MOO: a moot point?

Mutuality of Obligation (MOO) has been seen by the courts as the cornerstone of an employee relationship for many years. It has been the subject of much debate between HMRC and tax advisors since the introduction or IR35. Its notable absence from HMRC’s Check Employment Status for Tax (CEST) tool sparked much commentary and criticism from the contracting industry and their advisors.

This month, in response to those criticisms and commentary, HMRC published its opinion on MOO and explanation as to why it does not appear on the CEST tool. 

It would appear, in HMRC’s view, that MOO does not need to feature on its CEST as the tool itself pre-supposes the existence of MOO. 

“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.”

The HMRC document goes on to state:

“A basic requirement of any contract is consideration – the parties must be obliged to exchange something of value. In an employment contract, the main consideration will be work in exchange for pay. MOO will also exist in contracts for goods or services.”

It is not overly surprising that this document supports HMRC’s long standing published opinion on MOO in respect of employment status and IR35, and we at Accountax have argued against HMRC’s viewpoint on this topic for many years.

In essence HMRC’s stance is that MOO is little more than offer, acceptance and consideration (which are contract law concepts necessary for a contract to exist). For over 50 years the courts have looked at contracts to determine employment status. They understand that MOO comes in two levels; offer, acceptance and consideration which proves that a contract exists and the higher level of obligations which tells us what type of contract it is. HMRC appear to stop at the lowest level.

In the case of Carmichael, Chadwick LJ stated “as a matter of construction that no obligation on the CEGB to provide casual work, nor on Mrs Leese and Mrs Carmichael to undertake it, was imposed. There would therefore be an absence of that irreducible minimum of mutual obligation necessary to create a contract of service.”

With such a clear statement from the House of Lords it is difficult to see how it can be HMRC are over-looking the higher levels of obligations MOO encompasses. It is equally frustrating given the government’s latest consultation stated: “The broad concept is that mutuality of obligation exists if the employer has an obligation to provide and pay for work and the individual has an obligation to carry out that work.”

Both the courts and the government’s consultation focus on obligations which exists between the parties when looking at MOO (as opposed to simple contract law concepts of offer and acceptance and consideration). It is also worth noting that HMRC’s own guidance on MOO differs when they are looking at expenses legislation (particularly in respect of umbrella companies). Here HMRC do focus on the higher level of obligations.

While much commentary has been made of the document HMRC has uploaded to the IR35 forum it does little to help clarify the law on status, or where a PSC stands in the eyes of the law in respect of IR35. In our experience we can see that the tax tribunals do not take such a simplistic view in respect of MOO, but it does not seem that HMRC will amend their position any time soon. It is our hope that the self-employed status consultation will introduce legislation which accords with the courts’ view on MOO and this issue will be resolved once that legislation is introduced.

If you or your clients would like any further information on this or other matters relating to IR35 and status please contact Rebecca Walker or David Harmer at Accountax directly on 0345 066 0035.
Found in: Status and IR35
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