George Mantides Ltd v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 11 August 2021 |
| Neutral Citation | [2021] UKUT 205 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2021] UKUT 205 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Mrs Justice Bacon, Judge Jonathan Cannan
Michael Paulin instructed by way of direct access appeared for the appellant
Sadiya Choudhury instructed by the General Counsel and Solicitor to HM Revenue and Customs appeared for the respondents
Income tax and National Insurance Contributions (NICs) – Worker supplied through intermediaries – IR35 – ITEPA 2003, s. 49 – Whether hypothetical contract one of employment – Whether FTT erred in law to find hypothetical contract required a week's notice to terminate – Whether FTT erred in law to find hypothetical contract required RBH to use reasonable endeavours to provide 10 half-day sessions per week – Appeal partly upheld – Decision on hypothetical employment deferred.
The UT found that the FTT had erred in law in that it had made two significant findings of fact which were not available to it on the basis of the evidence. However, a decision on the main question of hypothetical employment (IR35) was deferred pending the judgement of the Court of Appeal following R & C Commrs v Professional Game Match Officials Ltd [2020] BTC 546 (“PGMOL”).
The First-tier Tribunal (FTT) originally found (see George Mantides Ltd [2019] TC 07202) that, had the services of a locum urologist been provided under a hypothetical contract directly between the Royal Berkshire Hospital (RBH) and the urologist (Mr Mantides), it would have been one of employment.
Mr Mantides' personal service company, George Mantides Ltd (GML) now appealed to the UT on four grounds. That:
- 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;
- 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;
- 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;
- 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.
Grounds 1 and 2 were particularly important because they concerned findings of fact which the FTT had considered to be persuasive in making its decision that a hypothetical employment contract existed, thus leading to the main issue at stake in ground 3.
It is a well-established principle (following Edwards (HMIT) v Bairstow (1955) 36 TC 207) that a finding of fact should be left undisturbed unless either there is no evidence to support those findings or it represents “a view of the facts which could not reasonably be entertained” and as such is to be regarded as an error of law.
The FTT had determined that Mr Mantides was required to provide his personal services to RBH and that at least one week's notice would realistically have been required from either party for the termination of the engagement with RBH. This factor pointed towards employment.
The UT found that it was not open to the FTT to make this finding of fact. There were no written contractual terms submitted. Somewhat surprisingly, the scant documentation submitted to the FTT referred to a set of standard terms and conditions which might have shed some light on the matter, but which were not produced in evidence. The FTT had based its findings on assumptions rather than on evidence.
In correspondence with HMRC, a consultant urologist replying on behalf of RBH, repeatedly stated that RBH could terminate Mr Mantides' contract at any time if he was no longer needed. Consequently the UT found that there was no evidence to support any other conclusion.
Most significantly, the FTT had considered there was a sufficient degree of mutuality of obligation between the parties to the hypothetical contract to indicate employment. This was largely due to its finding of fact that RBH was under a duty to use reasonable endeavours to provide 10 half-day sessions of work per week, which, together with an obligation to work and an obligation to pay for the work done, pointed towards employment.
The UT also found that it was not open to the FTT to make this finding of fact. The FTT had considered that there was a “mutual understanding” that RBH would provide the work but the UT found no basis for such an understanding. Whilst it may have been that Mr Mantides was expected to make himself available for 10 half-day sessions per week (because that was the maximum extent of the weekly rota which he had agreed to cover), there was no evidence that RBH was actually obliged to provide this amount of work. Taking into account the consultant urologist's statement that the contact could be terminated at any time, any such obligation would be so inconsistent as to render it “meaningless”.
Was the hypothetical contract one of employment? Having found that the FTT had erred in law on its findings of fact in respect of both notice and mutuality of obligation, the fourth ground of this appeal (the FTT's failure to consider Muschett v HM Prison Service) effectively fell away, as it had been put forward primarily in support of the first two grounds.
This simply left the main question (ground 3) to be determined: did the hypothetical contract between Mr Mantides and RBH amount to one of employment?
Bearing in mind that the original FTT decision in this case had largely hinged on the mutuality of obligations between the parties, at this point the UT paused to consider the effects of R & C Commrs v Professional Game Match Officials Ltd [2020] BTC 546 (“PGMOL”), on which an imminent judgement regarding application of the mutuality of obligations test is expected from the Court of Appeal.
A decision was therefore deferred and subsequent submissions will be heard at a future hearing in the light of that judgement.
PGMOL set out three apparently clear propositions as to the required content of mutual obligations in order for a contract of employment to exist:
- In respect of the employee, that there is a minimum obligation to perform at least some work and to do so personally.
- In respect of the employer, that there is an obligation to provide at least some work or alternatively to provide some form of consideration in the absence of such work.
- That both these obligations must subsist throughout the whole period of the contract.
HMRC disputes the second of these propositions on appeal, so the outcome is likely to have a significant effect on this case (and many others) if, as is expected, the Court of Appeal provides much needed guidance on the application of the mutuality of obligations test.
[1] This is an appeal against a decision of the First-tier Tribunal (“the FTT”) released on 13 June 2019 (“the Decision”). The FTT allowed in part the appellant's appeal against a determination for income tax purposes and a decision for national insurance purposes made on the basis of the “intermediaries legislation” in sections 48–61Income Tax (Earnings and Pensions) Act 2003 (“ITEPA 2003”) and equivalent provisions in the Social Security Contributions (Intermediaries) Regulations 2000. These legislative provisions are commonly known as IR35.
[2] For income tax purposes, the question whether the intermediary's legislation applies to any particular set of circumstances is determined by reference to section 49 ITEPA 2003. It is common ground that the effect of section 49 and the equivalent provision for national insurance purposes are identical for present purposes. Section 49 provides as follows:
(1) This Chapter applies where –
- an individual (the worker) personally performs, or is under an obligation personally to perform, services for another person (the client),
- the services are provided not under a contract directly between the client and the worker but under arrangements involving a third party (the intermediary), and
- the circumstances are such that –if the services were provided under a contract directly between the client and the worker, the worker would be regarded for income tax purposes as an employee of the client or the holder of an office under the client, or
…
(4) The circumstances referred to in subsection (1)(c) include the terms on which the services are provided, having regard to the terms of the contracts forming part of the arrangements under which the services are provided.
[3] Section 49 applies where there is no contract between the client and the worker for provision of the worker's services. Section 49(1)(c) requires consideration of the terms of what is often described as a “hypothetical contract” between the client and the worker.
[4] Mr George Mantides is a doctor specialising in urology. He is the sole director and shareholder of the appellant, which is his personal services company. The FTT was concerned with income received by the appellant in connection with locum services provided by Mr Mantides in 2013 to Royal Berkshire Hospital (“RBH”) and Medway Maritime Hospital (“MMH”). Mr Mantides worked as a urologist at RBH in the period March to August 2013 and at MMH in September and October 2013.
[5] In terms of s 49 ITEPA 2003, Mr Mantides is “the worker”, the appellant is “the intermediary” and RBH or MMH is “the client”.
[6] The FTT found that the circumstances were such that if the services of Mr Mantides had been provided under a contract directly between MMH and Mr Mantides, then Mr Mantides would not be regarded for income tax purposes as an employee of MMH. The FTT therefore allowed the appeal in relation to...
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