As per the latest judgement made by the upper tribunal, HMRC lost in its appeal against the football referees engaged by professional game match officials limited (PGMOL). It is proved in the court of law that the referees are engaged under services contract and was not employed by the organisation. The upper tribunal upheld the same decision which was previously taken by the First Tier Tribunal (FTT) on 6th May 2018.
This judgement really put HMRC on the backseat and questions have been pointed out on taxman’s interpretation of mutuality of obligation and on its flawed CEST tool, which proves to be a failure in identifying the employment status of a worker- whether the worker is falling inside or outside the scope of IR35 or off-payroll.
What was HMRC’S stand?
HMRC stated that the referees engaged by PGMOL should be considered as their employees and they should pay the amount of £584,000 as taxes for the period between 2014 and 2016.
In the first tier tribunal 2018, HMRC was defeated on the grounds as there was insufficient mutuality of obligation between PGMOL & the referees engaged by them. Appealing against this decision “Akash Nawbatt QC”, a representative from HMRC argued that whether any such contract is there and whether it contains any obligation of giving services personally, which was later rejected by Justice Zacaroli.
Judgement by Justice Zacaroli and Judge Thomas Scott
Justic Zacaroli and Judge Thomas Scott announced the judgement and said that there is insufficient mutuality of obligation between PGMOL & the referees on the basis of the following facts:
- Contract between PGMOL and referees ended with the referee’s match report submission after the final whistle.
- Justice Zacaroli also stated that there is no measurement of referee’s performance or no sanction has been imposed after the end of the contract clearly states that there was insufficient control.
- He also added that the decision taken by the first tier tribunal was correct and the referees were under the contract for services and not engaged with PGMOL as employees.
- Justice Zacaroli turned down the arguments made by HMRC and told them that the imposition of contract is enough to satisfy mutuality of obligation.
- He also said that the worker is not under any obligation to do the work and PGMOL also not under any obligation to make any work available.
Justice Zacaroli concluded that the work related “Mutuality of obligation” exist in the following circumstances –
- When any work is performed under obligation and obligation is done personally.
- When obligation exist throughout the contract period.
- When an obligation is made on behalf of the employee to provide work or in alternative or some form of consideration made by the employer in the work absence.
- He also added that it is insufficient to constitute an employment contract if the employer is only obligatory to pay for the work when it is actually done.
What CEO of Contractor Calculator “Dave Chaplin” Says?
HMRC’s stand on mutuality of obligation faces criticism from many quarters. Statements made by CEO of contractor calculator “Dave Chaplin” are as follows:
- Both HMRC and treasury communicate their stand on mutuality of obligation many times in such a way that it is to be believed as the law but they cannot create new law. They are like everyone else and need to follow the case law laid down in the courts.
- He said that HMRC should now accept their defeat and starts working on updating of its CEST tool as well as its guidance and make both align with the law. CEST tool, introduced by HMRC to identify the employment status is unable to produce correct results and requires updating.
- He also said that this case is proved to be the key case for all those self-employed workers and very important for those who are currently under HMRC’s attack in IR35 reforms.
- He also commented that we all are seeing that many firms are following the advices and guidelines published by HMRC and they are wrongly classifying contractors as “employed for tax purposes” even when there is insufficient mutuality of obligation. It is the time to revisit those assessments.
- Dave Chaplin concluded by saying that it is a game over for HMRC’s misrepresentation of the law on subject of Mutuality of obligation. With CEST tool, HMRC tried to override the law but they are exposed now.
HMRC has confirmed that they will appeal against the findings in the Court of Appeal. But for now, the decision made by the upper tribunal is a major overhaul for HMRC’s CEST tool and solidifies the position of mutuality of obligation in law. In our opinion, HMRC should simply accept defeat and make amendments to the flawed CEST tool, which a number of companies are trusting on to assess their contractor workforce.
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