HMRC scores a winner

The judgement confirmed that the minimum requirements of mutuality of obligations (MOO) which relate to the provision of a personal service are comparatively low. This is especially the case where the engager, being the employer, pay for those services and maintains control over the employee. In their ruling the Supreme Court found that the match assignment (deemed to be an individual contract for that match) created a contract of service between the National Group of referees and PGMOL.

The Supreme Court directed the FTT to revisit the facts and decide whether the individual contracts are employment contracts. There is a sense of frustration that referring the case back to the FTT to re-visit the facts of the engagement, whilst technically correct, will only create unnecessary delays in concluding the dispute.

There is approximately £584,000 of employment taxes owed by the sixty referees in this case.

Unlike other recent IR35 cases, the appeal was only asked to consider the first two strands of the Ready Mix Concrete (South East) (RMC) v Ministry of Pensions and National Insurance [1968] 2QB497, not the third limb (third RMC stage). When the case is heard again by the FTT, we expect the FTT to review all three stages of RMC tests, which are considered in more detail below.

RMC tests

The tests established that, in order for there to be a contract of service (employment), certain conditions must be met:

• The worker has to be subject to a right of control. If there is no right of control of any kind, then you will not have a contract of service. However, there is a caveat that, although a right of control is an important factor in determining employment status, it is not necessarily a sole determining factor;
• Personal service must be given. However, the court did make the important point that a limited right of delegation was not inconsistent with a contract of service; and
• The other factors present are consistent with a contract of service. Factors such as ownership of significant assets, financial risk and the opportunity to profit which are not consistent with a contract of service.

The three criteria are generally referred to as mutuality of obligation, control and third RMC stage.

Background

PGMOL provides referees and other match officials for major football competitions including the Premier League, the FA Cup and the English Football League (EFL). The Football Association Limited (the FA), the Football Association Premier League Limited and the English Football League are members of PGMOL.

The FA governs English football including match officials. Referees must be registered with the FA and comply with its rules and regulations. There are two sub-sets of Level 1, one of which is a group known as the “National Group” comprising those who referee in their spare time and who usually have other full-time employment or occupations. These referees officiate at matches in the Championship League , FA Cup and may also act as fourth official in some matches including the Premier league.

The other subset are full time referees who officiate at Premier League matches and are known as the Select Group. This Group are employed under a contract of service.

The appeal concerned the National Group of referees and whether there exists an employment contract between the referees and PGMOL. The relevant period for the potential liabilities to arise are the 2014-2015 and 2015-2016 tax years.

Facts

During the relevant period, referees were appointed to the National Group on:

• An annual basis prior to the start of each football season.
• They were required to pass a fitness test and attend an induction.
• PGMOL operated its own disciplinary procedures, and any breaches of match day procedures might result in disciplinary action against a referee. In case of a serious complaint, the FA and PGMOL would decide which one is best placed to investigate the complaint. Depending on the outcome of the investigation, PGMOL could either suspend or remove the referee from its list, however the FA could cancel the referee’s registration.
• The system for engaging referees in the National Group operated as follows.
• Match appointments were offered to referees via a software system.
• An appointment for a weekend game was usually offered on the preceding Monday. A referee could refuse an appointment but the reason for the refusal must be provided.
• Once a referee had accepted an appointment, he or she can rescind it before the day of match, but this would only be as a result of injury, illness or other work commitments.
• PGMOL had similar flexibility after a match appointment had been accepted.
• When a referee accepted a match appointment offered by PGMOL, a contract was formed under which the referee agreed to officiate and submit a match report and PGMOL agreed to pay the appropriate fee.
• If the referee did not attend the match, the contract would be non-void, without any sanction being imposed, and no match fee would be payable.
• The referees are paid match fees, expenses and are eligible for bonuses based on performance.

The facts were consistent across all of the referees and match officials engaged by PGMOL.

Sequence of previous tribunal hearings

The FTT [2018] UKFTT 528 (TC) had already ruled that there was an over-arching contract between the referees and PGMOL based on review of the pre-season documents. However, this placed no MOO on either party.

The FTT found in favour of PGMOL, contending that the individual contracts were not contracts of employment because:

• there was insufficient mutuality of obligations between PGMOL and the referees due to the right of both parties to cancel the appointment at any time before arrival at the ground; and
• PGMOL had insufficient control over the referees under the contracts. No reference was made to control in relation to the overarching contracts.

Although the Upper Tribunal [2020] UKUT 147 (TCC) endorsed the FTT ruling that there was no error in application of law in concluding that there was no MOO or insufficient MOO in both the overarching and individual contracts respectively, it had erred in its application of the law on control.

The UT did not either remake the decision or remit to FTT, consequently HMRC appealed to the Court of Appeal.

The Court of Appeal allowed HMRC’s appeal regarding MOO under the individual contracts but not the overarching contracts and rejected PGMOL’s case on question of control and remitted the case to the FTT to re-consider the issues of mutuality of obligations and control.

In September 2022, PGMOL appealed to the Supreme Court to decide whether these individual contracts were contracts of employment or not. HMRC did not challenge that the overarching contracts were not contracts of employment.

The judgment

The Supreme Court unanimously dismissed PGMOL’s appeal, deciding that the minimum requirements of MOO and control necessary for a contract of employment between the National Group referees and PGMOL were satisfied in relation to the individual contracts. The Supreme Court remitted the case back to the FTT for it to decide whether, in the light of all relevant facts, the individual contracts were contracts of employment.

Reasons for the judgement

Reasons for the judgment were:

• MOO: The judge drew distinction between overarching and individual contracts. The over-arching contracts govern continuous employment whereas individual contracts as in this case, govern single engagements. This means that in individual contracts, it is not a requirement to consider MOO before the engagement commences. We must consider instead the parties’ obligations in the period from the referees’ arrival at the ground on match day to the submission of their match report on the following Monday and this would satisfy the requirement for sufficient mutuality of obligations. Additionally, the Judges opined that a referee and PGMOL were under mutual contractual obligations from the time that the referee accepted the offer of a match. He further added that ‘it did not matter that either party had a right to cancel the engagement without penalty; whilst the contract remained in place, the parties were under mutual obligations to each other. Consequently, the individual engagements of referees to officiate at matches satisfied the test of mutuality of obligation’.
• Control: The Judges contended that it is not necessary that the employer should have a contractual right to intervene in every aspect of the performance by an employee of his or her duties for there to be a sufficient degree of control. This includes the ability or legal right to intervene during the performance of the employee’s duties. What is important is there should be a sufficient framework of control as regards each contract taken separately. He added that it is not confined to the right to give direct instructions to the individuals concerned.

Applying these principles to this case, the judges agreed with the Court of Appeal. The combination of contractual obligations imposed on referees as to their conduct during an engagement from the time the match was accepted, to the time when the match report was submitted, and to their conduct during the match, could give PGMOL a sufficient framework of control to meet the control test for employment purposes. Furthermore, the existence of sanctions to impose after the match means that PGMOL could exercise control over the performance of the referee duties on and off the field.

The case has been remitted back to the FTT to reconsider taking all relevant circumstances and using the guidance given by the Court of Appeal in HMRC v Atholl House Productions Ltd [2022] EWCA Civ 501, [2022] ICR 1059 and by the Supreme Court in the present case, whether the National Group referees engaged for individual matches worked under contracts of employment. The FTT had not considered the third RMC test because it was satisfied there was no MOO or sufficient framework of control.

haysmacintyre comment

It is disappointing that a case that took so long to decide and did not provide anything new aside from confirmation of the thought process required when deciding employment status. As re-enforced by the Atholl House case, considering just the first two limbs of the RMC case is not sufficient, the whole picture of the working relation should be considered.

Next steps

Until we get more detail from the Government on its single worker status, this case again demonstrates the complexity in correctly determining employment status. All engagers should ensure that they have robust systems, processes and controls in place to withstand any HMRC employment status challenge. This combined with keeping up to date with the prevailing case law is a must to ensure compliance.

We are aware of HMRC’s ‘Off-payroll worker’ campaign within the Charity and not-for-profit sectors. Many of the points considered in the PGMOL case will no doubt be considered by HMRC when they look at the contractual arrangements which are present within the worker supply-chain. It is important that all policies, procedures, contracts and other arrangement are reviewed in full.

Please contact the haysmacintyre Employment taxes team should you have any questions on this case or any other IR35/employment status queries.