On 16 September 2024, the Supreme Court promulgated its decision in the tax status case of Professional Game Match Officials Ltd v Revenue and Customs [2024] UKSC 29. Still, it did not make a final judgment; instead, it remitted the case to the First-tier Tribunal to reconsider its decision.
The decision has clarified some longstanding confusion on specific areas of relevant status case law, in addition to solidifying case law principles into binding law, which HMRC and taxpayers now need to follow.
PGMOL case background
The case concerned Level 1 National Group football referees engaged as sole traders who officiate at football matches, and the dispute was whether the engagements with PGMOL were ones of employment, thereby requiring PGMOL to deduct employment taxes at source, including the payment of employer National Insurance Contributions on top of the payments made to the referees.
The case history goes back to July 2018, when the case was first heard and successfully appealed by PGMOL at the First-Tier Tribunal. HMRC's appeal to the Upper-tier Tribunal was dismissed in May 2020. HMRC then appealed to the Court of Appeal, who identified errors in law, signalling a remittal back to the First-tier Tribunal in Sep 2021. PGMOL appealed the decision to the Supreme Court and was granted permission on 9 August 2022. The Supreme Court case was heard in June 2023, and 15 months later, the decision was released. The decision dismissed PGMOL's appeal while clarifying some legal principles, and then the case was remitted to the First-tier Tribunal.
What was PGMOL all about?
The appeal sought clarity on the correct application of the common case law of Ready Mixed Concrete ("RMC"), which is the accepted case law on how to consider employment status matters – and therefore has a bearing on firms who hire flexible workers, in particular the legislation around IR35 and off-payroll working.
The primary focus was on case law concepts of sufficiency (or "nature") of mutuality of obligation and extent (or "degree") of control and how those factors impact employment status decisions.
What case law factors did PGMOL focus on?
The Supreme Court ratified the principles laid down on April 2022 in the Court of Appeal case of Commissioners for Her Majesty's Revenue and Customs v Atholl House Productions Ltd [2022] EWCA Civ 501 ("Atholl House"), an IR35 case involving broadcaster Kaye Adams – whose appeal, after being pursued by HMRC through four tribunal hearings, was ultimately upheld in favour of the taxpayer.
The RMC framework has three stages, the first two being pre-conditions, which, if met, lead to the third stage of RMC, where all factors are considered part of a multi-factorial determination. If neither pre-condition is met, then the engagement cannot be employment.
The first two stages identify personal service, payment and some degree of control. Those are very low hurdles and apply to all employed and self-employed people. Their existence does not mean an engagement is an employment. We have to conduct a full determination, looking at everything.
By way of example, consider trying to work out if a vehicle is a van or a car. Does it have four wheels and a steering wheel? "Yes," then we are in the vehicle zone. If "No, it does not have wheels or a steering wheel, but has a grey trunk and tusks, then it will never be a van or car!"
Everything happens at the third stage of RMC, where all relevant factors should be considered, including the full nature of the mutual obligations and the degree of control exercisable.
What are the legal principles of the PGMOL ruling?
The critical case law principles, now binding law on all parties, are defined below.
RMC - Stage 1:
- The requirement of payment for personal service and some element of control does not solely establish that an engagement is one of employment. One must consider all relevant factors.
- Once personal service is established, the first stage of RMC requires an obligation to pay if work is done. The right to terminate a future engagement is irrelevant only at the first stage.
- The nature and extent of the mutual obligations are relevant at the third stage of RMC, which is to determine whether the contract is one of employment.
RMC - Stage 2:
- A sufficient element of control (Stage 2) by the employer over the employee is essential to the potential existence of a contract of employment. When answering that question, what matters is the existence of a lawful authority (e.g. arising from the contract) to command so far as there is scope for it, if only in incidental or collateral matters. An employer doesn't need to have a contractual right to intervene in every aspect of the performance of a putative employee.
RMC - Stage 3:
- Having satisfied Stages 1 and 2, one must consider the nature and extent of the mutual obligations and the degree of control, along with all factors pointing towards and away from employment, before concluding.
- When considering the degree of control, where the nature of the services provided by the putative employee leaves little room for intervention by the putative employer, the question of control may be difficult to answer.
- Sufficient control consistent with an employment relationship may take many forms and is not confined to the right to give direct instructions to the individuals concerned.
What are the critical learnings for firms?
Firms and all taxpayers should note the following:
- "Exercisable" means a contractual right, whether expressed or implied. If the contract is silent on control, it could be implied based on the facts. If the contract clearly states the person has full autonomy, then there is no right, and a term cannot be implied, which overrides it.
- Where there is a realistic contractual right of substitution, where the client cannot control who or how the work is completed and is agnostic on who does it, the engagement cannot be employment.
- Mutuality is not a binary concept, except at the first stage of RMC, where payment will suffice. The nature of the obligations must be considered at the third stage.
Will the case law change again?
Emphatically, no. The case law is not in a state of flux.
The case law has evolved considerably since many status cases (including many for IR35) began entering the tribunals again in 2017. The common law evolves under stare decisis, or (in plain English) binding precedent, which means courts' decisions bind judges at the same level and those below them.
The status case law principles were laid down by the Court of Appeal in Atholl House in April 2022, and the Supreme Court has now ratified those principles. Also, remember that the principles are longstanding, and it's arguable that nothing has changed.
The law is now certain, and firms can rely on it.
Who was wrong? HMRC or taxpayers?
Some taxpayers argued that mutuality meant a bit more than payment at the first stage of RMC, and HMRC argued that mutuality only concerned payment. Both were wrong. Payment is at Stage 1, and the nature of the obligations is relevant at Stage 3.
HMRC had argued that control was binary and should not be considered at Stage 3 – they were wrong about that. The "extent" of control is a relevant factor which must be considered.
HMRC had argued that the findings of mutuality and control at Stages 1 and 2 meant a default finding of employment. They were wrong about that, too.
HMRC's Policy View on status matters has been proven to be lacking and too narrow. Their view informed the design of their Check Employment Status for Tax (CEST) tool, which now requires a significant overhaul to align with the Supreme Court decision.
What about IR35 Shield?
Our status determinations have never made mutuality or control determinative, and the determinations have always been multi-factorial, considering everything in the round. We made it that way because the law has always indicated that.
What about PGMOL?
The PGMOL case now heads to the First-tier fact-finding tribunal, which does not make binding legal precedents. The case will decided by applying the legal principles to the facts specific to that case.
A copy of the decision is available on Bailii.
If you'd like to discuss your business's IR35 processes, you can book a free consultation today.
