Controversy over HMRC’s stance on MOO

HMRC has recently published its stance on mutuality of obligation (MOO) following claims in contractor bulletins and at roundtable discussions that it is omitted from the Check Employment Status for Tax (CEST) service.

It has stated that “while CEST does not explicitly look at MOO, it is designed to determine whether an existing or future contract will be one of employment or self-employment. It is assumed that a person using CEST will have already established MOO, which is necessary for a contract to exist, otherwise there would be no need to be using CEST to determine the status of the existing or hypothetical contract”.

However, some industry bodies have suggested this approach to MOO is flawed as the instructions on Gov.uk for the use of CEST do not explain that the user should have already checked that specific mutuality of obligation exists before using the tool.

Other points covered by HMRC in response to questions raised at the IR35 Forum regarding mutuality of obligation as part of the “irreducible minimum” of a contract of service include the following:

– The fact that a contract may be terminated does not affect mutuality of obligation during the contract, even if it may be terminated without notice.
– Where work is provided and remuneration is paid we will assume that there is mutuality of obligation and that a contract exists.
– We will consider a range of factors to establish whether a contract is an employment contract or a contract for services. This is distinct from consideration of mutuality of obligation, which will already have been established.
– Issues such as substitution and delegation should be taken into account when considering if a contract is consistent with an employment contract.

Commenting, Julia Kermode, chief executive of The Freelancer & Contractor Services Association (FCSA), the UK’s largest independent trade association whose members provide professional support services to some 130,000 freelancers and contractors said: “I am concerned that publishing HMRC’s position on mutuality of obligation (MOO) on the IR35 Forum website may give the impression that the stakeholders (i.e. non-HMRC representatives) on the IR35 Forum endorse their position, but I very much doubt that many of us do.

“FCSA responded to HMRC’s draft MOO paper very clearly stating that we do not agree with their view, and that we believe MOO is a serious omission from their CEST tool. Quite simply, MOO is an essential element of IR35 status, as borne out in recent cases, and until HMRC’s position is revised their CEST tool is fundamentally flawed by ignoring case law. Any roll out of IR35 reform to the private sector is unthinkable until this is resolved.”