IR35 – Mutuality of Obligation

We continue our look into the most important IR35 factors with the ‘mutuality of obligation’ – whether or not an individual providing contract services would expect a client to provide more work once the current project has ended.

Alongside the Right of Substitution and Control, the ‘MOO’ is cited by employment status experts as one of the three most important factors when determining employment status. It is also seemingly more open to interpretation by different experts than other factors.

What is the mutuality of obligation?

A mutuality of obligation exists when an employer expects a worker to undertake work when asked to do so, and the worker expects to be given work on a constant basis. For self employed people, they would expect a client to hire them to undertake a specific task, with no expectation of further work being provided after the initial task expires.

For a contract of service to exist at all, there must be what is known as an ‘irreducible minimum of mutual obligation’ – that the engager is obliged to remunerate the worker, and the worker is obliged to provide his/her skills. As this irreducible minimum could exist in both a contract for services AND a contract of personal service, this is not sufficient to determine the true nature of a contract.

The mutuality of obligation question arises not during the course of the initial contract, but what happens when this contract expires.

It is possible that, by having an IT contract renewed many times, then this could be a pointer towards ‘employment’. In ESM0543, HMRC argues that “where work is regularly offered and accepted over a period of time a continuous contract of employment may be created.”

Things to consider

As a result of the different ways in which HMRC and outside experts interpret case law, employment status specialists tend to focus more on demonstrating that non-mutuality exists in a contractor for services, rather than trying to show that mutuality of obligation does not exist.

Problems may arise if, for example, an end client cannot issue terminate a contract for services immediately, but instead has to provide notice. Again, if a contractor has a ‘rolling’ contract with a client, rather than a fixed length contract, this could also indicate that a mutuality of obligation exists at the end of the initial contract period.

You should always seek a professional IR35 contract opinion before signing a new contract.