The Supreme Court maintained that the minimum requirements of ‘mutuality of obligation’ and ‘control’ necessary for a contract of employment between the National Group referees and PGMOL were satisfied. However, it has now referred the case to the First Tier Tribunal to decide whether all the tests are met to establish if the individual contracts were contracts of employment.
Susan Ball, employment tax partner, RSM UK said: “We have been waiting 15 months for this judgment, so it's disappointing that it has been pushed back to the FTT for a final decision. However, ultimately the judges have re-enforced existing case law. Employment status for tax and legal purposes is notoriously difficult to determine in the UK. As the Labour party manifesto stated, determining the correct category requires knowledge of complex legal tests and an ‘encyclopaedic knowledge of case law’. The current system creates uncertainty for taxpayers and employers, is extremely costly and complex, and acts as a barrier to economic activity and growth. This issue needs urgent resolution.”
HMRC has always stated ’Where work is provided and remuneration is paid, we will assume that there is mutuality of obligation.’ and this was built into the Check Employment Status Tool for tax (CEST).
Susan Ball continued: “The key to the PGMOL case is that the Supreme Court has stated mutuality of obligations may exist, even if the parties’ obligations only exist during the period when the individual is engaged and remunerated. The Supreme Court also stated that the appropriate starting point for determining whether or not there is a contract of employment is still the decision of McKenna J in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2QB497 and more recently Court of Appeal in HMRC v Atholl House Productions Ltd [2022] EWCA Civ 501, [2022] ICR 1059.
“Those involved in making status determinations will now be scrutinising the detail of the PGMOL case to understand its implications for status determinations in future.
“Currently, there are three positions for employment legal purposes and two for tax purposes, though it could be argued there are three due to the “deemed employee” status under the off-payroll working legislation, often referred to as IR35, and the restricted tests under the agency rules.
“This complexity leads to numerous disputes between employers, individuals, and HMRC, often necessitating recourse to the tax tribunal and the courts. Resolving these disputes can be stressful, expensive, and in some cases, take more than a decade to resolve.
“With the government already looking at employment status and potential changes under its 'New Deal for Working People’ this case could set the ball rolling for future major changes ahead.”
Charlie Barnes, legal services director, RSM UK added: “This decision is a timely reminder to the government of the need for a system of categorising employment status that reduces complexity and increases certainty for both parties. Given the Supreme Court was unable to determine a more precise outcome, whether this will be possible remains a concern. Individuals need to know where they stand, and businesses need to have confidence in the stability of their engagement models. Sadly, it seems unlikely that this will be tackled in the imminent Employment Rights Bill, given the challenges involved and the consultation required. However, reform of the current system must be prioritised if the government is to achieve its ambitions on growing the economy and making work pay.”