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What is mutuality of obligation (MOO)?

3-minute read

Sam Bromley

4 March 2021

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What is mutuality of obligation and why should self-employed contractors understand the concept?

Mutuality of obligation, or MOO, is a key part of employment law. It can help decide whether someone is employed or self-employed in IR35 investigations and employment law cases.

  • What is IR35?

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What is mutuality of obligation (MOO)?

Mutuality of obligation refers to the obligation to give work (and pay for it) and the subsequent obligation to do the work (and get paid for it).

It's one of the key tests that tax investigations and employment tribunals can use to determine a contractor’s employment status (and whether they owe any tax).

If an element of mutuality of obligation exists then the relationship between contractor and client may resemble employment, placing the contractor inside IR35.

Mutuality of obligation test

Mutuality of obligation sits alongside supervision, direction and control and substitution as a key employment status test.

This means that IR35 investigations will try to establish that the client was obliged to offer the contractor work and the contractor was required to accept (and complete) the work.

Read more about the status tests you should consider as part of your IR35 checklist.

Mutuality of obligation and employment law

Consider the traditional relationship between employee and employer. The employer is obliged to pay the employee and give them work. The employee is obliged to complete the work. The employer might also give the employee work that goes beyond their job role, depending on the contract. The employee wouldn’t usually be able to turn these tasks down.

But if you’re self-employed and contracting with a client, you shouldn’t necessarily expect such mutuality of obligation to exist. This means that your client should engage your personal service company to perform a particular task for a specific project.

You’re free to move on once your contracted task is completed. Your client isn’t required to offer any future work and you don’t have to perform any more work for your client (unless they contract your company to work on a new project).

Importantly, your contract should reflect this arrangement, as a contract for services rather than a contract of service.

Mutuality of obligation IR35 controversy

Mutuality of obligation is ambiguous. For example, HMRC maintains that for any contract to exist, some kind of mutuality of obligation must already be present.

HMRC’s Employment Status Manual states that without mutuality of obligation “there can be no contract of any kind”. It also says that the basic requirements of mutuality of obligation (where the engager is obliged to pay a wage or other remuneration and the worker is obliged to provide his or her own work or skill) could be “present in either a contract of service or a contract for services and, on their own, will not determine the nature of a contract.”

According to HMRC, this means that mutuality of obligation exists in some form even if someone is contracting outside IR35, on a proper contract for services.

This might be why HMRC’s Check Employment Status for Tax (CEST) tool doesn’t explicitly take mutuality of obligation into account. HMRC says this is because it assumes mutuality of obligation already exists if a contract is in place.

But the Freelancer and Contractor Services Association’s (FCSA) chief executive, Julia Kermode, says HMRC’s view is ‘over-simplistic’: “In broad terms, MOO should be thought of whether there is an ongoing indefinite obligation for the client to offer work and whether there is an ongoing obligation to execute that work.”

HMRC’s views on mutuality of obligation (and the fact it’s a complex topic) mean it’s important to get independent advice on your contracts, rather than rely on the CEST tool. Many accountants offer professional review services – please use this article as a guide only and speak to a professional if you're not sure about anything.

Is there anything else you’d like to know about mutuality of obligation? Let us know in the comments below.

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