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HMRC given a second yellow – but it’s not a red card yet

No, its not 2006, Graeme Poll isn’t officiating and Josip Simunic hasn’t survived courtesy of the most infamous refereeing blunder of all time.

The Upper Tribunal have rejected HMRC’s appeal in the case of HMRC v PGMOL, as to whether certain football referees in England should be taxed as employees of PGMOL. However, HMRC have indicated their intention now to appeal to the Court of Appeal.

The facts

The First Tier Tribunal (FTT) had held that the referees in question, identified as “National Group” referees, were not employees of Professional Game Match Officials Limited (PGMOL), and as such a £584,000 tax and national insurance bill was not payable by PGMOL.

The National Group referees officiate matches primarily in Leagues 1 and 2 of the Football League in England, as well as Championship and FA Cup matches, and as Fourth Officials in Premier League matches. Effectively the second tier of elite referees in England, behind the professional Premier League referees (your Michael Olivers of this world, for those in the know), who operate part-time alongside primary employment. HMRC determined and issued a decision that for the tax years 2014-15 and 2015-16 PAYE tax and Class 1 National Insurance contributions should have been paid in respect of the referees, as employees, by PGMOL. PGMOL appealed on the basis the referees were in-fact self-employed under a contract for services.

Was there mutuality of obligation?

In order to establish that the referees were employees there had to be “mutuality of obligation” between the referees and PGMOL and a degree of “control” exercised by PGMOL over the referees.

The Upper Tribunal found there to be no mutuality of obligation in relation to the overarching contract between PGMOL and the referees in the National Group for the particular season or in individual contracts between PGMOL and the referees for any given match:

  • It was clear to the Upper Tribunal that referees were free to accept or reject any matches offered to them, before the creation of the individual contract.
  • PGMOL were under no obligation to offer any matches to the referees in the National Group and there would be no recourse in contract for the referees if they were not offered any matches.
  • Once accepting any given match, it was clear referees were free to decide not to take up an appointment they had otherwise accepted, for any number of reasons such as illness, injury or changes to work commitments.
  • PGMOL were able to cancel an appointment was given without any contractual limitation and without committing a breach of contract.

On that basis alone, the Upper Tribunal rejected HMRC’s appeal. The Upper Tribunal went onto consider the matter of control, however, this was irrelevant to the determination of the case, as there was no mutuality of obligations in either the overarching or individual contracts.

Implications for CEST

The most significant outcome of this case is that it casts serious doubt over HMRC’s view that once work is carried out and paid for under a contract there is mutuality of obligation. This view shaped the hotly debated Check Employment Status for Tax (CEST) tool which was revised as a result of IR35 reforms but which did not take into account mutuality of obligation. It is possible that in some circumstances the CEST tool will give “employed for tax purposes” results to contractors who in accordance with this decision would be considered self-employed as a result of insufficient mutuality of obligation.

Newspapers have quoted calls for HMRC to review their CEST tool as a result of this case, but, in-light of their indication to appeal it may be unlikely they will make any changes in haste.

The full time whistle hasn’t been blown yet.

 

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