A short-lived IR35 victory is usually for contractors, but so far in ‘PGMOL,’ it’s for HMRC

The long-awaited referees’ decision in Professional Game Match Officials Ltd was handed down by the Court of Appeal (CA), but unfortunately, it did not provide the clarity or confirmation many had hoped for, writes David Harmer, associate director of contractor solutions at Markel Tax.

In an unexpected turn of events, the CA decided it could not deliver a decision on the status of the referees and directed the case be re-heard by the First Tier Tribunal (FTT).

So why did the Court of Appeal not deliver, and why did it order a rematch?

The reasons why the CA directed the case to be re-heard becomes abundantly clear on close examination of the judgment. The appeal to the CA was on the specific grounds of an error in law; specifically that the previous tribunals had mis-directed themselves in law. Although ‘Control’ was considered in this case, it is clear from both the Upper Tribunal and FTT decisions that the employment status of the referees hung on the balance of Mutuality of Obligations (MoO).

The CA provided lengthy discussion on mutuality; and this case as a whole highlights the two very important aspects of Mutuality: overarching MoO (or future MoO), which one must consider during periods when the individual is not actively providing services; and mutuality during the currency of the engagement (MoO within), when the individual is actively providing services.

A strike against HMRC

The CA agreed that there was a lack of overarching MoO. However, it considered that the question of whether mutuality existed during an engagement had not been decided correctly. The CA confirmed the position that work for wage does not satisfy mutuality of obligations in its entirety (at odds with HMRC’s stance on MoO), and likewise the ability for either party to terminate a contract does not negate the existence of mutuality in entirety.

In this respect the CA determined that both the UT and FTT had erred in their assessing of Mutuality. The court said:

“The correct analysis is that if there is a contract, the fact that its terms permit either side to terminate the contract before it is performed, without breaching it, is immaterial. The contract subsists (with its mutual obligations) unless and until it is terminated by one side or the other”

In respect of Control, the CA upheld the UT decision that the FTT had erred in law in its application of control. It also confirmed that the right of control was not negated by the inaction or inability of the engager to interject in the performance of the services. However, it also went further and disagreed that the coaching and assessment systems were not relevant to control. In particular:

“The point is that the assessment system gave PGMOL a significant lever with which to influence the performance by NGRs of their individual engagements, and was, thus, plainly capable of being relevant to the question of control. I also consider that the coaching system is potentially relevant to the question of control”.

The right questions were not asked and answered

One might ask; why, having considered all the legal points and provided such a detailed analysis, did the Court of Appeal not determine the status of the referees? 

From my examination of the CA’s commentary, it becomes clear that they consider there was an insufficient finding of fact by the FTT. Put simply, while the lower courts did err in law in their determinations, this stemmed from a lack of established facts – the right questions were not asked and answered, and therefore a reasoned legal judgment could not be delivered.

As directed by the CA, the case of the referees status must be re-heard by the FTT. In football parlance, it means the game has been abandoned, and we’re looking at a rematch! 

It also means the case must be listed before the FTT and both parties will have the opportunity to present their cases (and no doubt counsel for both sides will already be gathering factual evidence to plug the holes highlighted by the CA).

A technical (but short-lived) win for HMRC

While technically this case does provide a win for HMRC, given that the CA accepted there was an error in law, this victory may be short-lived -- albeit not quite as short-lived as the ‘outside’ determinations contractors get per assignment. In fact, since the CA’s judgment, many commentators have proffered that it signals an outright victory for HMRC and its approach to mutuality of obligations. I, however, do not hold this opinion.

Yes, the CA did confirm an error in law, but they did not conclude that HMRC’s limited “work for wage” interpretation of MoO was (or is) correct. The CA did not perhaps provide the overwhelming clarity many would have liked here, but they do provide commentary (akin to the Carmichael case) as to what Mutuality is not, and offer considered guidance as to how judges should consider the issue. 

A clean sheet...

The direction for the case to be re-heard by the FTT means that the FTT will start afresh.  While the CA have provided direction on the correct approach for determining mutuality of obligations and control, it did not provide a decision on status. This means the freshly constituted FTT are not bound by the previous decisions in this case – instead, they can establish the relevant facts and apply the relevant law.

But the PGMOL case highlights two important points which contractors can take away now, before the FTT hearing gets underway:

1. Written contracts

The absence of written contracts is a huge hindrance to employment status. 

While it is true to say that a written contract is of no value if it does not reflect the genuine day-to-day working arrangements, many of the inconsistencies and problems in the PGMOL case could have been rectified if there had been a simple, written, document in place, providing the rights and obligations of each of the parties. 

The written contract is primary evidence in cases such as these, and its importance cannot be overstated.

2. HMRC’s view of Mutuality? It's not the law 

The CA did not provide the clarity on MOO that we were all hoping for, but what is clear from this case is that mutuality of obligations cannot be reduced to via HMRC’s overly-simplistic approach of payment for services rendered. This case would not have progressed to the CA if it was that simple!

We will eagerly await details of the re-hearing. As with all employment status arguments, this case will succeed or fail on its facts, and to that end, Counsel for PGMOL do have a helping hand -- the benefit of knowing what facts they need to evidence to achieve a victory. So not only was the re-hearing order technically a win for the Revenue, maybe the tax authority has an advantage heading into the replay too. Still, HMRC will not be able to rest on its laurels; and I don’t even believe that it can rely on its standard interpretation of MoO for the next, much-anticipated fixture at the FTT.

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Written by David Harmer

David began his career with Markel Tax at 18 and has since spent 10 years with the business, completing a law degree and working his way through the ranks of tax consultant to director. Defending tax payers against HMRC challenges on all areas of contentious tax law including IR35, self-employed status, CIS, agency legislation etc., his tribunal victories include the well-known Sherburn Aero Club case.
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