Kye Burchmore is Director of Trinity Tax and the author of Bloomsbury Professional's Off Payroll Tax Handbook.
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An employment status case reaching the dizzying judicial heights of the Supreme Court is a rare occurrence. It is therefore no surprise that the judgment of HMRC v Professional Game Match Officials Ltd has been eagerly awaited since the hearing 26 and 27 June 2023.
To compound the anticipation further, one of the tasks for the Supreme Court was to consider mutuality of obligation, a controversial topic that has been a bone of contention in employment status cases for decades.
PGMOL provides referees and other match officials for football competitions in England including the Premier League, FA cup and the English Football League.
It has two groups of referees to officiate the matches. The first group are full-time employees who principally officiate the Premier League. The second group are called the National Group who referee in their spare time and officiate the English League games and FA cup as well as act as fourth officials in the Premier League.
The National Group are engaged on a self-employed basis, and are the subject of this dispute with HMRC, who claim they should have been employed and taxed as such.
Referees were appointed by PGMOL on an annual basis before the start of each season. They would undergo a fitness test, attend an introductory seminar as well as being subject to PGMOL’s disciplinary procedures for breaching any match day procedures. All parties accepted that this overarching annual contract was not one of employment.
For specific match days, referees were offered an appointment on a Monday and were free to refuse it (although PGMOL would typically want to know the reason). Having accepted an appointment, a referee could still back out of it before arriving at the ground on match day. PGMOL could likewise make changes after an appointment was accepted.
The heart of this dispute was whether the short-term match day contracts were contracts of employment each time a referee accepted an appointment.
PGMOL appealed the Court of Appeal decision, and the Supreme Court were tasked with determining whether the pre-requisites of mutuality of obligation and control were present.
A considerable amount of case law concerning mutuality of obligation has been a result of employment claims whereby an individual must establish continuity of service. To do this, there has been a requirement to show a mutual obligation to offer and accept work throughout the relevant period. If there is a lack of mutuality during this ongoing contract, it will not be one of employment.
This is easier to consider for overarching/umbrella contracts but is more problematic in specific short-term contracts, such as a contract each week to referee a football match. PGMOL argued that a lack of obligation to provide the services up until they arrived on a Saturday morning, established a lack of mutuality of obligation. The Supreme Court ruled however that none of the authorities establish that, where there is a single engagement, there must be mutual obligations in existence before the engagement commences.
To truly get to the bottom of mutuality of obligation, it would have been helpful if the Supreme Court were considering a case where there was no obligation during such a short-term contract. Whereas in this case the referee had an obligation to officiate a match once they arrived on match day, until they submitted a match report the following Monday.
Employment disputes relating to tax and national insurance (rather than employment law) have always had the need to establish mutuality ‘within’ a contract and not just ‘ongoing mutuality’.
This judgment does appear to limit the ongoing ability to establish a lack of mutuality of obligation:
“For present purposes, the important feature is that it mattered not that the applicant had been under no obligation to accept the assignment and was under no obligation to accept future assignments.”
This relates however to there being no obligation to accept “an assignment” in the first instance, rather than being under no obligation to continue providing any services during the assignment.
The Supreme Court also summarised the position in relation to there being a lack of mutuality because a contract could be terminated early:
“It does not follow from the right of either party to cancel the engagement without penalty that, while the contract remained in being, the parties were not under mutual obligation to each other. On the contrary, those mutual obligations existed from the time of acceptance of the match, unless the engagement was terminated.”
It continued later with:
“The right to terminate is irrelevant at the first stage of determining whether there exists the mutuality of obligation for a contract of employment.”
These statements mean it will be harder to establish a lack of obligation to provide services and HMRC will almost certainly give this area little time, or contemplation, when assessing employment status or IR35. Although it should be noted that there is a distinct difference between being under no obligation to provide any services and having the right to terminate a contract.
Where mutuality of obligation is established, the Supreme Court accepted that the nature and extent of the mutual obligations will still be relevant at the third stage of the Ready Mixed Concrete test i.e. other factors which are inconsistent with an employment relationship.
The FTT held there was a lack of control mainly due to the inability for PGMOL to step in during a match. The UTT and Court of Appeal believed this misunderstood the degree of control necessary for an employment relationship and so this was also a matter for discussion in the Supreme Court which noted:
“There can be no doubt that a sufficient element of control by the employer over the employee is essential to the existence of a contract of employment, but it is a test that can prove difficult to apply.”
The judgment set out clearly that a “sufficient degree of control” was the correct test to apply, but held that flexibility over this approach is critical, given the ways in which employment practices have evolved.
In the case of the referees, they had obligations as to their conduct and performance plus PGMOL retained the right to penalise the referees by denying them further opportunities and reduce their share from the performance pot at the end of the season. The referees also had fitness protocols, match day procedures, codes of conduct and an assessment system.
The Supreme Court held that control may take many forms and is not confined to the right to give direct instructions. It also reaffirmed the position set out in the High Court of Australia case of Zuijs v Wirth Brothers Pty (1955) where it was said that what matters is “lawful authority to command so far as there is scope for it…if only incidental or collateral matters”.
These passages of the Supreme Court judgment highlight that control should be considered broadly and is a lower threshold to meet than many believe.
To reiterate this even further the Supreme Court provided further guidance over how to apply the three stages of the Ready Mixed Concrete [1968] tests for self-employment:
“If mutuality and control are regarded as largely determinative, with only a minor role for other considerations, courts may be led to apply an unduly restrictive interpretation of control in order to prevent relationships which overall are not suggestive of employment from being characterised as such. Conversely, by according a real significance to the “totality of the provisions…and all the circumstances of the relationship created by” the contract, a realistic approach can be taken to the issue of control. In other words, the bar to the existence of control need not be set at an unduly high level.”
This direction appears to ensure more weight is given to the other circumstances in the working relationship, and there is less focus on control and mutuality (which do not have high thresholds).
The outcome of this case is not overly surprising based on the facts.
The referees were subject to disciplinary procedures, had codes of conduct and match day procedures to follow all of which gave plenty of scope for a judge to conclude there was sufficient control.
For mutuality of obligation, even applying the wider test of considering an obligation to offer and accept work, the referees had a commitment once they arrived on a match day, until they completed the match day report. This created mutuality of obligation ‘within’ the short-term contract even if applying the test that is adopted for ‘overarching/umbrella’ contracts.
There is still some scope to argue a lack of mutuality of obligation if there is no such obligation ‘within’ a short-term contract, but given the statements made in this case, it will now be a much more difficult argument to advance and may only apply in some cases.
As referenced in the judgment, the control test is always difficult to apply given the different ways in which people work, and it will remain fact specific. Nonetheless, the threshold for control does not need to be set high by judges and can take into account incidental and collateral matters.
If the threshold for the first two stages of the Ready Mixed Concrete tests is not that high, it is evident that the third stage will become even more of critical battleground for employment status and IR35 disputes going forward. Once present, mutuality and control can also be considered in the third stage of the Ready Mixed Concrete tests, but as highlighted in this case, they will then be one of many factors to consider, rather than being decisive.
If a taxpayer needs to become more reliant upon the third stage of the Ready Mixed Concrete test, this can be very unpredictable, especially when you consider various cases (such as the UTT judgment in SL Barnes) where a taxpayer can be deemed to be in business on their own account overall, but not within a specific engagement.
Employment status is a minefield that even tax tribunal judges struggle to navigate through, as evidenced from the number of cases being overturned at the higher courts.
