A recent court ruling involving the UK’s top football referees has once again pushed IR35 and employment status into the spotlight. HMRC has lost an eight-year legal battle against the Professional Game Match Officials Limited (PGMOL), the body responsible for supplying referees to professional football competitions including the Premier League and FA Cup.
At the centre of the dispute was a £584,000 tax bill. HMRC argued that around sixty referees should have been treated as employees rather than self-employed contractors for tax purposes. However, the First Tier Tribunal ruled that the referees were genuinely self-employed, rejecting HMRC’s position and reinforcing the ongoing complexity surrounding employment status in the UK tax system.
For small business owners, this case serves as another important reminder that IR35 remains one of the most misunderstood and potentially costly areas of taxation.
What Is IR35?
IR35 is a piece of UK tax legislation designed to tackle what HMRC refers to as “disguised employment.”
In simple terms, the rules are intended to prevent individuals from working like employees while paying tax like self-employed contractors, often through limited companies or personal service companies. The legislation attempts to determine whether a worker is genuinely in business on their own account or whether, in reality, the relationship resembles employment.
If HMRC decides that a contractor falls “inside IR35,” then the income received is treated similarly to salary, meaning PAYE tax and National Insurance contributions become payable.
For businesses engaging freelancers, consultants, subcontractors, or contractors, getting this wrong can lead to significant tax liabilities, penalties, and interest charges.
Why this referees case matters
Although the case involved elite football referees, the wider principles apply across many sectors including construction, IT, media, healthcare, consultancy, and professional services.
The tribunal focused heavily on one key principle: mutuality of obligation. In this case:
- PGMOL was not obliged to offer referees work.
- Referees were not obliged to accept assignments.
- Even after accepting a match, referees retained the right to withdraw.
The judges concluded that this arrangement was fundamentally inconsistent with employment. The ruling described the referees as: “skilled professionals participating voluntarily in a regulated framework.” That wording is significant, because many genuinely self-employed individuals operate within structured systems while still retaining independence.
The case also demonstrates that employment status is not determined simply by labels in a contract. HMRC and the courts will always look at the reality of the working relationship.
The problem with employment status
One of the biggest frustrations for businesses is that employment status law is not always straightforward. There is no single test that automatically determines whether someone is employed or self-employed. Instead, courts consider a range of factors including:
- Degree of control exercised over the work carried out
- Right of substitution (sending in another person to do the work)
- Financial risk borne by the individual
- Provision of equipment by the individual
- Integration into the organisation (are they treated like staff?)
- Mutuality of obligation (does work have to be offered and does it have to be accepted?)
Different cases can produce different outcomes depending on the precise facts – and This creates uncertainty for businesses trying to remain compliant. The football referees case illustrates this perfectly. HMRC pursued the matter through multiple levels of the court system, including the Supreme Court, yet still failed to establish employment status. In fact, the whole thing took almost as long as a VAR review!
For many small businesses, the concern is obvious: if employment status is difficult even for the courts to determine, how can ordinary business owners be expected to get it right every time?
Why small businesses need to get this right
Many business owners assume IR35 only affects large companies or the IT contracting sector. In reality, employment status issues can arise in almost any industry. Common examples include:
- Consultants working through limited companies
- Freelance marketers or designers
- Construction subcontractors
- Associate professionals
- Interim managers
- Trainers and coaches
- Delivery drivers
- Agency workers
HMRC has become increasingly active in reviewing employment status arrangements, particularly where individuals work regularly for one organisation over long periods. Even businesses with entirely legitimate contractor arrangements should periodically review their processes and documentation.
Contracts alone are not enough
One important lesson from decades of status case law is that simply calling someone “self-employed” does not make it so. Equally, having a written contract stating someone is a contractor will not automatically protect a business if the actual working arrangements suggest employment. HMRC and tribunals examine the practical reality of the relationship. For example:
- Does the contractor decide how and when work is completed?
- Can they work for other clients?
- Do they bear financial risk?
- Are they free to turn down work?
- Are they integrated into the business like staff members?
These practical factors often carry more weight than contractual wording alone.
The importance of reviewing contractor relationships
For small businesses, the safest approach is to proactively review contractor arrangements rather than waiting for HMRC scrutiny. This doesn’t necessarily mean avoiding freelancers or contractors altogether; flexible working relationships remain an essential part of modern business. However, businesses should ensure:
- Contracts accurately reflect reality
- Working practices support contractor status
- Status assessments are documented
- Arrangements are reviewed regularly
- Managers understand the risks
Where uncertainty exists, obtaining professional advice can be extremely valuable.
HMRC’s CEST Tool
HMRC provides an online employment status tool called CEST (Check Employment Status for Tax).
The tool is designed to help businesses and contractors assess whether a working arrangement is likely to fall inside or outside IR35. You can access it here:
While the tool can be useful, it’s important to remember that the quality of the outcome depends entirely on the accuracy of the information entered. Businesses should also recognise that complex or borderline cases may still require professional interpretation.
A continuing area of uncertainty
One striking aspect of the referees case is how long the dispute continued. The litigation lasted around eight years and passed through multiple levels of the judicial system. That alone highlights how uncertain employment status law remains. Even following this latest ruling, experts have suggested HMRC could still consider further appeal options.
For business owners, this uncertainty can be unsettling. However, it also reinforces the importance of taking employment status seriously rather than treating it as an administrative afterthought.
Practical takeaways for business owners
The referees case offers several important lessons:
1. Employment status depends on reality
Courts will examine the genuine working relationship, not simply the wording of contracts.
2. Flexibility matters
The ability to refuse work or walk away from assignments can strongly support self-employed status.
3. Regular reviews are essential
Contractor arrangements that were compliant several years ago may no longer reflect current working practices.
4. Documentation is important
Clear contracts, written assessments, and consistent processes can help demonstrate reasonable care.
5. IR35 is not just a large business issue
Small businesses using freelancers or consultants should also consider their exposure.
Final thoughts
The PGMOL referees ruling is another reminder that employment status remains one of the most complicated areas of UK taxation. For many businesses, flexible working arrangements are commercially essential. However, flexibility must be balanced with compliance. The key is not to panic, but to remain informed, review arrangements carefully, and seek advice where necessary.
At eba, we regularly help business owners understand contractor relationships, assess tax risks, and ensure their working arrangements are commercially practical while remaining compliant with HMRC expectations.
If your business engages freelancers, subcontractors, or consultants, now may be a good time to review whether your current arrangements still reflect the reality of how work is carried out.
