HMRC lose IR35 case over Mutuality of Obligation

• HMRC has lost at the Upper Tribunal in the recent case of Professional Game Match Officials Limited (PGMOL) v HMRC.
• PGMOL employ a number of referees under employment contracts. However, they also have a set few referees that choose to perform these duties in their spare time alongside other employment.
• HMRC argued that these individuals should be considered employees, not self-employed, and consequently raised a tax liability of £583,874 excluding interest.
• The First Tier Tribunal ruled that:
  • The contracts of these individuals expressed no mutuality of obligation (MOO)
  • There was no supervision, direction or control in the referees' relationship with PGMOL
  • The contracts contained nothing that was consistent with non-attendance amounting to a breach of the contract
• HMRC subsequently appealed the decision to the Upper Tribunal (UT), who agreed with the FFT on the basis that MOO only exists if:
  • There is an obligation to perform at least some work and an obligation to do so personally
  • There is an obligation on behalf of the employer to ‘provide work or, in the alternative, a retainer or some form of consideration in the absence of work’
  • The obligations subsist throughout the whole period of the contract
• The UT concluded:

“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.”

View the FFT decision here.

View the UT decision here.

Aspire Comment

This case is further evidence of the importance of consideration of MOO in deciding employment status. This case puts a clear emphasis on the complexity of employment status that cannot be accurately determined by HMRC’s online tool (“CEST”) which fails to account for consideration of MOO.

With the off-payroll working rules due to change on 6 April 2021, it is imperative that employers do not rely on blanket determinations. Businesses will be liable for determining the tax status of contractors who work through Personal Service Companies, and failure to apply the correct legislation will result in tax and national insurance liabilities.

If you need any support on IR35, due diligence or any other employment matters, call us today on 0121 445 6178 or email enquire@aspirepartnership.co.uk.