HMRC -v- PGMOL

The recent supreme court case of Commissioners for His Majesty’s Revenue and Customs -v- Professional Game Match Officials Ltd [2024] UKSC 29 summarises the key elements of an employment relationship for tax purposes (i.e. whether referee fees should be subject to employment taxes). These elements contain grey areas which necessitate a cautious approach when engaging with external service suppliers to reduce the risk of a deemed employment relationship arising for tax purposes (making the individual’s remuneration subject to employment taxes).

Summary

Professional Game Match Officials Ltd (“PGMOL”) provides football match officials. The National Group is a particular grouping of match officials formed of referees who officiate in their spare time, who typically have other full-time occupations and who officiate matches in the Championship League and the FA Cup (“Referees”).

The Referees entered into separate contracts with PGMOL each time they agreed to officiate a match. The question for the Supreme Court was whether or not these contracts formed employment contracts for tax purposes, thereby determining whether or not PGMOL was subject to PAYE obligations on payments made under the contract.

The Supreme Court held that the contracts between PGMOL and the Referees met the first two of the three elements of a common law employment contract, previously identified by MacKenna J in Ready Mixed Concrete (South East) Ltd -v- Minister of Pensions and National Insurance [1968] 2 QB 497, being:

1. mutuality of obligation;

2. control; and

3. whether or not an employment relationship exists “in the round” (White -v- Troutbeck SA [2013] EWCA Civ 1171).

The Supreme Court did not comment on the third limb, leaving this to the First Tier Tribunal to consider.

1. Mutuality of obligation

Mutuality of obligation exists if the service provider provides their personal service in return for payment by the recipient.

In this case the Supreme Court considered the existence of a mutuality of obligation in the case of each contract to officiate a match as opposed to an umbrella contract (for which a continuing mutuality of obligations would have had to existed).

Notably in this case, once a Referee had accepted an appointment, they could still pull out of the contract before arriving at the ground on match day. PGMOL could also make changes after a match appointment had been accepted. This said, the Supreme Court was satisfied that a contract of employment may exist covering only the period during which the employee carries out the work for which they are paid. As the Referees’ services were supplied from the point they accepted the offer of a match until they submitted their match report, in return for payment, a mutuality of obligations was present in respect of each individual engagement. With there being a mutuality of obligation in successive, discrete contracts that can themselves be terminated, it is hard to foresee a scenario where contracts are entered into which do not meet the mutuality of obligations test. This narrows the focus onto the degree to which the individual takes on the obligations personally.

This is an important limb to remember when assessing the existence of an employment relationship, particularly given the CEST tool does not ask any questions regarding the mutuality of obligations.

2. Control

The control test will tend to involve a more detailed review of the facts of the case.

One of the key points emerging from the Supreme Court judgment (with the Court drawing on previous case law) is the principle that, even though the degree of control exercisable over the relevant individual(s) may be very limited – for example, in the context of a business supplying the services of medical practitioners, where the supplier itself has no medical expertise on board and therefore is not qualified to exert control over individuals’ day-to-day activities – nevertheless there will always be some degree of a “framework of control” within which control can be exercised. The question then becomes: within that framework, such as it exists, is a sufficient level of control being exercised over the individual to be indicative of an employment relationship?  

Control must be established on the basis of the contractual terms in question. A right of intervention therefore isn’t necessary; as was shown in the case of Uber BV -v- Aslam [2021] UKSC 5, retrospective, punitive measures, together with contractual obligations can lead to the control test being met.

In this case, the contractual obligations imposed on the Referees met the control test. In this respect, particular reference was made to:

• the contractual obligations regarding the Referees’ conduct generally from the time the appointment was accepted until the match report was submitted, together with the obligations regarding the Referee’s conduct during the match itself; and

• the, in effect, punitive powers of PGMOL to penalise the Referees by denying them opportunities to officiate in future matches and reducing their right to share in the “performance or merit payment pot”.

3. The existence of an employment relationship “in the round”

The Supreme Court did not consider this third limb in detail but it emphasised that, although the focus is typically on the two tests of control and mutuality of obligation, meeting these two tests is necessary but not necessarily sufficient to establish a contract of employment. Having met these two tests, the contract then needs to be considered in the round, taking into account the parties’ obligations, and any other relevant aspects in order to establish whether or not the contract is one of an employment nature.

As the First Tier Tribunal did not reach this third limb, the Supreme Court has referred this issue back to the First Tier Tribunal, for it to consider on the facts, in light of the Supreme Court’s judgement in respect of the mutuality of obligation and control limbs. Considerations around the mutuality of obligation and control limbs will feed into this more holistic analysis.

Key Takeaways

In this judgement the Supreme Court provides clarification on the two tests of mutuality of obligation and control and emphasises that, these two tests having been met, it must be considered whether the contract, viewed holistically, results in an employment relationship.

The requirement to assess whether, holistically, the contract results in an employment relationship leaves a degree of flexibility, as does the concept of control, which can still be described as being at a developmental stage as it is applied to new factual scenarios. The Supreme Court does refer to factors which are indicative, but not determinative of an employment relationship, being:

• direct payment from the service recipient;

• any intervention rights of the service recipient;

• any right of the service recipient to dictate:

  • what the service provider does;

  • how the service provider does it; and

  • when and where the service provider does it, taking account of any specific expertise the service provider has;

• the service provider’s need to comply with the service recipient’s protocols and procedures; and

• any sanctions which the service recipient can impose on the service provider, including termination of the contract.

Whilst this case doesn’t tread new ground, it continues to highlight the importance of reviewing the practical workings of external worker relationships and their governing documentation in order to minimise the indicators of employment arising from an external working relationship.

The above covers a discussion of an employment relationship for tax purposes which has two concepts: employed or not employed. Employment Law however has a different concept of employment which spreads across employed, worker and self-employed. Employment status in accordance with Employment Law provides employees with additional benefits over workers in employment such as unfair dismissal, redundancy pay and rights to paid family friendly leave. If a contract of employment is found for tax purposes, this leaves open the question of whether the individuals are employees or workers under Employment Law. It is anticipated this consideration will be particularly pertinent given Labour’s announcement that employees will soon get day 1 unfair dismissal rights (further discussion of which can be found on our Employment Rights Bill Tracker here).