Following the deferral of the changes to the off-payroll working rules, known as IR35, earlier this year, and subsequent disruptions caused by Covid-19, many would be forgiven for pushing IR35 to the back of their minds.
However, as the 6 April 2021 deadline for the introduction of the new rules approaches, the 6 May 2020 Upper Tribunal (UT) IR35 decision, made in HMRC v Professional Game Match Officials Limited (PGMOL), is a timely reminder that IR35 shouldn’t be forgotten.
The case considered whether referees providing services to PGMOL were its employees for tax purposes. Being an UT decision, it forms precedent-setting case law, which can be relied upon in other judgments. This makes the comments on the much-debated question of mutuality of obligation (MoO), all the more interesting.
Before analysing the UT’s decision, it’s important to consider HMRC’s historic view on MoO. HMRC considers that MoO is pay in return for work done, and is only required to determine whether a contract exists at all. However, many argue that MoO is the obligation to offer and accept work between the two parties, and determines whether a contract is one of employment or not.
The UT decided that MoO serves two purposes: (i) to determine if a contract exists at all; and (ii) to determine whether a contract is one of employment or not.
The UT dismissed HMRC’s initial argument that there is one overarching contract across the season. This was due to a lack of obligation to offer or accept an offer to referee a match.
The UT then held that there was insufficient MoO for each match to be considered a separate contract of employment; this was because the referees could back out of any match, or be told to stand down before a match without facing a sanction.
What does this mean for the employment status rules?
Clearly, the UT took the view that a contract existed due to the existence of pay in return for work done. However, it also considered that the obligations weren’t sufficient to create a contract of employment, contradicting HMRC’s stance.
This could now set a precedent where, if the contract allows the worker or engager to back out before any assignment without facing sanction, there isn’t sufficient MoO for IR35 to apply.
HMRC has always stood firm on its interpretation of MoO, but this judgment dismisses that position and could have a significant impact on the IR35 determinations going forwards.
What does this mean for the IR35 changes in April 2021?
For those who are hoping this judgment will immediately change HMRC’s view and expect the Check Employment Status for Tax (CEST) tool to change, HMRC’s intention to appeal to the Court of Appeal suggests this is unlikely.
What should organisations do now?
The legislation for the changes to IR35 from April 2021 has now received Royal Assent, so there is no chance of them being deferred by another year.
From our experience, it can take several months to identify which engagements could be in scope of the IR35 rules, and put in place processes to ensure future compliance with the complex rules.
Given how quickly time seems to have passed since the Covid-19 pandemic started, we recommend that organisations start thinking about their position in relation to IR35, sooner rather than later.
Caroline Harwood is a partner and head of share plans and employment tax at Crowe UK