Professional sports may still be on hold in the UK for the foreseeable, but it seems HMRC have scored another own goal in their most recent IR35 tribunal against PGMOL.
The defeat was once again due to their narrow interpretation of Mutuality of Obligation (MoO). This is significant as HMRC have long insisted that Mutuality of Obligation is present in all contracts where there is payment for services provided. For this reason, HMRC exclude MoO entirely from their Check Employment Status for Tax (CEST) tool.
Mutuality of Obligation is one of the pivotal factors in determining IR35 status, alongside Control and Personal Service/Substitution. HMRC’s continuing assertion that it is always present and therefore irrelevant has led to much criticism from legal experts.
The case of Professional Game Match Officials Limited (PGMOL) vs HMRC was initially brought before the First Tier Tribunal in 2018. PGMOL supplies referees to the FA to officiate at football matches. Whilst PGMOL does engage some referees on contracts of employment, the contracts in question were for those match officials engaged on contracts for services. These match officials work on an ad hoc basis and undertake refereeing duties in their spare time, typically alongside other full-time employment.
HMRC contended that the relationship between the match officials and PGMOL was one of employment and so employment taxes were due. The First Tier Tribunal disagreed, stating that there was insufficient levels of Control and Mutuality of Obligation to imply an employment relationship.
HMRC appealed this decision at the Upper Tier Tribunal who upheld the decision of the FTT. Stating in the court documents released on 6th May 2020:
We reject HMRC’s contention that the requirement that there be mutuality of obligation is irrelevant to the categorisation of the contract as one of employment or one for services, beyond merely requiring that the services be performed personally…….It is an essential requirement in categorising a contract as one of employment.
This is not the first time HMRC have lost a case in which MoO was a significant factor and it is time that they reviewed their interpretation of this important legal principle. Will this most recent defeat be the final nail in the coffin for HMRC’s narrow interpretation of MoO? We are certainly hopeful that it will be.
CEST is built on faulty assumptions and until MoO is included in the tool, status assessments will not be accurate. We hope that HMRC honour their earlier commitment to update the tool with new caselaw and do this as soon as possible. Before this happens, we would recommend having a professional, independent IR35 review of any contracts.
Help from Parasol
IR35 legislation can be tricky to understand, which is why we have a number of guides and articles on our website to help.