From contractors to employees: tax and employment law risks for Irish sporting bodies

Determining employment status has been a matter of contention in recent times for Irish organisations, particularly following the Supreme Court's judgment in The Revenue Commissioners v Karshan Midlands t/a Domino's Pizza case.

It has also become a prevalent issue in international sports. A UK Supreme Court decision has considered whether part-time football referees should be classified as employees or contractors for tax purposes. This ruling may influence the approach taken by Irish sports organisations. Media reports suggest that the Irish Revenue Commissioners (Revenue) is carrying out tax audits with GAA county boards regarding the tax status of payments to referees, players, Cúl Camp coaches and other officials.

Commissioners for His Majesty’s Revenue and Customs (HMRC) v Professional Game Match Officials Limited (PGMOL) UKSC/2021/0220

This case examines whether the relationship between a company, PGMOL, that supplies football referees to the English Football League under a contract for services in the UK amounts to an employment relationship.

Premier League referees are mostly engaged on a full-time basis under contracts of employment, whereas a further pool of referees are engaged on a part-time basis and each had full-time jobs in other sectors.

The case was initially brought by his Majesty's Revenue Customs (HMRC) who argued that the referees were employees and that PGMOL ought to have been deducting the necessary employee related taxes from their pay. The First Tier Tax Tribunal found that there was insufficient "mutuality of obligation" and "control" to determine that an employment relationship existed between the parties. HMRC appealed the decision until it reached the UK Supreme Court.

Mutuality of obligation

The UK Supreme Court examined whether the mutuality of obligation existed, that is the extent to which the relationship is one where PGMOL was obliged to provide work, and the referees were personally obliged to perform it in exchange for payment. The UK Supreme Court was satisfied that such an obligation existed between the parties from the moment the referee accepted a match offer, notwithstanding the fact that either party could cancel the engagement prior to the match commencing. 

Control

The UK Supreme Court acknowledged that control can take many forms. In finding that PGMOL exercised a sufficient degree of control over the referees, the court considered the following

1. the referees were required to comply with the rules and standards set by PGMOL
2. the referees would face disciplinary sanctions if they breached these rules
3. the referees would also have their performance assessed and could be removed from the role by PGMOL. However, the ultimate registration is controlled by the FA

The UK Supreme Court was satisfied that mutuality of obligation existed and that PGMOL exercised a sufficient level of control over the referees. However, as the First Tier Tribunal did not consider the third limb of the test set out in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] (UK), it ordered the case be remitted back to the First Tier Tribunal to determine whether the other provisions of the contract are consistent with that of a contract of employment.

The issue in an Irish context

Notably, Ireland established a new five limb test in determining employment status which was set out by the Supreme Court in the case of The Revenue Commissioners v Karshan Midlands t/a Domino's Pizza (Karshan). You can review our previous briefing on Karshan here.

More recently, the Workplace Relations Commission (WRC) followed the Karshan test in the preliminary ruling of Beta Bajgart v Radio Telefís na hÉireann (RTÉ). Both Irish cases found that individuals who were intended to be engaged as independent contractors were in reality, employees of those organisations. You can read our recent briefing on the RTÉ case here.

There has also been a growing concern in the Irish sporting industry over Revenue investigations initially focussed on GAA county boards. Media reports suggest County boards across Ireland are under investigation as to the tax treatment on payments being made to referees, players, Cúl Camp coaches and other officials. This raises the question for GAA county boards, and other sports organisations in Ireland, of whether the Irish Revenue Commissioners may classify certain payments, such as expenses, differently, resulting in potential retrospective liabilities. It also raises the concern that agreements with independent contractors may require re-examination for compliance with the Irish Revenue Commissioners' view.

Key takeaways for organisations

It is clear that courts across the UK and Ireland are looking beyond the wording of written contracts and will examine the reality of the working relationship between the parties. The implications of the PGMOL and Karshan cases are not confined to tax and will be used when determining employment status for the purposes of employment rights legislation. This is evident from the RTÉ case which involves claims for unfair dismissal and working hours.

This is a developing area to watch. In any working relationship that is intended to be entered into with an independent contractor, Irish organisations should consider the five steps set out in Karshan. The same applies for any existing arrangements that might already be in place. Revenue have also published updated guidance for individuals determining employment status for taxation purposes. Organisations are encouraged to familiarise themselves with the Karshan and RTÉ judgements and consider any existing or proposed agreements with contractors to avoid to allegations of misclassified workers.

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Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

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