Locum’s IR35 Tax Tribunal Case
A recent IR35 tax tribunal case involving an NHS locum showed him inside IR35 on one contract and outside IR35 on another. What’s crucial for not only locums and other NHS workers but for all contractors is the difference between the two contracts.
It was these differences that made the tribunal judge rule one of them to be outside IR35. It’s crucial that contractors know what these differences are with the private sector IR35 changes looming.
What Contractors Want to know About the IR35 Tax Tribunal Case
What was the IR35 tax tribunal case about?
How were the contracts at the two hospitals similar?
How were the contracts at the two hospitals different?
Was this a good result for the Locum Urologist?
Was this a good result for HMRC?
Did he Locum Urologist have IR35 insurance?
What Was the IR35 Tax Tribunal Case about?
The locum is a urologist. The tribunal judge had to work out whether the two contracts he had were ones of employment or self employment.
He decided that one was of employment and one was of self employment.
The urologist provide services through his personal service company to Royal Berkshire Hospital and Medway Maritime Hospital.
How were the Contracts at the Two Hospitals Similar?
At both hospitals:-
- The was no direct oversight of his work
- He didn’t report to anyone daily
- There was no control over how he would do his work
- His work was under no direct or close supervision.
How Were the Contracts at the Two Hospitals Different?
So, what were the differences that made him outside IR35 for one and inside IR35 for another?
There were three main ways where the work for Medway Maritime Hospital differed from the Royal Berkshire Hospital. The Medway one had.:-
- A valid and acceptable substitution clause
- A one-day notice clause which the judge said was mostly illusory and pointed to self employment. The Royal Berkshire one had a week’s notice
- There was no obligation for the Medway Maritime Hospital to provide the locum urologist with 37.5 hours a week or ten half days
There’s lessons for all contractors in this and proves just how important a substitution clause is and a lack of a notice period. For this locum it was crucial.
Was this a Good Result for the Locum Urologist ?
The locum urologist represented himself in the IR35 Tax Tribunal case. Although most commentators believe this is a pretty good result for contractors, I would say that he was unlucky to lose one rather than lucky to win one.
With all that lack of Direction, Supervision and Control at the Royal Berkshire Hospital he must be disappointed to lose that one – especially as that is his main contract.
Was This a Good Result for HMRC?
HMRC have had a load of reverses in IR35 tax tribunal case after case. They must be pleased to have got away with winning the case on his main contract at the Royal Berkshire Hospital.
Despite HMRC being able to get the pick of all freelancers that they want to investigate for IR35 non-compliance they lose the overwhelming majority of those that go to tax tribunals.
Yet they feel they understand IR35 well enough to be able to create what some organisations take as the definitive test of whether a contractor is inside IR35 or outside, i.e. their Check Employment Status for Tax test.
Did the Locum Urologist Have IR35 Insurance?
This locum urologist cannot have been insured if he had to defend himself. The tax and NI contributions at stake here was 30,000 pounds. Yet IR35 insurance doesn’t cost very much. It is crucial that contractors are insured for IR35
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When the IR35 changes were implemented in the public sector, rather than just pay the IR35 tax, most contractors inside IR35 decided to take the umbrella company route. If you are inside IR35, or caught by a blanket ban on Limited Company contractors, it would be worthwhile checking to see how much income you would keep using an umbrella company. Just fill out the form below and someone will be in touch to let you know.
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