Mantides v HMRC: Locum’s ‘lack of substitution the turning point’ of IR35 appeal
Kingsbridge issues alerts on personal service, in wake of the doctor found inside IR35 largely because he couldn’t send someone…
New IR35 has facilitated exploitative arrangements on our health service that the taxman must tackle, including for the good of…
New IR35 has facilitated exploitative arrangements on our health service that the taxman must tackle, including for the good of patient care.
As a healthcare contractor who has worked closely with barrister Michael Paulin, I would like to say that, despite the disappointing outcome in George Mantides Limited V HMRC, many of us would like to put on record our gratitude for his work representing our profession.
It’s work which altered how healthcare locums can be engaged and continue to be engaged by NHS trusts and private hospitals today, and it stemmed from the successful judicial review of NHS Improvement. And for that, the freelance healthcare profession is very much indebted to Mr Paulin.
Of course, the legal challenge of NHS Improvement was only necessary because of the unwieldy Off-Payroll Working (OPW) rules, writes Dr Iain Campbell, former general secretary of the Independent Health Professionals Association, currently of Healthcare Leadership Academy.
It was the framework’s predecessor that Dr Mantides was defeated under (IR35 of 2000). But it’s important to emphasise that the differing outcomes of his contracts (‘inside IR35’ at ‘RBH’, ‘outside IR35’ at ‘MMH’) underline the reality that one-size-fits-all is the wrong approach when evaluating employment status.
It’s an incorrect approach that leads to unfair ‘blanket’ and ‘role-based’ OPW policies.
Indeed, IR35 cases like Dr Mantides’ highlight that to be carried out correctly, this evaluation still very much hinges on the individual factors of the specific engagement. A blanket position by engagers that all limited company workers are caught by IR35 is demonstrably the wrong approach.
It is not lost on me that a former colleague of mine from the IHPA, Stephen Mhiribidi, has commented that IR35 insurance is something that, nowadays, ‘most healthcare contractors won’t have.’
Well, as stated previously, Dr Mantides’ case harks back to the ‘old’ IR35 (Chapter 8 of Part 2 of ITEPA 2003), in which the contractor was on the hook for the tax bills.
Certainly, having had IR35 protection insurance in that largely bygone era would likely have been a boon, at least for IR35 defence costs and support should HMRC’s push come to a shove at the First-tier Tribunal.
But following the off-payroll working rules (effective in the public sector since April 6th 2017, and effective in the private sector since April 6th 2021), the landscape is a bit different now for contractors. And because I’m one, I can tell you it’s markedly different for healthcare contractors too.
Why? Well, the devious thing about the OPW rules is that they divorce the party who largely benefits from being assessed as genuinely self-employed (‘outside IR35’), from the party with the tax risk.
Previously, under old IR35, that party was one and the same.
Instead, the IR35 reforms have meant that the party that benefits comparatively little from this arrangement, aside from a bit of National Insurance saving, is exposed to almost all of the risk (except in the case of dishonesty by the contractor).
This makes the exposed party – the client – much more risk-averse. As a result, many UK organisations are far less willing to stick their necks out by vouching for the contractor’s commerciality.
Such an unwillingness to stick their necks out is very noticeable in the UK healthcare sector, where, for many contractors, NHS bodies are essentially the predominant parties with whom they contract.
And this is a sector where, despite the welcome action facilitated by Mr Paulin, individual status assessments based on the full facts are still rare, with role-based blanket determinations prevailing.
Thus, while they exist, temporary roles in which medical and healthcare organisations are open to engaging contractors on a self-employed basis are comparatively scarce. This scarcity combines with the liability shift, in terms of tax and penalties generally resting with the fee-payer/client, to make healthcare workers less likely to go for IR35 insurance.
So, there’s generally less of such work available to contract and freelance professionals, and there’s less risk to them personally than there was.
A refocusing of insurance products on the fee-payers and clients might be a useful, tactical move, as more often than not, these two are the parties most acutely aware of the risks.
But a caveat.
I use the phrase ‘more often than not’ above, intentionally, because IR35 liability still sits with healthcare contractors whose clients are in the private sector and are “small” as defined under the Companies Act.
Where I do agree with Mr Mhiribidi without the need for any caveat whatsoever, is in relation to his other comments to Kingsbridge. Specifically, where he opined that many concerning, and frankly downright dodgy, worker engagement schemes have sprung up in the healthcare locum space.
I blame the OPW rules* for ushering in these exploitative schemes, which range from loan arrangements targeting contractors to aggressive direct engagement VAT avoidance schemes.
(*From what I have seen, the OPW rules are responsible for the expansion of such schemes, but they existed in a smaller sense before IR35 was reformed.)
Sadly, these schemes represent a leech on the funds of the exchequer. And they constitute a drain on taxpayer money that ought to go right back into the system to benefit public sector organisations, including our NHS.
The schemes pose other risks, too. In fact, healthcare services are problematic where any sort of direction and control are asserted over workers. And not just problematic in the way that Dr Mantides ultimately found out (the UT found Royal Berkshire Hospital would be entitled to exercise sufficient control to pass the irreducible minimum test even though it was only a weakly employment pointer) – but to patient care as well.
In tax and fiscal terms, similarly, please don’t be in any doubt.
The HMRC ‘savings’ of using these schemes are illusory, and the fees taken by their operators represent a worrying hole in the public purse.
In their latest incarnation, the schemes are becoming even more exploitative and may leave potential VAT liability hanging like the sword of Damocles over those who go through them.
The hope must be that HMRC now targets these bad actors, who appear to operate in total contrast to Messrs Mantides and Paulin, and others striving for compliant ways of working.
Navigating IR35 legislation and ensuring compliance can be challenging for contractors and businesses alike. As mentioned above, the CEST tool shouldn’t be used in isolation and we’d always recommend seeking professional advice when assessing your IR35 status.
At Kingsbridge we offer tailored support, including expert guidance on IR35 status assessments, compliance strategies, and risk mitigation. Our team is dedicated to helping contractors and businesses understand and adapt to the evolving tax landscape. We also offer a range of flexible business insurance options to support contractors, including Professional Indemnity, Public Liability, and Employers’ Liability cover, as well as add-ons like Cyber Insurance and Director and Officer’s Liability.
To find out more, get a quote or contact us today.
Dr Iain Campbell is the former Secretary General, and ex-deputy Head of Legal for the Independent Health Professionals Association (IHPA).
He has given oral and written evidence to select committees on the Off-Payroll Working rules and is a regular commentator in the IR35 space, having spoken on TV, radio, and featured in national newspapers.
Having been through medical and law school, he is currently a senior lecturer at the University of Edinburgh. He’s also serving as Lead Director for Scotland of the Healthcare Leadership Academy and Head of AI Policy, Ethics, and Transformation.
He writes here, for Kingsbridge, in a personal capacity.