Upper Tribunal Rules Doctor Was an Employee for Tax Purposes

The Upper Tribunal (UT) has concluded that a doctor who provided services to a hospital through a personal services company was an employee for tax purposes.

The doctor had provided his services as a urologist to two hospitals through a company of which he was the sole director and shareholder. HM Revenue and Customs determined that his income from the hospitals was liable to Income Tax and National Insurance Contributions under IR35, commonly known as the intermediaries legislation. The company appealed to the First-tier Tribunal (FTT).

The FTT found that if the doctor's services had been provided directly under contracts between him and the hospitals, he would not have been regarded as an employee of one of the hospitals but would have been regarded as an employee of the other. In considering the hypothetical contract with the latter hospital, the FTT had found that the hospital would have had to give at least a week's notice to terminate it early, and would have had to use reasonable endeavours to provide ten half-day sessions per week. The company appealed to the UT on the grounds that these conclusions were not available to the FTT on the evidence and, as a result, it had erred in law in finding that the notional contract was one of employment.

The UT held that the company had established that the FTT's findings on notice and the obligation to use reasonable endeavours to provide work amounted to errors of law. Consideration of the finding that the contract was an employment contract was deferred pending the outcome of HM Revenue and Customs v Professional Game Match Officials Limited (PGMOL), which ultimately reached the Supreme Court.

The UT took note of the Court of Appeal's decision in HM Revenue and Customs v Atholl House Productions Limited, in which the Court had found that an individual could perform similar services as an employee and as an independent contractor in the same tax year: what was important was the terms on which the services were carried out. It therefore served no purpose to explore the FTT's decision in respect of the hospital of which he had been found not to be an employee.

While the FTT had erred in finding that the contract was terminable on one week's notice, PGMOL established that the right to terminate a contract was irrelevant in determining whether mutuality of obligation existed. Nor did the absence of an obligation to provide work mean there was no mutuality of obligation.

The UT found that the hypothetical contract had been a contract for personal service. There was a sufficient framework of control for it to be an employment contract and there was mutuality of obligation in the sense of a wage-work bargain. Considering all the terms of the contract, the UT was satisfied that it was a contract of employment. The appeal was dismissed.