The IHPA is delighted to note the decisive court victory of Jensal Software Ltd in his IR35 Tribunal against HMRC and, whilst there were a number of important factors one is, or rather should be, the final nail in the coffin of HMRC's highly criticised CEST tool.
A critical factor in this case was the test of Mutuality of Obligations (MOO).
What is mutuality of obligations?
In its simplest terms this means that the client is obliged to continue offering you work and you are obliged to continue accepting the work offered.
MOO is a key factor in IR35 (off-payroll rules) assessments, which comes up often in the case law, and yet is completely omitted in the CEST tool. In a webinar conducted between NHS Trusts, NHSI, and HMRC, Mark Frampton (HMRC's Policy Adviser on IR35) revealed a shocking fact to the contractor world - HMRC had deliberately omitted this key test from the CEST tool as they considered MOO to be present in all contractor engagements.
This position is at odds with all previous case law. Indeed, were this the case, why has this been such an enduring test in the case law? Surely the courts wouldn't spend so much time deliberating on this point.
This latest case put HMRC's flawed reasoning to the test and the courts have, unsurprisingly, thoroughly rejected it.
Jolyon Maugham, QC, Director of The Good Law Project predicts that in a two years MP's would be looking at the question "whether the BBC and the NHS were right to force everybody to be taxed as employees in circumstances where the case law has shown, after the fact, that very often that those people were properly taxed as self-employed.”
What does this mean for locum contractors?
This thoroughly underlines why the CEST tool is not fit for purpose and cannot be used. MOO must be taken into account by NHS Trusts in making IR35 determinations as we have highlighted in our guidance sent to all NHS Trusts in September 2017. The recent court judgement spectacularly demonstrates that HMRC has been misleading Trusts by attempting to steer them away from this important test.
The bottom line is this comes down to whether there is an obligation to provide work to the locum and correspondingly upon the locum to accept work offered.
Some questions to consider are:
- What is the minimum notice period I need to give the locum of termination?
- eg in Many contracts in current use this is 4 hours. In Brookson's contract, for example, the notice period is only 1 hour.
- Can I unilaterally cancel the contract without repercussions?
Medical staffing will have experience in cancelling locum contracts. They'll also know locums cannot sue them over it. They are entitled to usually only a few hours notice. Anything else is often a courtesy.
- Do locums cancel shifts themselves at short notice?
Many in medical staff will find this is a frequent and frustrating experience for them. It does however underline the point.
- Are locums obliged to do the shifts I tell them to?
You might wish they were but anyone that has every tried to push this matter will tell you a locum decides what shifts they will and will not work. Indeed their hours are often negotiated and they have the right to simply refuse to do shifts. They will often try to give adequate notice as a professional courtesy (and the law allows this without compromising MOO).
- Oh and if someone from medical staffing read some of those and thought - if they tried to do that I'd cancel their contract on the spot...
You've just proved the point the fact you can do that tells you there's no mutuality of obligations.
The number of locums, in our estimation, who would have a significant degree of MOO is perishingly small and the omission of this test has been a very deliberate injustice on the part of HMRC to force contractors into blanket false employment.
That deliberate omission has now been rejected and it behoves NHS Trusts to consider MOO in their assessments.
It is extremely likely that this will change many of your IR35 status determinations. There are, of course, other tests but MOO is a big one!