PGMOL case: Taxman vows to appeal ‘profound’ defeat for HMRC and CEST

The UK’s foremost IR35 status experts are asking what may be the final questions about CEST remaining in use, in light of a court indirectly joining a Lords’ inquiry in ruling against it.

At least in effect as, contrary to HMRC’s claims that the tool is still effective, the peers found it "falls well short of what is required," and now, two senior tax judges have gone even further.

In fact, despite CEST facing more usage due to April 2021's reform of IR35, the tool omits a key test due to a reasoning of HMRC’s which has no place in law, found judge Thomas Scott and Mr Justice Zacaroli.

'Mutuality is essential'

“We reject HMRC’s contention that the requirement that there be Mutuality…is irrelevant to the categorisation of the contract as one of employment or one for services,” the duo ruled.

In the case of the taxman Vs. PGMOL, which HMRC yesterday said it would appeal, the judges added: “[MoO] is an essential requirement in categorising a contract as one of employment.”

Indeed, Mutuality as a requirement emerged as so essential that the judges said it not only is more relevant than determining if a contract exists, but it also actually swung their decision.

“There was insufficient mutuality…in relation both to the overarching contract and the individual contracts,” they said, finding in favour of Professional Game Match Officials Ltd (PGMOL).

“It follows that there was no error of law in…[a lower court’s] conclusion that the referees… [via PGMOL] were engaged under contracts for services and were not employees.”

'HMRC's guidance is wrong'

So, because of a lack of MoO – a factor that CEST does not test for – the PGMOL referees were self-employed, exactly as PGMOL intended, and exactly as a prior tribunal ruled.

“In short, HMRC’s guidance is wrong,” says Chartergates, pointing to the verdict recording that the judges ‘reject HMRC’s contention’ that MoO doesn’t matter as a status determinant.

“HMRC…put the matter before the Upper-tier which, in a detailed and binding precedent, has completely swept away HMRC’s position on MoO.”


The employment law firm added: “This decision has profound implications for HMRC’s position in relation to employment status and, in particular, the CEST tool.”

Nicole Slowey, a director at status firm Qdos confirmed: “The judge decided the absence of Mutuality of Obligation (MoO) showed that the referees were self-employed, not employees.”

“CEST [can no longer be] fit for purpose, given it presumes MoO is present in every engagement. Clearly, it isn’t.”

'Tool cannot stand up in court'

The firm’s boss Seb Maley echoed: “[PGMOL] wasn’t an IR35 case given that [the football] referees in question did not work via personal service companies.

“[But] the fact that it hinged on MoO has cast further doubt over the reliability of CEST -- the tool used to determine both employment status and IR35 status.”

The verdict, which quashes a £584,000 tax demand, “begs the question -- why is one of the three key IR35 tests missing from CEST?" asked Maley, posing another few:

“[And] why is HMRC encouraging hiring organisations to use the tool to determine a contractor’s IR35 status when its answers do not reflect IR35 case law, and [when it] cannot stand up in court?”

'Too narrow'

Another IR35 specialist ReLegal Consulting agrees that HMRC’s long-standing argument that MoO is irrelevant to status has been "rejected” by a court.

“[In rejecting it] the UT stated that HMRC's interpretation [of Mutuality] is too narrow,” says ReLegal’s boss Rebecca Seeley Harris.

“[The verdict in PGMOL] calls into question whether the CEST tool is fit for purpose bearing in mind that it relies on the same narrow interpretation of mutuality.

“At what point does HMRC decide that their argument on mutuality really is flawed?”

Well, certainly not yesterday. Asked about any plans to reprogram CEST in light of the case and the findings of the Lords (who said the HMRC tool suffers from “ongoing deficiencies”), a Revenue spokesman did not reply to the point.


However, HMRC did say it will appeal the PGMOL case, as had been expected since the unflattering verdict for the taxman and his tool was published on May 6th.

The spokesman for the Revenue told ContractorUK: “HMRC is disappointed at the findings of the Upper Tribunal. We will be appealing the findings to the Court of Appeal.”

In a sort of alert to the taxman, Chartergates warned: “The stakes could not be higher for HMRC. They can either re-write the CEST tool and change their guidance, or appeal and risk a higher court setting an even stronger precedent.”

Profile picture for user Simon Moore

Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
Printer Friendly, PDF & Email

Contractor's Question

If you have a question about contracting please feel free to ask us!

Ask a question