For many organisations, employment status is no longer clear-cut. At its core, employment status determines how individuals are taxed and whether a business must operate Pay As You Earn (PAYE) and account for employer National Insurance Contributions. It’s a critical judgement for organisations engaging individuals.

If this were not testing enough, growing HMRC scrutiny, evolving case law and changing workforce models are combining to create a more complicated and higher risk environment.

At the same time, businesses are under pressure to maintain flexibility, manage costs and access specialist skills. These competing demands are forcing organisations to make decisions in areas where the legal framework is increasingly nuanced. When those decisions are challenged by HMRC at tax tribunal, the outcomes are less predictable.

Taken together, this is creating a difficult landscape in which traditional approaches to employment status are being tested.

Why employment status assessments are becoming more complex

In practice, employment status assessments analyse the differing factors of employment and, on weighted balance, align to determine whether the engagement is genuinely off-payroll or one of employment. Historically, employment status assessments have often focused on key indicators such as control and mutuality of obligation. While these factors remain relevant, recent developments suggest they are no longer enough to determine the outcome of an HMRC investigation.

Instead, there is a move towards a more holistic and fact-sensitive assessment, one which places greater emphasis on how working arrangements operate in practice. This shift impacts the degree of judgement involved and the risk of different conclusions being reached on similar facts.

Organisations are grappling with this tension, particularly where working arrangements have evolved over time or where flexibility is built into the business’ operating model.

The changing approach of the First-tier Tribunal

The decision in Professional Game Match Officials Limited (PGMOL) v HMRC provides a useful illustration of how this evolving approach is being applied.

In that case, the tribunal concluded that football referees were not employees for tax purposes, despite the presence of both control and mutuality of obligation. Instead, the arrangements were characterised as contracts for services.

While the facts are specific, the case reinforces a broader point: employment status cannot be determined by reference to individual factors in isolation. It is the overall picture, and how arrangements operate on the ground, that is more frequently decisive.

What are the grey areas in determining employment status?

Control is no longer a clear indicator

Many organisations operate within structured or regulated frameworks that require a degree of oversight. However, recent case law suggests that where control reflects external or regulatory requirements, rather than day-to-day managerial direction, it may carry less weight in determining employment status.

Flexibility must be real, not theoretical

While the ability to accept or decline work remains a key indicator of independent status, organisations are more often being asked to demonstrate how that flexibility operates in reality.

The gap between contract and reality

A consistent theme is the disconnect between contractual terms and working practice. Outcomes are increasingly driven by the reality of the engagement, rather than the written agreement alone.

Why do changes in employment status assessments matter?

These developments come when many organisations are:

• Expanding their use of flexible and contingent workforces.
• Adapting operating models to respond to cost and skills pressures.
• Managing growing scrutiny from HMRC and other stakeholders.

This combination creates a more difficult environment in which businesses must make decisions that are inherently fact-specific but can carry significant financial and reputational consequences.

Relying on historic assessments or standardised approaches may no longer be sufficient.

What should businesses be doing?

Against this backdrop, organisations should consider whether their current approach to employment status is fit for purpose. Key actions include the following:

• Review how arrangements operate in reality, not just on paper.
• Re-assess existing determinations where working models have evolved.
• Ensure governance and documentation appropriately reflect reality.
• Consider how decisions are made, applied and evidenced.

The focus is shifting from identifying a single “correct” answer to ensuring decisions are robust, consistent and defensible.

What’s next for employment status decisions?

The direction of travel is clear. Employment status is becoming more nuanced, more fact-dependent and less predictable in its application.

Cases such as PGMOL do not fundamentally change the legal framework, but they reinforce the importance of applying it in a practical and balanced way.

As the tax environment continues to evolve, organisations that take a proactive and structured approach will be better placed to manage risk and avoid costly missteps.

For further information, please get in touch with Andrew Timpson, Ian Jones or your usual RSM contact.

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