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HMRC’s Employment Status Manual (ESM) - a guidance document used by HMRC to assess the employment status of individuals for tax purposes - was updated on 6th February to reflect the Supreme Court’s judgment in HMRC v PGMOL.
PGMOL engaged part-time referees in the ‘National Group’ under contracts for services and classified them as self-employed. As a result, their earnings were not subject to income tax and National Insurance, unlike employee wages. HMRC argued that the referees were employees and should have been taxed accordingly. As a result, their earnings were not subject to income tax and National Insurance, unlike employee wages. HMRC argued that the referees were employees and should have been taxed accordingly.
Read more: Supreme Court sends PGMOL case back to tribunal – but why does it matter?
After several rulings in lower courts, the Supreme Court was asked to examine the first two stages of the Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] test, which determines whether a contract represents genuine self-employment. These stages include:
If the first two conditions are not met, the contract cannot be one of employment. If they are met, the third stage considers other factors in a multi-factorial assessment. The Supreme Court found that the first two conditions were met in the PGMOL case and referred it back to the First-tier Tribunal for further consideration.
Despite no final verdict, the Supreme Court’s findings on MOO and control established legal precedent, shaping HMRC’s ESM updates.
HMRC has updated six sections of the ESM and introduced a new section discussing control, mutuality of obligation, and the evaluative exercise at the third stage of Ready Mixed Concrete.
HMRC has traditionally taken a narrow view of MOO, arguing that it is present in most engagements, regardless of the worker’s employment status. This stance has been widely contested by employment status experts.
In PGMOL, the Supreme Court ruled that MOO was present despite both parties having the right to withdraw from an engagement before it began. The judgment clarified that provisions allowing withdrawal before performance are irrelevant when determining MOO.
“A single engagement can give rise to a contract of employment if work which has been offered is done for payment, sometimes referred to as the wage/work bargain. The right of either party to cancel the contract in the period between acceptance and performance does not negate mutuality of obligation.”
- ESM0543: Guide to Determining Status – Mutuality of Obligation
PGMOL argued that referees had significant autonomy both during matches and in their overall working relationship. However, the Supreme Court disagreed, emphasising a broader “framework of control” imposed by PGMOL through:
“The Supreme Court in PGMOL found that the combination of contractual obligations imposed on referees as to their general conduct, such as the Code of Conduct, and their behaviour during a game, such as the merit table, matchday procedures, and assessment systems, gave PGMOL a sufficient framework of control.”
- ESM0529: Guide to Determining Status – Control Exercisable by Various Means
The ruling also reinforced that control can be exerted both positively and negatively, including through pre-agreed sanctions that influence workers’ behaviour before, during, and after engagements.
“The consequential sanctions for actions which are known to workers prior to carrying out an engagement could influence the behaviour of those workers before, during, and after an engagement.”
- ESM0529: Guide to Determining Status – Control Exercisable by Various Means
A new ESM section addresses the evaluative exercise required at the third stage of Ready Mixed Concrete. HMRC’s position suggests that employment is often presumed, requiring further assessment to establish self-employment.
Additionally, HMRC asserts that factors demonstrating a worker’s business on their own account must be known or reasonably known to the engager at the time of assessment.
- ESM0560: Evaluative Exercise Required at the Third Stage of Ready Mixed Concrete
HMRC is now applying PGMOL case law in ongoing IR35 disputes. This further underscores the critical importance of robust contracts that accurately reflect the area of control and autonomy of the worker. Businesses should ensure that agreements are comprehensive and align with actual working practices to withstand scrutiny.
These updates highlight the complexity of defending employment status, with even the courts struggling to reach unanimous conclusions. The process is often prolonged, costly, and uncertain.
Now more than ever, organisations must proactively manage their compliance and mitigate risk within their supply chains. Earlier this year, HMRC published guidance, Help with Labour Supply Chain Assurance (GfC12), aimed at strengthening businesses' assurance processes and risk management strategies.
With stakes this high, expert advice and thorough preparation are invaluable in navigating compliance challenges and defending against HMRC enquiries.
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