The long-awaited Court of Appeal decision in the football referees case has been handed down and it is significant, with implications far wider than the world of football. The court says that a single assignment under an overarching contract can be a contract of employment caught by the IR35 tax regime, even if there is no obligation to accept the particular assignment. So, occasional workers, like the referees in this case, can be deemed employees for tax purposes.
The case centred on a company which was set up to engage professional football referees, called PGMOL. The issue is whether they need to deduct income tax and NICs from payments they make to a select group of ‘second tier’ referees they engage on a self-employed ‘gig worker’ basis to officiate matches. So, is the way they work too occasional to count as employment, and are they controlled enough to be deemed employees? The Court of Appeal has made it very clear that occasional workers, like these referees, can be employees for tax purposes.
CityAm reports on this, highlighting the wider implications of the case beyond football. They make the point that many gig workers are paid without deduction of tax and NICs on grounds that they are engaged on an occasional basis without anyone watching over their work controlling what they do. They say this seemingly small case about football referees may have huge implications for the gig economy, potentially reducing the take-home pay of many gig workers and putting up the costs of many gig platforms.
Tax specialist Chris Thomas has been looking at the Court’s reasoning and he covers it in his article for Outlaw. He says: “The case will be welcomed by HMRC as backing for the approach which it has consistently taken in relation to mutuality – i.e. that it will effectively be present in every case, hence its omission as a factor in the CEST tool. It will undoubtedly be a blow for businesses who engage labour on an ad hoc pattern, and who may have sought to rely on an absence of any obligation to provide or accept each engagement.”
So, let’s consider what that means for businesses that engage contractors on an ad hoc basis. I phoned Chris Thomas to discuss the case and I started by asking how this decision impacts on the Revenue’s status determination tool, CEST:
Chris Thomas: “I think the principal point here is around the question of mutuality of obligation and that is one of the significant factors that needs to be to be present in order for there to be deemed to be an employment relationship. Now, the CEST tool that HMRC has made available, the Check Employment Status for Tax, and which has been quite widely used, does not really factor in mutuality of obligation at all and the reason why it doesn't is that HMRC has had quite a long standing view that essentially it's not relevant to look at whether there is an obligation to provide work, and it's an obligation to accept it kind on a sort of an overarching basis.
So what I mean by that is, let's imagine that there's a relationship between an engager and the individual contractor. The fact that there is no right to have work provided or obligation to provide it, in the gaps, if you like, HMRC has always said, well, that's not relevant, because all that's relevant is that there is a mutuality in relation to any one of those particular times when you do actually come and do work. So they would say that, effectively, mutuality is really present in every case, because in any case where we actually agree to do something and then clearly you're bound to do it. The fact I then have to ask you to do it again, or the fact you don't have to come back next time, HMRC would say is not relevant. Now, historically, I think a lot of advisors have not necessarily agreed with that approach and, indeed, some of the decisions in the courts have not been consistent with that, and I think it had been thought in some circles that HMRC’s approach was not necessarily correct and that really it was appropriate to give a bit more weight to the question of whether there was an ongoing right to be to be given work and an obligation to do it on an ongoing basis. So that’s particularly relevant to cases where it isn't one long engagement, it's kind of more sort of ad hoc, as indeed it was in this case. So that’s the critical thing because, essentially, what this Court of Appeal judgement has said is broadly they've agreed with HMRC’s analysis which will have implications for the concept of when there is and is not mutuality and, therefore, when there is and is not deemed employment”.
Joe Glavina: “Can I come onto the element of control, Chris. The Court of Appeal said it didn’t matter that the engager could not exactly step on to the pitch in the middle of the game to tell the referee what to decide. They said the ‘control’ aspects of employment status could be satisfied just by having guidelines, training protocols and disciplinary procedures. Does that change things?”
Chris Thomas: “Yes, I think it potentially could do. So, just to briefly recap. The point here, and the reason why the lower tribunals had found that there wasn't sufficient control to be suggestive of employment, was that the nature of what it was that these referees were doing was something where they had quite a lot of discretion, if you like, as to how they actually did it on the day. It wasn't possible for the engager to step in when they were actually officiating and tell them do this or don't do that. So that was the point, I suppose, this was a skilled role and it was one where there was a fair degree of autonomy as to how it was actually done on that particular day. Now, what the Court of Appeal has said is well, yes, okay, but actually you should also look at the wider framework of control. So when you've got work that isn't really susceptible to practical controls such as this - and you might apply the same argument to certain gig economy tasks - and what they said was that really you need to look at the whole relationship between the engager and the contractor and consider is there a sufficient framework to control and the sort of things they were looking at, or suggested should be looked at, in that context was power, for example in this case, to promote or demote referees, code of practice is to how they should go about doing things even if they weren't actually bound to as such, there was a requirement that they follow a particular fitness and training protocol and do regular tests, they had follow up with a coach asking about areas of improvement. So you can see these sort of things, okay, those are quite specific to this particular case, but you can imagine that it wouldn't be uncommon in other engagements for there to be something sort of equivalent in terms of codes of conduct, or in terms of the ability to not exactly sort of manage somebody, but to have rights, don’t too dissimilar to what they did in this case, even though actually you can't direct how they do the job. What this case effectively says is well that doesn't necessarily matter, to the degree that perhaps it might have been thought that it might and that, I think, could indeed have significance more generally.”
Joe Glavina: “One of the articles out there covering this case refers to the use of status determination tools by engagers, and the impact this case might have on them. They suggest that anyone using such systems, including those provided by third parties, should now conduct a review of the weighting given to mutuality of obligation in those systems. Is that right in your view?”
Chris Thomas: “I think that is right. Obviously there are a lot of different systems out there, a lot of different providers that are offering these assessments. I think if you've been using CEST, HMRC’s own tool, this case effectively confirms that HMRC’s approach of not referring to mutuality is essentially correct and therefore that is consistent with how the tool operates. So that there's no concern if you've been doing your assessments using CEST but we are aware there are other tools and if they are factoring in, or giving weight to, what may have been thought to be an absence of mutuality, going back to what I was saying before, if actually there's like an overarching agreements and the contractor is being engaged on an ad hoc basis, if reliance had been placed on the fact that there was no guarantee of repeat work, there was no obligation on them, so they came in for a day and may or may not ever be offered anything else, if reliance had been placed on that as a factor to suggest that we'll actually therefore there isn't an employment relationship here, then that now does look rather vulnerable, I think”
Joe Glavina: “So what’s your message to clients, Chris. Any action they should take in light of this case?”
Chris Thomas: “I think really it is just a case of having a look back at the system that you're using to make your determinations and just understanding to what extent these issues are likely to impact on that. I always say that it's really important, particularly for clients who are doing these assessments themselves rather than relying on third party tools, it's important to understand the context behind the questions that are being asked and I think this is quite useful for that process. For those who are using third party tools, I think it's just a question really, of getting in touch with the relevant provider just to make sure that the tool does properly factor this in and check what, if any, action needs to be taken with regard to possibly revisiting cases where there may have been, perhaps, a determination given that may now not necessarily stand up following this case.”
Chris Thomas’s article on this is called ‘Court of Appeal gives guidance on mutuality of obligation for employment tax status’ and is available from the Outlaw website. The case itself is HMRC v Professional Game Match Officials Limited and we’ve put a link to the Court of Appeal’s judgment in the transcript of this programme.
LINKS
- Link to Court of Appeal judgment in HMRC v Professional Game Match Officials Limited
The case centred on a company which was set up to engage professional football referees, called PGMOL. The issue is whether they need to deduct income tax and NICs from payments they make to a select group of ‘second tier’ referees they engage on a self-employed ‘gig worker’ basis to officiate matches. So, is the way they work too occasional to count as employment, and are they controlled enough to be deemed employees? The Court of Appeal has made it very clear that occasional workers, like these referees, can be employees for tax purposes.
CityAm reports on this, highlighting the wider implications of the case beyond football. They make the point that many gig workers are paid without deduction of tax and NICs on grounds that they are engaged on an occasional basis without anyone watching over their work controlling what they do. They say this seemingly small case about football referees may have huge implications for the gig economy, potentially reducing the take-home pay of many gig workers and putting up the costs of many gig platforms.
Tax specialist Chris Thomas has been looking at the Court’s reasoning and he covers it in his article for Outlaw. He says: “The case will be welcomed by HMRC as backing for the approach which it has consistently taken in relation to mutuality – i.e. that it will effectively be present in every case, hence its omission as a factor in the CEST tool. It will undoubtedly be a blow for businesses who engage labour on an ad hoc pattern, and who may have sought to rely on an absence of any obligation to provide or accept each engagement.”
So, let’s consider what that means for businesses that engage contractors on an ad hoc basis. I phoned Chris Thomas to discuss the case and I started by asking how this decision impacts on the Revenue’s status determination tool, CEST:
Chris Thomas: “I think the principal point here is around the question of mutuality of obligation and that is one of the significant factors that needs to be to be present in order for there to be deemed to be an employment relationship. Now, the CEST tool that HMRC has made available, the Check Employment Status for Tax, and which has been quite widely used, does not really factor in mutuality of obligation at all and the reason why it doesn't is that HMRC has had quite a long standing view that essentially it's not relevant to look at whether there is an obligation to provide work, and it's an obligation to accept it kind on a sort of an overarching basis.
So what I mean by that is, let's imagine that there's a relationship between an engager and the individual contractor. The fact that there is no right to have work provided or obligation to provide it, in the gaps, if you like, HMRC has always said, well, that's not relevant, because all that's relevant is that there is a mutuality in relation to any one of those particular times when you do actually come and do work. So they would say that, effectively, mutuality is really present in every case, because in any case where we actually agree to do something and then clearly you're bound to do it. The fact I then have to ask you to do it again, or the fact you don't have to come back next time, HMRC would say is not relevant. Now, historically, I think a lot of advisors have not necessarily agreed with that approach and, indeed, some of the decisions in the courts have not been consistent with that, and I think it had been thought in some circles that HMRC’s approach was not necessarily correct and that really it was appropriate to give a bit more weight to the question of whether there was an ongoing right to be to be given work and an obligation to do it on an ongoing basis. So that’s particularly relevant to cases where it isn't one long engagement, it's kind of more sort of ad hoc, as indeed it was in this case. So that’s the critical thing because, essentially, what this Court of Appeal judgement has said is broadly they've agreed with HMRC’s analysis which will have implications for the concept of when there is and is not mutuality and, therefore, when there is and is not deemed employment”.
Joe Glavina: “Can I come onto the element of control, Chris. The Court of Appeal said it didn’t matter that the engager could not exactly step on to the pitch in the middle of the game to tell the referee what to decide. They said the ‘control’ aspects of employment status could be satisfied just by having guidelines, training protocols and disciplinary procedures. Does that change things?”
Chris Thomas: “Yes, I think it potentially could do. So, just to briefly recap. The point here, and the reason why the lower tribunals had found that there wasn't sufficient control to be suggestive of employment, was that the nature of what it was that these referees were doing was something where they had quite a lot of discretion, if you like, as to how they actually did it on the day. It wasn't possible for the engager to step in when they were actually officiating and tell them do this or don't do that. So that was the point, I suppose, this was a skilled role and it was one where there was a fair degree of autonomy as to how it was actually done on that particular day. Now, what the Court of Appeal has said is well, yes, okay, but actually you should also look at the wider framework of control. So when you've got work that isn't really susceptible to practical controls such as this - and you might apply the same argument to certain gig economy tasks - and what they said was that really you need to look at the whole relationship between the engager and the contractor and consider is there a sufficient framework to control and the sort of things they were looking at, or suggested should be looked at, in that context was power, for example in this case, to promote or demote referees, code of practice is to how they should go about doing things even if they weren't actually bound to as such, there was a requirement that they follow a particular fitness and training protocol and do regular tests, they had follow up with a coach asking about areas of improvement. So you can see these sort of things, okay, those are quite specific to this particular case, but you can imagine that it wouldn't be uncommon in other engagements for there to be something sort of equivalent in terms of codes of conduct, or in terms of the ability to not exactly sort of manage somebody, but to have rights, don’t too dissimilar to what they did in this case, even though actually you can't direct how they do the job. What this case effectively says is well that doesn't necessarily matter, to the degree that perhaps it might have been thought that it might and that, I think, could indeed have significance more generally.”
Joe Glavina: “One of the articles out there covering this case refers to the use of status determination tools by engagers, and the impact this case might have on them. They suggest that anyone using such systems, including those provided by third parties, should now conduct a review of the weighting given to mutuality of obligation in those systems. Is that right in your view?”
Chris Thomas: “I think that is right. Obviously there are a lot of different systems out there, a lot of different providers that are offering these assessments. I think if you've been using CEST, HMRC’s own tool, this case effectively confirms that HMRC’s approach of not referring to mutuality is essentially correct and therefore that is consistent with how the tool operates. So that there's no concern if you've been doing your assessments using CEST but we are aware there are other tools and if they are factoring in, or giving weight to, what may have been thought to be an absence of mutuality, going back to what I was saying before, if actually there's like an overarching agreements and the contractor is being engaged on an ad hoc basis, if reliance had been placed on the fact that there was no guarantee of repeat work, there was no obligation on them, so they came in for a day and may or may not ever be offered anything else, if reliance had been placed on that as a factor to suggest that we'll actually therefore there isn't an employment relationship here, then that now does look rather vulnerable, I think”
Joe Glavina: “So what’s your message to clients, Chris. Any action they should take in light of this case?”
Chris Thomas: “I think really it is just a case of having a look back at the system that you're using to make your determinations and just understanding to what extent these issues are likely to impact on that. I always say that it's really important, particularly for clients who are doing these assessments themselves rather than relying on third party tools, it's important to understand the context behind the questions that are being asked and I think this is quite useful for that process. For those who are using third party tools, I think it's just a question really, of getting in touch with the relevant provider just to make sure that the tool does properly factor this in and check what, if any, action needs to be taken with regard to possibly revisiting cases where there may have been, perhaps, a determination given that may now not necessarily stand up following this case.”
Chris Thomas’s article on this is called ‘Court of Appeal gives guidance on mutuality of obligation for employment tax status’ and is available from the Outlaw website. The case itself is HMRC v Professional Game Match Officials Limited and we’ve put a link to the Court of Appeal’s judgment in the transcript of this programme.
LINKS
- Link to Court of Appeal judgment in HMRC v Professional Game Match Officials Limited
