HMRC publish official stance on mutuality of obligation (MOO): is ignorance bliss for HMRC?

13 July 2018

It was established at the IR35 Forum meeting that people were concerned that MOO appeared to have been omitted from the Check of Employment Status for Tax (CEST) service. As a result, HM Revenue and Customs (“HMRC”) have published their long-awaited official paper on MOO (it was due in January 2018) which confirms that CEST does not explicitly look at MOO.

HMRC claim that the status tool determines whether a contract is, or will be, one of employment or self-employment and that it is assumed that a person using CEST will have already established that MOO exists as it is “necessary for a contract to exist”.

The IR35 Forum has widely communicated that the Forum members do not agree with HMRC’s stance with many citing it as; “not fit for purpose” and “ill-judged” whilst also accusing HMRC of having their “head[s] in the sand”.

HMRC’s view is that MOO exists where consideration is made, and a basic requirement of all contracts is consideration, i.e. work in exchange for pay, and therefore, MOO exists in all contracts. Other points made in the paper include;

  • The provision to terminate contracts without notice doesn’t affect mutuality of obligation
  • Where work is provided and remuneration is paid, HMRC will assume that there is mutuality of obligation and that a contract exists
  • The fact that the duration of a contract may be uncertain does not bear any impact on MOO whilst the contract continues
  • Factors such as substitution and delegation should be considered when considering if a contract is consistent with an employment contract

This contradicts the general industry opinion which is that potentially, even where a contract does exist, the execution of that contract can demonstrate a lack of MOO.  This would apply where the engager had no obligation to offer work and the individual had no obligation to accept work offered.

Aspire Comment

HMRC’s opinion on MOO is a direct contradiction to that held by many and also contradicts the outcome of recent case law.  This suggests that employment status and IR35 is still in Government’s “too hard pile”. 

Despite losing several recent IR35 challenges at tribunal, it is evident that HMRC remain at odds with many on how to administer IR35 rules – a fact which is frightening considering the plans to implement the new rules in the private sector.

It’s clear that, without consideration of the key factor of MOO, the CEST tool has more than likely delivered inaccurate assessments to thousands of public sector contractors in the revenue’s favour.