One of the key factors used to determine if a contract is subject to the IR35 rules is whether or not continuous work is offered by a client, and accepted by a contractor.
Whether a mutuality of obligation exists is considered to be one of the ‘holy trinity’ of IR35 status indicators, alongside control and the right to provide a substitute.
Mutuality of obligation looks at whether a client must offer work and whether a contractor must accept it. Where an ongoing obligation exists on both sides, this points towards employment and increases the likelihood of a contract being inside IR35.
What is the Mutuality of Obligation?
A typical professional contractor will sign a contract for services to provide their skills to a client for a fixed period. The contractor invoices the agent or client and is paid for the work delivered.
In many genuine business-to-business relationships, there is no expectation of further work once that contract ends.
Problems arise where there is an expectation of ongoing work.
According to HMRC, if a client continually offers work to the contractor, and it is accepted, this is an indicator that the worker may be a ‘disguised employee’.
Essentially, if there is an obligation to offer further work, and an obligation to accept it, then a mutuality of obligation (MOO) exists between the parties.
How does HMRC interpret MOO?
In HMRC’s view, arrangements involving rolling contracts or regular renewals can indicate employment rather than genuine self-employment.
You can read HMRC’s interpretation of MOO in ESM0543.
Where work is regularly offered and accepted over a period of time a continuous contract of employment may be created. The parties may claim that between each offer and acceptance of work there is no obligation to offer or accept further work. But such an obligation can be implied in certain circumstances.
In practice, however, the position is more nuanced.
According to IR35 experts Qdos:
HMRC considers MOO with little weight in an investigation. In recent IR35 enquiries we have defended, HMRC have taken the opinion that there will be an existence of MOO where there is simply an offer and acceptance of work.
This creates a degree of inconsistency. While MOO is described as a key test, it is often assumed to exist by HMRC rather than analysed in detail.
This is reflected in HMRC’s own tool, CEST, which does not meaningfully assess MOO because it assumes a contract is already in place.
As a result, other factors such as control and substitution often carry more practical weight in IR35 determinations.
How to demonstrate a lack of MOO
IR35 status is determined by a combination of factors, including both contract terms and actual working practices.
To support an outside IR35 position, it is important to show that there is no ongoing obligation on either party.
Indicators of a lack of MOO include:
- A clearly defined contract with a specific end date or deliverable.
- No obligation for the client to provide further work once the contract ends.
- No obligation for the contractor to accept additional work.
- The ability for either party to terminate the contract if services are no longer required.
- Gaps between contracts or projects, rather than continuous engagement.
These factors should align with the reality of the engagement, not just the written contract.
Before signing any agreement, it is sensible to seek an IR35 contract review so both the wording and working practices support your intended status.
For a broader view of how IR35 is assessed, see what inside and outside IR35 means and the IR35 rules overview.
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