One of the most important employment status factors is the mutuality of obligation. Here we explain what ‘MOO’ means in the context of the IR35 legislation.
Mutuality of obligation (MOO) looks at whether there is an ongoing expectation of work. If a client must provide work and a contractor must accept it, this points towards employment. If the engagement is limited to specific tasks with no obligation beyond that, it supports an outside IR35 position.
In practice, tribunals distinguish between a basic level of obligation required for any contract to exist and a broader, ongoing obligation common to an employer-employee relationship.
It is this ongoing expectation of work that carries the most weight in IR35 cases.
Under the original IR35 rules (Chapter 8), contractors must demonstrate the absence of ongoing mutual obligations. Under the off-payroll rules (Chapter 10), end clients must assess this when determining status.
See also our guide to the key IR35 factors.
| Scenario | MOO likely? |
|---|---|
| Project-based work with a clear end | No ongoing MOO |
| Rolling contract with continuous work | Possible MOO |
| Client obliged to offer work | Strong MOO indicator |
| Contractor is free to decline work | Weak or no MOO |
Mutuality of Obligation – the basics
In the context of IR35, the mutuality of obligation refers to the client’s obligation to offer work and the contractor’s obligation to accept it.
Alongside substitution and control, MOO is considered one of the main indicators of IR35 status.
Contract of service vs. contract for services
If both parties in the contractual chain expect there to be a continuing obligation to provide and perform work, then mutuality of obligation may be present and the contract may be considered a contract of service, rather than a contract for services.
There is a MOO in most traditional employer-employee relationships. The employer expects the employee to do various tasks in return for a weekly or monthly wage or salary. This is a contract for service and continues until the worker resigns or is dismissed.
For a contract to be deemed ‘outside IR35’, it must be a contract for services – i.e. a self-employed contract. This exists when a contractor is hired to undertake specific tasks, and the client is under no obligation to provide more work upon completion.
When does a MOO exist?
Most individuals work on a traditional employer-worker basis. An IT worker, on a permanent contract with a software company is paid every month, and does whatever work his employer asks him to do.
When does an MOO not exist?
If a client hires a contractor to do a specified piece of work for a predetermined cost, there is no MOO, as the contract is completed when the task is done. There is no expectation of future work.
A more complicated IR35 status factor
This IR35 status factor is more complicated than many others, such as control, as there are so many levels at which to determine whether a MOO exists. It needs to be considered not only at the start of a contract, but also when the contract expires.
For example, if a contract is constantly renewed, on the same terms, HMRC says:
…where work is regularly offered and accepted over a period of time a continuous contract of employment may be created.
Problems caused by HMRC’s interpretation of MOO
IR35 is already a complicated and controversial topic to deal with. However, to make things even worse, HMRC has a different take on MOO from case law. HMRC believes that a MOO exists in all relationships between a client and a worker.
HMRC also states that a Mutuality of Obligation can also exist without a contract in place.
This is compounded further by the exclusion of any MOO-related questions in HMRC’s CEST tool – which was created to help people work out their employment status.
Nor was it mentioned in HMRC’s Business Entity Tests, which were abandoned many years ago.
To find out more, read ESM0543 which states the taxman’s interpretation of MOO.
How should you deal with MOO if you’re a contractor?
Status experts Qdos have taken on HMRC in numerous IR35 cases over the past 20 years. They say that:
HMRC’s lack of understanding and misinterpretation makes it difficult to mount a successful defence on this test alone.
As a result, Qdos suggests:
Currently, much focus is being placed on non-mutuality of obligation during the contractual term and, as such, it is important that a contractor has the right to walk away from a contract early, if they so choose.
MOO – important steps to take if you’re a contractor
- Find out about all of the factors which influence an individual’s IR35 status.
- Always have your contracts and working practices reviewed by an employment status expert.
- Take out IR35 investigation insurance just in case.
Worried about an IR35 challenge?
HMRC investigations can be expensive and time-consuming. Qdos provides expert defence and financial cover if your status is challenged.