagement with MMH, the hospital was neither obliged to provide work nor provide notice. This again raises questions over HMRC's decision to omit MOO entirely from consideration within the check employment status for tax (CEST) tool.


On substitution, the judge stated “the more qualified that right the less serious its effect on the overall picture”, so it is vital that contract clauses are properly drafted.

In addition, where the end user needs to accept that the proposed substitute is suitable it can be enforced in accordance with accepted criteria. HMRC and the courts in many cases are keen to play down the importance of a right of substitution, arguing that if the right is not wholly unqualified, then it is fettered and therefore not conclusive in demonstrating self-employment.

Written terms

The case highlights the importance of written contractual terms: something which is being introduced on 6 April 2020 for all workers and employees. Employers will be required to give them written statement of terms to workers on the first day of work.

CEST will be key

A key aspect to the successful implementation of new off-payroll working rules will be how businesses, agencies, PSC/workers (and indeed HMRC) can confidently be assured that decisions on status can be relied upon. For most, this is likely to mean that they need to be able to rely on the output from the CEST tool.

HMRC has promised to revamp its CEST tool ahead of the new rules and publish guidance later in 2019. However, it should be noted that the HMRC guidance is of course just guidance and not law. A good deal of the case law relating to employment status is not directly related to tax or IR35.

The government announced in December 2018 that it intended to “legislate to improve the clarity of the employment status tests” and consider some alignment for tax and employment rights. I believe it will be important that the government indicates when these changes will be introduced, as this will impact the effectiveness of IR35 status decisions and the implementation of the off-payroll rules.

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