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IR35Latest NewsEmployment contractsEmployment tribunalsTax

HMRC shown red card as referee judgment gives pause for thought on IR35

by Adam McCulloch 7 May 2020
by Adam McCulloch 7 May 2020 Photo: PA Images
Photo: PA Images

An appeal judgment with major ramifications for self-employed workers and IR35 has been made in the upper tribunal that has gone against HMRC.

In the ruling, HMRC yesterday (6 May) failed in its appeal against a first-tier tribunal in 2018 that found that football referees engaged by Professional Game Match Officials Limited (PGMOL) were not employed by the organisation.

In the original case, PGMOL had argued that most referees should be considered self-employed and entitled to pay a lower rate of national insurance.

HMRC, however, stated that the referees should be considered PGMOL employees and was seeking £584,000 in back taxes for the period between 2014 and 2016.

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In a complex judgment, Justice Zacaroli and Judge Thomas Scott found that “the period of the contract ends with the submission of the referee’s match report shortly after the final whistle”. They weighed up whether the ability “to step in to regulate the referee’s performance of his core obligation [officiating at the match] or to impose any sanction, until after the contract has ended means that there is not sufficient control”.

They added that there was “insufficient mutuality of obligation” and that the first-tier tribunal had been correct when concluding that the referees “were engaged under contracts for services and were not employees”.

The case involved about 60 referees who officiate at professional league matches below Premier League level.

It is thought that HMRC may seek court permission to appeal the ruling.

Legal interpretation of the ruling

Dave Chaplin, CEO of advisory IR35 Shield and ContractorCalculator, told Personnel Today: “This is a key tax case for all self-employed workers, and very relevant for those who are currently under attack from HMRC under IR35 reforms.

“HMRC’s interpretation and guidance on mutuality of obligation has consistently been torn down by commentators like myself, and now judges at upper-tier tribunal have roundly rejected those arguments.

“HMRC will now need to update its Check Employment Status for Tax (CEST) tool that provides guidance on status matters, because in its current form it does not align with the law, and will be inadvertently giving users incorrect results that are inconsistent with this binding ruling.

“In the lead up to the now one-year-delayed off-payroll reforms, which are due to come in April 2021, we saw many firms following HMRCs published advice and incorrectly classifying contractors as ‘employed for tax purposes’ where there was insufficient mutuality of obligation to justify that determination. Those assessments will now need to be revisited.”

Ross Meadows, partner at Oury Clark Solicitors, said the decision should “hopefully” put the final nail in the coffin in relation to HMRC’s “flawed interpretation of the law on mutuality of obligations (MOO) when determining the employment and tax status of individuals”.

He added: “MOO has long been one of three key principles present in a contractual relationship for it to be one of employment. Case law has shown that, for there to be MOO, there must be an obligation on an employer to provide work and the obligation on an individual to accept that work.

“HMRC’s very narrow interpretation of MOO is that it is only relevant to the questions of whether there is a contract at all, and not to the question whether such contract is one of employment or self-employment. HMRC argued that “it was sufficient to constitute an employment contract if the obligation on the employer was to do no more than retain the worker on its books”. If HMRC were successful there was a significant amount of tax and national insurance owed by PGMOL (£584,000 in back taxes for the period between 2014 and 2016).

“The UT swiftly rejected HMRC’s argument and concluded the minimum requirements for MOO are as follows:

  • for an employee: “an obligation to perform at least some work and an obligation to do this personally”.
  • for an employer: “an obligation to provide work or, in the alternative, a retainer or some form of consideration (which need not necessarily be pecuniary) in the absence of work”. The UT state “We think it is insufficient to constitute an employment contract if the only obligation on the employer is to pay for work if and when it is actually done”;
  • “The obligation must subsist throughout the whole period of the contract”.

“The UT’s decision should lead to a major overhaul of HMRC’s Check Employment Status for Tax (CEST) which fails to consider this key employment test and is therefore inconsistent with the law.

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HMRC have confirmed they will appeal the decision although it will need to obtain permission of the court to do so.

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Adam McCulloch

Adam McCulloch first worked for Personnel Today magazine in the early 1990s as a sub editor. He rejoined Personnel Today as a writer in 2017, covering all aspects of HR but with a special interest in diversity, social mobility and industrial relations. He has ventured beyond the HR realm to work as a freelance writer and production editor in sectors including travel (The Guardian), aviation (Flight International), agriculture (Farmers' Weekly), music (Jazzwise), theatre (The Stage) and social work (Community Care). He is also the author of KentWalksNearLondon. Adam first became interested in industrial relations after witnessing an exchange between Arthur Scargill and National Coal Board chairman Ian McGregor in 1984, while working as a temp in facilities at the NCB, carrying extra chairs into a conference room!

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2 comments

Paul killion 9 May 2020 - 5:14 pm

Great article to read and great to see result in favour of self-employed.
@
IR35
Is definitely flawed and the main companies
Should not be allowed to take a blanket approach against contractors or workers that have worked hard and helped them to achieve their targets and completion of work contracts.
@
The main contractors take a blanket approach and then push it on the agencies which tells you that your are inside the IR35
Because they don’t want to go against the main Firms.
@
There are good decent working people self employed that are classed inside against their will and treated unfairly and will not receive the benefits employed workers receive.
@
The whole IR35
Needs to be looked at fairly and adjusted or if not scrapped.
Many Thanks ; Paul Killion

P Simon Parsons 27 May 2020 - 7:41 am

This case was about employed v self employed. It was not about IR35 or off payroll working in the private sector. It was about match day officials

Comments are closed.

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