Upper Tribunal Tax and Chancery Chamber

UT (Tax & Chancery) UT/2019/0000122 - [2025] UKUT 00124 (TCC)

Fecha: 10-Feb-2025

Authorities since the Decision

Authorities since the Decision

24.

There have been a number of authoritative decisions of the Upper Tribunal and the higher courts since the FTT Decision. Most notably, the Supreme Court in PGMOL (HMRC v Professional Game Match Officials Ltd ([2024] UKSC 29)) confirmed at [30] that (1) at the first and second stages of the RMC test, mutuality of obligation and control are necessary, but not necessarily sufficient conditions for a contract of employment, and (2) at the third stage, it is necessary to consider all the terms of the contract and all the surrounding circumstances in determining whether or not the contract is a contract of employment.

25.

Lord Richards, with whom the other Justices agreed, explained what is meant by mutuality of obligation as follows:

[40] It is an essential element of a contract of employment that the employee provides his or her personal service for payment by the employer. This requirement has been variously described, for example as ‘the wage-work bargain’: see Cotswold Developments Construction Ltd v Williams [2006] IRLR 181, para 48 (EAT, Langstaff J). This perhaps more clearly pinpoints its focus than the usual but bland term ‘mutuality of obligation’, which could be applied to all bilateral contracts of any description. However, in this case, as in many others, it has been adopted as the label for the first prerequisite of any contract of employment and, with some reluctance, I shall also use it.

26.

The Supreme Court rejected a submission by PGMOL, recorded at [43], that mutuality of obligation involves more than merely payment in return for personal work, but requires an obligation on the engager to provide work or payment in lieu of work. The cases relied on by PGMOL in support of that submission were cases where the courts were considering successive assignments and the claimant was seeking to establish an overriding or umbrella contract to show continuing employment between the assignments. Lord Richards stated at [49], [50] and [55]:

[49] None of these authorities establishes that, where there is a single engagement (such as officiating at a particular match), there must be mutual obligations in existence before the engagement commences, for example before the referee arrives at the ground on the day of the match. On the contrary, there are authorities that establish the contrary. In Clark v Oxfordshire Health Authority, immediately following the passage quoted above, Sir Christopher Slade said, ‘I can find no such mutuality subsisting during the periods when the applicant was not occupied in a “single engagement” ’.

[50] The point is made in clear and direct terms in a number of authorities that a contract of employment may exist covering only the period while the employee carries out work for which he or she is paid.

…

[55] In the light of these authorities, it is clearly established that there may be sufficient mutuality of obligation to satisfy one of the essential requisites of a contract of employment, even if the obligations subsist only during the period while the putative employee is working for the putative employer…

27.

The Supreme Court rejected an argument that the right to terminate an engagement without penalty negated the existence of mutuality of obligation at the first stage. However, it did accept that this was a factor, albeit one amongst many, that would be relevant at the third stage. It also held that at the third stage it is not just the existence of mutuality of obligation that is relevant, but also the nature and extent of the mutual obligations:

59.

In my judgment, the right to terminate is irrelevant at the first stage of determining whether there exists the mutuality of obligation required for a contract of employment. Where there exist the necessary mutual obligations under the contract, as was the case with each engagement to officiate at a match, and the contract remains in place, it satisfies the condition of mutuality. Mr Peacock’s submission that it did not greatly matter whether this point came in at the first or third stage overlooks that, if it did come in at the first stage and was held to be decisive on the facts of the particular case, the contract in question could not be one of employment. By contrast, if it is a relevant factor at the third stage, it is just one of many factors that may be relevant to determining the nature of the contract.

60.

I do, however, accept that the nature and extent of the mutual obligations are relevant to determining whether the contract is one of employment.

28.

PGMOL was not concerned with IR35, but the Supreme Court endorsed the approach taken by the Court of Appeal in HM Revenue & Customs v Atholl House Productions Limited[2022] EWCA Civ 5 (“Atholl House”) in applying the RMC test in the context of IR35. In Atholl House, the Court of Appeal held that the Upper Tribunal had erred in law at the third stage when it came to remake the decision of the FTT in that case. It noted at [126] that the Upper Tribunal had accepted the FTT’s findings that Ms Adams (the service provider) had throughout her career carried on her profession as an independent contractor and that her activities as such included activities similar to those she performed for the BBC under the relevant hypothetical contract. The test which the Upper Tribunal had set itself was whether there was “some relevant difference between the activities undertaken for the BBC and those performed as an independent contractor”. Unless there was some such difference, the Upper Tribunal had decided, Ms Adams would be performing her services under the hypothetical contract with the BBC as an independent contractor.

29.

The Court of Appeal held that this was the wrong approach for various reasons. An individual could perform similar services as an employee and as an independent contractor in the same tax year. What was important was the capacity in which and the terms on which the services were carried out. The fact that the individual performed similar services as an independent contractor was a relevant fact, if known to the putative employer, but nothing more than that (see [128)]. Additionally, the terms and circumstances of other engagements could not be held up as a “gold standard” against which the contracts with the BBC were to be judged (see [129]).

30.

Finally we note the Upper Tribunal decision in HM Revenue & Customs v S & L Barnes Limited [2024] UKUT 262 (TCC). In that case, the Upper Tribunal gave guidance at [105] – [108] as to the approach that a tribunal should take at the third stage. This included the following guidance at [108(3)] and [108(6)]:

(3)

In terms of the structure of the analysis, while there is no template, an approach which involves identifying and dividing material provisions of the hypothetical contract and other circumstances between those which point towards (or are, in the RMC terminology, consistent with) employment, those which are not, and those which are neutral, may minimise any risk that the analysis proceeds from the wrong starting point or strays too far from the statutory question.

…

(6)

In considering the Third RMC Stage, no single factor is decisive. It is not a mechanical exercise of running through items on a checklist, but rather is about painting a picture from an accumulation of detail and then standing back to make an informed qualitative assessment…

31.

In fact, the FTT in the present case adopted a similar approach.