IR35: UK employment tax test ‘no clearer’ after PGMOL referee decision

Penny Simmons of Pinsent Masons was commenting on a long-awaited decision holding that football referees engaged by Professional Game Match Officials Limited (PGMOL) should not be taxed as employees on fees received for refereeing matches. The tax tribunal considered that the case “was not finely balanced” and, standing back, held that the relationship between the referees and PGMOL “lacked the hallmarks of an employment relationship”.

“It is almost eight years since the first PGMOL tribunal decision,” Simmons said. “Whilst there is finality clarity for the affected referees, the decision doesn’t provide broader clarity on the employment tax status test, since this case was very fact specific. The decision also pre-dates the current IR35 regime, and therefore doesn’t consider the current context in which businesses need to apply the test when engaging individuals through personal service companies (PSCs). If anything, the decision emphasises the difficulties businesses may face when determining employment status for tax purposes.”

The tribunal’s decision follows an earlier Supreme Court decision that mutuality of obligation and a sufficient framework of control existed between the parties for there to be an employment relationship. The case was remitted to the tribunal to undertake a multi-factorial evaluation and determine whether the individual match engagements were contracts of employment.

“The judgment is lengthy - the tribunal spent considerable time reviewing the various factors relevant to determining employment tax status. The description of the referees as being ‘skilled professionals’ participating in a ‘regulated framework, undertaking discreet engagements for remuneration, while retaining substantial autonomy and independence’ could be applied to a variety of specialist roles across the private sector – many of which fall within the scope of IR35. However, given that the tribunal focused on the ‘hobby-like nature’ of refereeing at this level, the case can be distinguished from most IR35 status determinations undertaken in a business context,” she said.

The IR35 rules apply where a business engages an individual to provide services off-payroll and through an intermediary - commonly a PSC. IR35 targets the use of PSCs to avoid employment taxes. Under IR35, when a business engages with an individual through a PSC, the individual should be taxed as an employee, if they would have been deemed to be an employee for tax purposes had they engaged directly with the business.

The business is required to determine if the engagement falls ‘inside IR35’ – that is, whether the individual would be an employee for tax purposes if they had engaged directly with the business – and issue a ‘status determination statement’ confirming its determination and providing reasons. Businesses are required to take reasonable care when making status determinations, and group determinations are only acceptable in limited circumstances.

Simmons said the case “demonstrates the complexity of the employment tax status test and therefore, reinforced the importance of a business taking reasonable care when making IR35 status determinations”.

“Whilst HMRC may challenge an IR35 determination, a business will be in a much stronger position if it can evidence that it has taken reasonable care. Businesses should have comprehensive processes in place to identify PSC workers and undertake thorough determinations,” she said.

“It is expected the businesses and stakeholder groups will continue to lobby HMRC to review and alter its Check Employment Status for Tax (CEST) tool so that it provides more weight to the different factors that are relevant when assessing employment tax status, beyond control and the right of substitution. However, in the meantime, continuing to use CEST when making status determination remains worthwhile since HMRC considers accurate use of CEST as indicative of reasonable care,” she said.