What the PGMOL case really means for IT contractors

The Supreme Court handed down its long-awaited judgment in ‘PGMOL’ last month, after a 15-month wait. 

The judgment is surprisingly short and succinct, writes Rebecca Seeley Harris of ReLegal Consulting, so, I’m not sure what took so long! 

PGMOL at the Supreme Court: what the judgment (in effect) says

The upshot is that the court gave judgment on the first two stages of the Ready Mixed Concrete (RMC) test but, remitted the actual decision on whether the referees are employed or self-employed back to the FTT. 

So, we will have to wait for the second half before the final whistle is blown!

With regards to the first stage of RMC being mutuality of obligations, the court decided that there were mutual obligations present. 

With regards to the second stage of RMC, being a sufficient framework of control, again the court found that they were present. 

A ‘no presumption of employment’ verdict

Crucially though, the court made it clear that this did not mean that it was a contract of employment.

Going further, the court also clarified that there should be ‘no presumption of employment’ despite the fact that both mutuality and control were present.

Overarching contracts and single assignments

The court had been specifically looking at the individual contracts which were represented in this scenario by the football match. It had already been decided in an earlier court that an overarching contract was not a contract of employment.

It is also important to point out that the court were looking at a situation where there is a single engager, rather than multiple clients. So, the use of the ‘In Business on your Own Account’ test is limited.

Work/wage bargain

Mutuality of obligations has been called the work/wage bargain in some cases and that might seem more appropriate. Personally, I am not quite sure though, because if payment is linked to the mutuality, i.e. that there has to be a payment, an independent contractor is also paid, so, it doesn’t adequately differentiate a contract of employment. 

So, the court looked at mutuality as the provision of services personally by the individual and the corresponding obligation on the potential employer to pay for those services. This could be present in any bilateral contract.

The Third Stage of Ready Mixed Concrete

The court remitted the case back to the FTT for the fact-finding tribunal to decide on whether the referees (provided by Professional Game Match Officials Ltd – PGMOL), are employed or self-employed. 

The third stage of RMC is that the “other provisions of the contract are consistent with its being a contract of service”.

This will be decided based on the guidance from the Court of Appeal in 'Atholl House' (the Kay Adams case) and from the guidance extracted from the Supreme Court judgment. 

I say ‘extracted’ because it’s not obvious.

Mutuality and control in the third stage

The Supreme Court has indicated that mutuality and control are still to be a relevant part of the third stage but, more in terms of the degree of usage. 

Here are seven key pointers for IT contractors operating on an outside IR35 basis, informed by the Supreme Court’s ruling in PGMOL:

1. The absence of mutuality between assignments is a useful indicator of independence. It also indicates a lack of subordination in the relationship which is incompatible with an employee status.

2. Termination without penalty is not a particularly useful pointer for self-employment status. 

3. There must be some ‘control’ even if it is only incidental or collateral.

4. Being highly skilled does not mean that the individual cannot be controlled. Also, the understanding that it is ‘how’ the person does the job that is important is outdated.

5. There is a combination of contractual obligations on general conduct and conduct during the engagement that gives a framework of control but, this still does not make it a contract of employment.

6. The existence of effective sanctions which were imposed after the end of the match are of “some significance”. Such sanctions indicate control of the performance (in PGMOL, both on and off the pitch).

7. Mutuality is not defined by whether there are any ‘continuing’ obligations.

Atholl House at the Court of Appeal

The FTT will also be looking at the guidance from ‘Atholl House CA’ on the third stage of the RMC. 

There is no long list of what the court should look at because it is dependent of the facts of each individual case. 

From ‘Atholl House CA,’ the third stage might include:

1. The court has to take into account relevant considerations rather than irrelevant ones. This might seem obvious but, this is what the Upper Tribunal did in ‘Atholl House.’
2. There is no guidance on what the indicators actually are, just as there is no checklist of factors.
3. The court is not confined to looking at only the terms of the contract and the effect of those terms.
4. The issue is not dependent on whether the taxpayer is highly skilled.
5. The duration of the contract is not the criterion.

Hypothetical contracts, what hypothetical contracts?

For those who are particularly well versed in employment status and IR35, you will have noticed that there is no mention of the ‘hypothetical contract’. 

That is because PGMOL is not a case involving Personal Service Companies (PSCs).

The football referees were all ‘self-employed’ sole traders.

The final whistle, or a re-match?

It is entirely possible that the FTT could err in law again and the case would be appealed!

Remember, though, that when Kaye Adams (in ‘Atholl House’) was found to be self-employed at the FTT having been remitted by the Court of Appeal, HMRC did not pursue the appeal.

It is also entirely possible that the football referees will be found to be self-employed.

So the final whistle or a re-match? Only time will tell, with a little help from the courts of course.