23rd September 2024
Written by Qdos Contractor
This long-running employment status case carries a £584,000 tax liability and still hasn’t reached its conclusion. What can we learn from the saga so far?
The Supreme Court has issued its long-awaited ruling on HMRC v Professional Game Match Officials Ltd (PGMOL). The result? A twist in the tale means this £584,000 employment status case will be reheard at a First Tier Tribunal (FTT).
This ruling further extends the saga, which centres on the employment status of professional football referees engaged by PGMOL in the 2014/15 and 2015/16 tax years.
Given the liability at stake and the fact that multiple IR35 cases have been held up while we awaited the Supreme Court judgement (which could have had major implications for HMRC’s controversial CEST tool), the industry has been waiting with bated breath.
Below, we dig into the details of this case, exploring the wider implications for self-employed workers, contractors and businesses engaging flexible workers.
The story so far
PGMOL is the professional body for football referees. Some are full-time employees; others carry out their matchday duties in a freelance capacity.
HMRC believes payments to 60 freelance referees over the 2014/15 and 2015/16 tax years should have been subject to income tax and national insurance deductions at source. Its argument is that the relationship resembled employment, rather than self-employment.
This was the main question the Supreme Court looked to answer. At various stages, different judges have reached different conclusions on the issue – particularly because of the distinction between the different contracts PGMOL held with its referees.
First, there’s an overarching contract which lasts for the duration of each season in which one of these freelance professionals might referee. Then there are individual ‘matchday’ contracts – if a referee accepted the opportunity to work a particular match, did that constitute a contract of employment or self-employment?
This question is crucial to the way the Supreme Court considered the case. Let’s take a closer look…
Control and MOO focal points
HMRC v PGMOL offers a deep dive into two key employment status tests – control and mutuality of obligation (also known as ‘MOO’).
Control looks at whether a worker is controlled by their engager, while MOO considers if the parties are mutually obliged to provide and accept work – in the way that an employer/employee relationship works. Both are central to employment status and IR35 status today.
- Tribunal stage
At both the FTT and Upper Tier Tribunal (UTT), judges ruled in favour of PGMOL, as there was neither sufficient control nor a mutuality of obligation between the parties. Naturally, HMRC appealed both results, bringing the case to the Court of Appeal.
- Court of Appeal
Here, things started to get complicated – or should we say, more complicated. The court judged that the matchday contracts were, in fact, employment contracts, but the overarching contracts were not. It remitted the case to the FTT to decide, before PGMOL appealed – sending the case to the Supreme Court.
- Supreme Court
The Supreme Court found there were “mutual contractual obligations” between PGMOL and its referees, and “a sufficient framework of control” in both the overarching and matchday contracts.
In particular, “the combination of contractual obligations imposed on referees…was capable of giving PGMOL a framework of control sufficient for the purposes of meeting the control test for employment”.
This included “the existence of effective sanctions” that PGMOL could impose, enabling the body “to exercise control over the referees in the performance of their duties, on and off the pitch”.
The judges determined that the degree of both control and MOO was sufficient to point to a relationship of employment. They did not feel, however, that they could provide a conclusive decision on the status of the referees, as factors outside of control and MOO had not been fully considered by the various tribunals.
So, what does it all mean?
In short, back to a First Tier Tribunal – where it began eight years ago. The First Tier Tribunal will re-hear the case, but, importantly, take into consideration the decisions of the Supreme Court on control and MOO.
While its conclusion may be some way off, there are some learnings for businesses to take…
A tightening on MOO
HMRC has long held a narrow view on the issue of mutuality of obligation, taking the stance that it is effectively present by default in the vast majority of engagements – whether self-employed or not. This stance has generally been challenged by status experts.
The Supreme Court judges ruled that mutuality of obligation was present on the individual match contracts, despite both parties having the right to withdraw after the assignment had been accepted and prior to the commencement of a match.
The judges did, however, agree that the ‘degree’ of MOO remains important, but the specific findings related to the referees in this case do significantly reduce its scope as a determining factor in practice - and go a long way to supporting HMRC’s views on MOO.
A reaffirmed view on framework of control
When looking at the area of control in the PGMOL case there are several important, albeit nuanced, findings.
PGMOL’s argued that the referees were using their own knowledge and experience during matches and made the point that PGMOL could not – naturally - interfere or intervene during matches. There was, however, a performance assessment process which allowed PGMOL to retrospectively assess referees on their match conduct. Such assessments could result in referees being excluded from future matches and losing out on merit-based payments.
The Supreme Court felt that these post-match assessments amounted to a framework of control, a topic which has been a feature of a number of other IR35 tribunal cases. Whilst the PGMOL judgement does not provide a clear definition of what constitutes a “framework” in this context, it reaffirms that the broader environment within which any services are provided must be considered.
It also highlights the crucial point that an assessment of control does not end with what happens in practice. If a worker provides their services with no direction or interference from their client, but the client has the theoretical right to exert control, it will likely be viewed as a pointer towards employment.
Historically, the task of determining status has often focused on a ‘trinity’ of three key areas: substitution, control and MOO. Even though the PGMOL case is still technically open, the Supreme Court judgement will likely mean that MOO is all but disregarded when making status decisions going forward.
This could mean a greater focus is given to the first two factors, substitution and control.
Employment status compliance is vital
Regardless of the eventual outcome, the case is a crucial reminder of the importance of businesses carrying status determinations for all self-employed workers they engage – sole traders included.
Whilst most organisations are familiar with the off-payroll working rules and the need to engage contractors compliantly, less emphasis is placed on the need to ensure sole traders are too.
Similar to the off-payroll working rules, businesses are liable for engaging sole traders under the incorrect employment status – and, as you can see here, the cost of non-compliance can be considerable.
A final thought
So, whilst there is justified frustration that we do not yet have a final result in this particular case, significant precedents have been set and will impact employment status going forward.
The sheer complexity and technicality of the PGMOL case serve as a further reminder that the status tests we have to use are archaic and not in keeping with the modern world of work. There will likely be further calls for a statutory test for status, something the Government could consider as part of its sweeping changes to employment law.
As always, Qdos will keep you informed and focus on the key takeaways, whether you’re a flexible worker or a business engaging them.
