Referees were self-employed, UK tax tribunal confirms

The upper tribunal confirmed that because the referees were not obliged to accept any engagements to referee at matches and did not have the right to be offered any work there was insufficient mutuality of obligation for an employment relationship to exist for tax purposes.

"The decision confirms that the concept of 'mutuality of obligation' is relevant when deciding whether an employee is employed or self employed, even though HM Revenue & Customs (HMRC) has been arguing to the contrary in recent years," said Chris Thomas, an employment tax expert at Pinsent Masons, the law firm behind Out-law. 

The decision related to referees engaged to officiate at matches primarily in Leagues 1 and 2 of the Football League, but also in the Championship and the FA Cup, and by way of 'fourth official', in the Premier League. The individuals in question undertake refereeing duties in their spare time, typically alongside other full-time employment.

HMRC had attempted to recover income tax and employer national insurance contributions (NICs) from Professional Game Match Officials Limited (PGMOL), the company set up to engage referees for Premier League, FA Cup and English Football League matches. HMRC argued that the referees were in employment relationships with PGMOL even though they did not have formal employment contracts.

Premier League referees are engaged under employment contracts but these 'national group' referees have different arrangements. Before the start of the football season, PGOL approaches referees and appoints to its national group those who sign a code of practice. The referees did not enter into formal employment contracts with PGMOL, but were paid match fees and expenses at an agreed rate by PGMOL. Referees were not guaranteed or obliged to accept match appointments and could mark themselves as unavailable for work for any reason.

PGMOL argued that the arrangements with the referees did not constitute employment contracts because there was no mutuality of obligation as there was no legal obligation on PGMOL to provide work or on the referee to accept work offered.

The upper tribunal dismissed HMRC's argument that mutuality of obligation is not relevant to the question of whether a contract is one of employment or a contract for services.  HMRC had argued that the concept is relevant only to the question of whether there is a contract at all, and, if there is a contract, whether it contains an obligation to provide services personally.

HMRC has previously argued that its ‘check employment status for tax’ (CEST) online tool does not need to consider mutuality of obligation as this will already have been established before the tool is used. It said that where work is provided and remuneration is paid HMRC will assume that there is mutuality of obligation and that a contract exists.

Following a review of the case law, the upper tribunal said that for mutuality to exist the  employee must have  an obligation to perform at least some work and an obligation to do so personally. There is no mutuality, the tribunal said, if the employee can decide never to turn up for work, without breaching their contract.

The minimum requirement on an employer, the tribunal said, is an obligation to provide work or, in the alternative, a retainer or some form of consideration in the absence of work. The tribunal said 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 first tier tribunal found that even though there was no written contract, there was an overarching contract because of the written acceptance by the referees of the code of practice.

The upper tribunal said the first tier tribunal was correct to conclude, as a matter of law, that in the absence of an obligation on PGMOL to provide at least some work or some form of consideration in lieu of work, or in the  absence of an obligation on the referee to undertake at least some work, there was insufficient mutuality of obligation for there to be a contract of employment.

The upper tribunal did disagree with the first-tier tribunal on the question of whether PGOL exercised control over how the referees performed their duties, but that did not affect the outcome of the case, because it had already decided for PGOL on the mutuality point.

The first tier tribunal had been swayed by the fact that once the match was in progress the referee's decision was final so PGOL could not control what they did and after the match was over the only sanction was not to offer the referee further work.

The upper tribunal said that provided that the right to give directions relates to the performance of the employee’s obligations during the subsistence of the contract, it is not to be disregarded because there is no ability to step in and give directions during the performance of the obligations or because the sanctions for breach of those obligations could only be imposed once the contract has ended.

"The fact that HMRC has pursued this case, despite the clear indicators of self employment, shows its determination to challenge self-employed status," Chris Thomas said.

"With new rules coming into force in April 2021 to make businesses responsible for determining the status of their off-payroll workers, the case emphasises that determining employment status is not straightforward and could well be subject to challenge by HMRC, even if the position seems relatively clear cut," Thomas said.

From 6 April 2021 businesses will be liable for determining the tax status of contractors who work through personal service companies (PSCs). Where the engager determines that the worker would have been an employee if engaged directly rather than through a PSC, the  business will have to deduct income tax and employees’ NICs and bear the added cost of employers’ NICs.

The rules were originally due to come into force this April, but have been delayed a year as a result of the coronavirus pandemic.