What’s afoot with IR35 and will Spring Statement 2025 change OPW?
IR35 consultancy manager Matt Tyler speaks up on the big OPW issues, in his warm-up to the only March speech…
Contractors told it’s folly to overly focus on Mutuality and Control, unlike the ‘wider picture’ – where all future IR35 cases will be won and lost.
The taxman updated his ESM on February 6th 2025, in wake of the Supreme Court’s ruling in Professional Game Match Officials Ltd.
Experts at Kingsbridge imply HMRC will be glad that the lower bar for ‘inside IR35,’ set by the SC, is now part of its Employment Status Manual.
In fact, ‘PGMOL’ reduces stages 1 and 2 of a 3-stage “godfather” IR35 test to “low-level thresholds,” the leading IR35 insurance firm is warning.
‘Ready Mixed Concrete test stages 1 and 2 to be met in majority of cases’
Therefore unless PSCs can very obviously nullify them, stages 1 and 2 of the test (the ‘Ready Mixed Concrete’ test) will “now likely be met most of the time.”
So other than where PSCs can strongly squelch Personal Service and Mutuality – stage 1, and Control – stage 2, “these two issues are fait accompli.”
Andy Vessey, Head of Tax at Kingsbridge, yesterday fleshed out his assessments – assessments now factored into HMRC’s seven-fold update to its ESM:
‘Folly’
“It is folly [for PSCs] to spend too much time concentrating efforts in these areas,” advises Vessey, speaking of Personal Service and Mutuality Of Obligation, and Control.
“The Supreme Court [in PGMOL which HMRC’s ESM has been updated to reflect] signalled that in the main, both will apply.”
Vessey said the “two limbs” of MOO and control are only “pre-conditions” which require satisfying before stage 3 comes into play.
‘No presumption of employment despite presence of Mutuality and Control’
Indeed, the courts have spoken of “no presumption of employment” even where both Mutuality and Control are found to be present.
It means an employment contract cannot be established solely based on stages 1 and 2 of the RMC test being satisfied.
Vessey moved last night to explain the ensuing stage 3 of the Ready Mixed Concrete test.
‘Factual matrix, evaluative exercise, multi-factorial’
“Unless one or more of the previous two tests has conclusively pointed to there being no contract of employment, the status of the contract is [in stage 3] to be decided by reference to the broader factual matrix,” he said.
This stage 3 is significant enough that in the updated ESM, HMRC has created a new page dedicated to it, entitled the “Evaluative Exercise”.
In the newly created ESM0560, HMRC describes stage 3 as a “multi-factorial” test under which MOO and the extent of any right of control can be re-evaluated.
‘Rely on RMC stage three for IR35 defence’
Kingsbridge’s Matt Tyler says it is this final stage where Personal Service Companies should prepare to do most of their fighting if probed under the Intermediaries legislation.
“If under a framework for how the PSC provides services, a sufficient degree of control exists for the 2nd of the 3 stages to be met.
“In that case, the PSC must rely on the last stage to defend its case, as the first two [stages] will likely now be met, in all but the most obvious cases.”
‘IR35 battleground’
Tyler and Vessey aren’t alone in foreseeing the first two stages of employment status tests invariably being satisfied, positioning stage 3 as determinative.
“The specifics of control are now going to be the IR35 battleground,” ReLegal Consulting began last night in a statement to Kingsbridge.
“[But in PGMOL, at least], the difficulty is going to be in how the FTT sees the third stage.
“And the only [corresponding] guidance currently is ‘Atholl House CA’ [the Kaye Adams IR35 case at the Court of Appeal], and the ‘12 steps’ in Stuart Barnes’ IR35 case.
“So we expect we’ll start seeing appeals [based] just on this [third] stage of Ready Mixed Concrete.”
‘ESM from HMRC is HMRC’s interpretation based on case law’
The comments by ReLegal, an off-payroll rules advisory, allude to the SC passing the key decision of the match officials’ status back to the FTT.
But the advisory’s Rebecca Seeley Harris says HMRC’s updated view of control is based only on its “interpretation” of ‘PGMOL.’
And while it is an interpretation “based on case law” – she acknowledged – the Revenue’s guidance “isn’t binding.”
‘Employment Status Manual isn’t a set of rules contractors must obey’
Mr Tyler, Kingsbridge’s IR35 Consultancy Manager sees the manual similarly.
“HMRC has updated its guidance in the ESM. It’s the department’s internal IR35 manual on status.
“While it contains potential issues for contractors relating to the godfather of IR35 case law – Ready Mixed Concrete – it is just guidance.
“In other words, ESM is not a set of rules contractors must obey; it’s more of a written version of HMRC’s stance on assessing status.”
‘HMRC ESM isn’t the last word on matters’
Formerly a tax inspector for the Revenue, Kingsbridge’s Mr Vessey observes it’s also a stance open to challenge.
“HMRC guidance [in the ESM] is only its [own] interpretation of legislation and case law.
“The manual contains technical guidance for HMRC staff and tax professionals. While useful, it is not always the last word on matters.
“Furthermore,” he says, “if it were definitive guidance we would have little use for the courts and tribunals.”
‘Be realistic’
According to IPSE, even the manual’s usefulness is potentially in question.
IPSE’s head of policy Andy Chamberlain told Kingsbridge: “HMRC is of course right to update the ESM in line with the most recent case law.
“But we [and they] must be realistic. Apart from a few devoted professionals, very few people read, or are even aware of, the ESM.”
‘It would be helpful if HMRC publicised ESM updates’
The Association of Professional Staffing Companies says it would be “helpful” if HMRC publicised ESM updates.
“More broadly [publicising it than to just HMRC’s] tax inspectors [would be a good start].
“[Else I don’t think] even business owners and compliance teams will necessarily be alert to it,” APSCo’s global public policy director Tania Bowers told Kingsbridge.
‘All major emphasis in future IR35 cases on Ready Mixed Concrete stage three’
However, a veteran adviser to those business owners, Mr Vessey, believes the takeaway from the PGMOL-inspired February 2025 update to the ESM is clear.
He says: “Although stages one and two of the RMC test are still relevant, all major emphasis in future IR35 cases will now be generally on the third stage of RMC.
“And that’s the critical examination of the wider picture.
“So while a framework of control may satisfy stage two [of RMC], when moving to stage three and examining the wider picture, there is the opportunity to probe the nature and extent of Mutuality Of Obligation and the nature and degree of Control; not just simply that they both exist but the extent of their existences.”
‘Starting point in deciding’
Of the RMC test, the Supreme Court (SC) said in its September 16th 2024 judgment in PGMOL versus HMRC (based on a June 26-27th 2023 hearing):
“The starting point in deciding whether there is a contract of employment has often been taken to be the judgment of MacKenna J in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968]…called…‘the classic description of a contract of employment.’”
Ready Mixed Concrete case: reminder of the three stages
When determining employment status and therefore IR35 cases, it is necessary to consider the three stages, as set out in the Ready Mixed Concrete case, as follows:
- To be an employment contract, there must be both personal service and mutuality of obligations (MOO).
- To be an employment contract, the engager must have sufficient control over the worker.
- Unless one or more of the previous two tests has conclusively pointed to there being no contract of employment, the status of the contract is to be decided by reference to the broader factual matrix.
How Kingsbridge can help
Navigating IR35 legislation and ensuring compliance can be challenging for contractors and businesses alike. Kingsbridge offers tailored support, including expert guidance on IR35 status assessments, compliance strategies, and risk mitigation. Our team is dedicated to helping contractors and businesses understand and adapt to the evolving tax landscape.
Kingsbridge also offers a range of flexible business insurance options to support contractors, including Professional Indemnity, Public Liability, and Employers’ Liability cover, as well as add-ons like Cyber Insurance and Director and Officer’s Liability.
To find out more, get a quote or contact us today.
Simon Moore, Managing Director at Moore News Ltd
Simon Moore is a journalist with NCTJ-approved journalism training, who has worked inside the newsrooms of local, consumer and national media titles.
He today writes news and features for trade publications specialising in freelancing, small business and the self-employed. Simon’s articles have been linked to by The Daily Telegraph and the biggest newspaper website in the world, MailOnline. He was appointed to be a judge at IPSE Freelancer’s Awards 2023.
