IR35 and the ‘mutuality of obligation’

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.

What is the Mutuality of Obligation?

A typical professional contractor will sign a contract of services to provide their skills to a client for a fixed period. The contractor invoices the agent or client, and is paid for their time.

In many business-to-business relationships, there is no expectation of further work at the end of the fixed-term contract.

What happens if extra work is expected?

According to HMRC, if a client continually offers work to the contractor, and it is accepted, this is an indicator that the worker is a ‘disguised employee’.

Essentially, if there is an obligation to offer further work, and an obligation to accept such an offer, then a mutuality of obligation (MOO) exists between the parties to an agreement.

How does HMRC interpret MOO?

In the eyes of the taxman, if you provide services under a rolling contract, or have contracts which are regularly renewed, these are indicators of ’employment’ rather than ‘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.

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.

Controversially, HMRC’s employment status tool, CEST, specifically excludes MOO simply because a mutuality of obligation is assumed to exist simply because there is already a contract in place.

What to do about it?

IR35 status is determined by the existence of a variety of factors – including a contractor’s working practices.

It is important to demonstrate that there is a lack of MOO in a contractor for services.

Some indicators include:

  • The contract contains a clear end date.
  • The contractor company has the right to terminate the contract early.
  • The client can also terminate the contract if the services are no longer needed.
  • If there are pauses in the client’s project, the contractor’s company may not be required at short notice.

Above all, make sure you talk to an IR35 status specialist before signing any contracts. You need to know both the wording of your contract and your working practices to demonstrate that you are not a disguised employee.


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Last updated: 8th February 2024