IR35 experts share their thoughts and advice on how to determine your employment status. Plus, we examine the PGMOL case to help freelancers spot signs of employment in any contract or relationship
Dave Chaplin, IR35 Shield
“After four and a half years of waiting for the ‘Great CEST Update’, the anticipation far exceeded the rather underwhelming outcome,” Dave Chaplin, Chief Executive Officer of IR35 Shield and contractor advocate, tells The Freelance Informer.
He adds, “As HMRC have stated, ‘There is no change to the underlying technical principles’. So, they’ve basically just updated the User Guide for a piece of software, meaning nowt has actually changed.”
Seb Maley, Qdos
Qdos CEO, Seb Maley, believes the CEST tool still needs revising. “In its current form, it’s a blunt instrument for determining if an individual is genuinely self-employed or should be paying employment taxes,” says Maley.
Continuing, he says, “Changes that help users answer the questions it poses – while welcome – won’t address the elephant in the room, which is that relying solely on CEST to decide employment status still poses a risk.
“Employment status can be a minefield. No stone should be left unturned when determining it. The sheer cost of getting things wrong from a tax perspective can be staggering.”
Rebecca Seeley Harris, RE Legal Consulting
Rebecca Seeley Harris, an Independent Employment Status and Off-payroll & IR35 expert, tells The Freelance Informer that the key changes HMRC has made are mainly to improve the customer experience.
The check employment status for tax tool has been amended to simplify the language, according to HMRC: “We have removed information for some customers where special rules apply and covered this within the tool itself. Useful links have also been included for related guidance.”
“So, there’s no change to the logic,” says Seeley Harris. “However, there have been updates to the guidance on personal service and financial risk. The CEST tool is based on HMRC’s interpretation of the case law, as it should be. So, users should understand that they are getting HMRC’s view of their tax status. This won’t necessarily correspond with the taxpayer’s interpretation, but that is the benefit of using CEST.”
She continues, “As I have said many times, CEST is aligned with mutuality of obligations, as a result of the Supreme Court judgment in PGMOL, so the logic does not need to be changed. It is a perfectly usable tool and individuals and businesses should have access to a free government tool to determine status.
“My caveat, however, is that employment status case law has become sufficiently convoluted that you probably need professional guidance in any case. In fact, HMRC recommends that you get professional guidance. There are, of course, various different and established commercial compliance tools available as well.”
PGMOL case: How can you use it as a benchmark?
If you’re not familiar with the PGMOL case, here’s a recap. Understanding it can help you spot a contract that looks like employment versus true self-employment.
Imagine you hire someone to do a specific task. For example, a freelance writer for an article or a plumber for a repair. Are they your employee, or are they running their own business? HMRC looks at the reality of your working relationship to decide.
The PGMOL case involved football referees who were treated as self-employed by the Professional Game Match Officials Ltd (PGMOL). HMRC argued they were actually employees. The Supreme Court looked at two main things:
Mutuality of Obligation (MOO): This means there’s an ongoing give-and-take. For an employment relationship, HMRC usually expects the employer to be obligated to offer work, and the individual to be obligated to accept and perform that work. The Supreme Court clarified that even if both sides can cancel a specific piece of work before it starts, MOO can still exist if, once the work is offered and accepted, the individual has to do it and the company has to pay. Think of it as a “work-for-wage bargain” for each specific task.
Control: This isn’t just about telling someone what to do moment-to-moment. The Supreme Court emphasised a broader “framework of control.” In the PGMOL case, this included things like codes of conduct, match-day procedures, and a system for assessing the referees’ performance. Even if the referees had some freedom during a match, PGMOL had overall control through these rules and the potential for sanctions if they weren’t followed.
HMRC considered that each of these referees’ relationship with PGMOL, for the duration of any engagement, is that of employee, and so PAYE is due on the fees paid to attend the matches, whereas PGMOL considered that each of these referees provides services on a self-employed basis.
How Self-Employed Individuals, Freelancers, and Contractors Can Spot Potential “Employee” Indicators in a Contract (According to HMRC’s Interpretation):
Here’s what to watch out for in your contracts:
Obligation to accept all work: If your contract states you must accept all work offered and the company is obligated to provide a continuous stream of work, this points towards employment. Genuine self-employment usually involves the freedom to choose which projects to take on.
No genuine right of substitution: If the contract insists you must personally do the work and you can’t send a suitably qualified substitute in your place, HMRC sees this as a strong indicator of employment. Self-employed individuals often have the right to delegate.
Detailed control over how, when, and where you work: If the contract dictates not just what needs to be done, but also the specific way you must do it, the hours you must work, and the location, this suggests employment. Self-employed individuals typically have more autonomy over their work methods.
Integration into the company: Clauses that require you to closely integrate with the company’s structure, attend regular staff meetings, follow company policies as if you were an employee (beyond basic site rules), or represent the company in a specific way can suggest employment.
Being subject to a detailed disciplinary process: If the contract outlines a formal disciplinary procedure similar to that for employees, this is a strong indicator of employment status.
Provision of equipment and resources: If the contract states the company will provide all the necessary equipment, tools, and resources for you to do your work, this can point towards employment. Self-employed individuals usually provide their own.
Regular and fixed payments (not tied to specific deliverables): While not definitive on its own, a contract that guarantees regular payments regardless of specific outputs might be viewed differently from one where payment is strictly per project or deliverable.
Benefits similar to employees: Entitlement to benefits such as holiday pay, sick pay, or pension contributions (unless specifically structured as part of a business-to-business arrangement) can suggest an employment relationship.
The article continues below.
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No single factor is usually decisive. HMRC claims it takes a holistic view, looking at the entire picture of the working relationship, including what’s written in the contract and how things work in practice.
The PGMOL case shows that even if a contract is labelled as a “contract for services” and grants some flexibility, the reality of the obligations and the framework of control can lead HMRC (and the courts) to conclude that the relationship is one of employment for tax purposes.
Here are more sources about the case:
PGMOL: No final whistle in football referees case | AccountingWEB
Supreme Court decides PGMOL case after 15 months of deliberation – ICAS
Supreme Court decision in PGMOL – Key lessons | IR35 Shield
PGMOL v HMRC: the long-awaited decision on employment status | Tax Adviser