In a key decision for contractors and employers, Mantides v His Majesty’s Revenue and Customs (HMRC), the Upper Tribunal (UT) clarified how IR35 applies to healthcare professionals working via personal service companies. Do you think a flexible contract alone protects against IR35? Think again. The UT’s ruling shows that personal service and control still tip the balance toward employment status. The Mantides ruling highlights why contract terms, working practices, and updated case law must all align. Review contractor arrangements now to stay compliant.
Background
George Mantides, a consultant urologist, provided locum services via his personal service company, George Mantides Limited (GML), to Royal Berkshire Hospital (RBH) and Medway Maritime Hospital (MMH) in 2013. HMRC determined that the IR35 rules applied to his work at both hospitals, meaning the income should be taxed as employment income.
The First-tier Tribunal (FTT) found that Mantides would have been an employee if engaged directly by RBH, but self-employed in his engagement with MMH. GML appealed the RBH ruling, arguing that the FTT had made legal errors when construing the terms of the hypothetical contract.
The Upper Tribunal’s decision
The UT found that the FTT had indeed erred in two crucial respects:
- It wrongly concluded that the RBH contract included a one-week notice period for termination.
- It wrongly found that RBH had a duty to use reasonable endeavours to provide Mantides with 10 half-day sessions per week.
These findings materially affected the FTT’s conclusion that the hypothetical contract was one of employment. The UT, therefore, set aside the FTT’s decision and reconsidered the matter.
Applying updated legal tests
Since the FTT’s original decision, the Supreme Court had handed down a significant judgment in HMRC v Professional Game Match Officials Ltd (PGMOL) [2024] UKSC 29. The Supreme Court clarified that mutuality of obligation (the ‘wage-work bargain’) and a sufficient degree of control are necessary, but not enough, to establish an employment relationship. At the third stage of the test, all contractual terms and surrounding circumstances must be considered holistically to decide whether the relationship is one of employment or self-employment.
Applying these principles, the UT held that although there was a ‘wage-work bargain’ and sufficient control over Mantides’s work. The errors identified, specifically the absence of a notice period and of any obligation on RBH to offer work, weakened the case for employment but were not decisive.
After reassessing all the relevant factors, including Mantides having no right of substitution, working using RBH’s facilities, and having limited financial risk, the UT concluded that the correct analysis was that the hypothetical contract would still amount to employment. The appeal was therefore dismissed.
Key takeaways
Characterise relationships accurately
The case reinforces that properly assessing contractor relationships under IR35 involves thoroughly analysing personal service, control, and other contractual provisions. A simple checklist is not enough; you must evaluate the relationship holistically.
Notice and work obligations are not everything
While the absence of a notice period and guaranteed work may suggest a more casual, self-employed arrangement, these factors alone will not prevent a finding of employment if other factors, particularly the requirement for personal service and employer-like control, are present.
Remember sector-specific expectations
The UT acknowledged that highly skilled professionals, such as doctors, may operate with a degree of autonomy even when employed. Thus, the traditional concept of ‘control’ must be interpreted in the context of the specific profession.
Changes in case law have shifted the analysis
The UT’s judgment shows how IR35 assessments must be aligned with evolving case law, especially following the Supreme Court’s guidance in PGMOL and related cases. Past practices may no longer suffice.
Contracts and documents are key
Employers and engagers must ensure that written contracts reflect the true nature of the engagement. However, even well-drafted contracts cannot ‘game’ the system if the reality of the relationship demonstrates employment.
What should you do?
- Audit contractor engagements regularly to ensure that contracts and working practices align.
- Train hiring managers and HR teams to recognise the signs of employment versus self-employment relationships.
- Seek legal advice for high-risk or high-value engagements, especially where employees traditionally occupy roles.
- Implement robust governance around decisions about off-payroll working and ensure that decisions are appropriately documented.
