We compare the two contracts below to show what can tip the balance inside or outside of IR35 and employment status.
Since April 2017, public sector organisations that engage contractors have been responsible for determining the employment status of those contractors for the purposes of PAYE and National Insurance contributions and passing that determination on to the Employment Agency or Business that supplied them. With private sector reform expected in April 2020, IR35 is on the minds of many Employment Agencies and Businesses. In this article we examine a recent decision of the first tier tax tribunal chamber of George Mantides Ltd v HMRC (TC/2018/3736).
George Mantides (GM) was a locum urologist who provided his urology services via a personal service company (PSC) to two hospitals, the Royal Berkshire Hospital (RBH) and the Medway Maritime Hospital (MMH). During each assignment the PSC provided GMs services, which included seeing patients, ordering and reviewing x rays, undertaking minor surgical procedures and advising patients' GPs, always using premises and equipment provided by the hospitals.
HMRC had previously determined that GM was an employee of both hospitals, meaning that his PSC was liable to pay PAYE and National Insurance contributions. GM appealed to the first tier tax tribunal. The judge held that one of the contracts was that of true self-employment and outside of IR35 and the other was deemed to be an employment contract and inside of IR35.
Tribunals assess whether or not, were it not for the existence of the PSC, a contract of employment would exist between the contractor and the end hirer?
The long established test to determine employment status:
The three material differences between the two arrangements were:
The table below shows further comparisons.
MMH contract amounted to Self-Employment |
RBH contract amounted to Employment
|
|
Term & Notice |
Fixed term, terminable on 1 days' notice |
Fixed term, terminable on 1 weeks' notice. 6-8 weeks' notice to take leave |
Employment benefits |
No sick pay, holiday pay or pension |
Holiday pay included in hourly pay. No sick pay or pension |
Pay |
Pay for hours worked - timesheet required |
Pay for hours worked - Standard hours 'as per rota' - 10 half day sessions |
Obligation to work |
GM obliged to be available for 10 half day sessions per week |
GM obliged to be available for 10 half day sessions per week |
Obligation to provide work |
No obligation for the hospital to provide work |
The hospital to endeavour to provide 10 half day sessions per week |
Control |
Some control and supervision |
Some control and supervision |
Substitution |
Substitution allowed. GM could suggest one but needed to be approved/agreed by the agency |
No substitution allowed |
Top Tips
Contractors providing services through a PSC, or employment businesses placing such contractors, should consider the steps below derived from this decision to assist in avoiding falling fowl of IR35: