Upper Tribunal dismisses IR 35 challenge

In George Mantides Ltd v HMRC [2025] UKUT 00124 (TCC), the Upper Tribunal (UT) dismissed the company's appeal against an income tax determination and national insurance decision. Whilst the UT set aside the decision of the First-tier Tribunal (FTT) on the basis that there were errors in the assessment of the hypothetical contract, ultimately it came to the same conclusion that the hypothetical contract was one of employment resulting in income tax and national insurance liability.

Background

George Mantides Ltd (GML) received income in connection with locum services provided by Mr George Mantides, a doctor specialising in urology and also sole director and shareholder of GML, to the Royal Berkshire Hospital (RBH) and Medway Maritime Hospital (MMH). 

HMRC determined that the income was liable to income tax and national insurance contributions on the basis of the application of the "intermediaries legislation" in sections 48-61, Income Tax (Earnings and Pensions) Act 2003 and equivalent provisions in the Social Security Contributions (Intermediaries) Regulations 2000, commonly known as IR35. 

GML appealed to the FTT against HMRC's determinations regarding income tax and national insurance contributions. 

The FTT allowed the appeal in relation to the services provided by Mr Mantides to MMH but not in relation to the services he provided to RBH. 

The FTT applied the well-known legal test set out in Ready Mixed Concrete v Minister of Pensions and National Insurance [1967] 2 QB 497, in relation to the necessary conditions for a contract of service and considered associated authorities. Under this test, the FTT considered the following:

1. The mutuality test – the servant agrees that in consideration of a wage or other remuneration, he will provide his own work in the performance of some service for his master.
2. The control test – the servant agrees, expressly or impliedly, that in the performance of that service he will be subject to the other's control in a sufficient degree to make that other master.
3. The inconsistency test – the other provisions of the contract are consistent with it being a contract of service. 

The FTT reached different conclusions in relation to materially similar arrangements. With regard to RBH, the FTT held that the circumstances were such that if Mr Mantides' services had been provided under a contract directly between RBH and Mr Mantides, then he would be regarded, for income tax purposes, as an employee of RBH. In relation to the services provided to MMH, the FTT held 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 he would not be regarded, for income tax purposes, as an employee of MMH. 

GML appealed the FTT's decision in relation to RBH to the UT, on the following grounds:

1. the FTT made an error of law in finding 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 early (the First Ground);
2. the FTT made an error of law in finding 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 (the Second Ground); and
3. as a result of these errors, the FTT erroneously concluded that the notional contract would be one of employment (the Third Ground). 

UT decision

The appeal was heard, in part, by the UT in July 2021 and its decision released in August 2021. The UT concluding that GML had established the errors of law set out in the First Ground and Second Ground. However, the UT deferred consideration of the Third Ground until after the final determination of HMRC v Professional Game Match Officials Ltd [2020] UKUT 147 (TCC) (PGMOL).

In April 2025, following the final determination of PGMOL and further submissions from the parties, the UT dismissed GML's appeal. This was even though the UT accepted that the FTT had made material errors of law as argued by GML in relation to the First Ground and Second Ground. 

The UT was satisfied that, on balance, having considered all the terms of the RBH hypothetical contract, all the circumstances, the errors made by the FTT and the FTT's other findings which were not challenged, the RBH hypothetical contract was a contract of employment. Accordingly, the FTT came to the right conclusion.

Significantly, in reaching its decision on the Third Ground, the UT found that even though GML argued that the MMH contract was indistinguishable from the RBH contract, it was not appropriate to simply compare the position in relation to the MMH hypothetical contract. 

Comment 

The UT’s decision confirms that the Supreme Court’s guidance in PGMOL, on what constitutes an employment relationship, is pertinent to the application of IR35 and it demonstrates the way that the tax tribunals are likely to direct themselves following PGMOL.

Contractors and engagers should ensure that they have reviewed and updated, where necessary, their contracts following the PGMOL decision. What may have been reliable in terms of mutuality of obligations and control, may no longer provide a robust defence to a challenge by HMRC.

The decision can be viewed here.