If you are navigating IR35, you will often come across the term Mutuality of Obligation (MOO). It is one of the key factors used to assess whether a working relationship is genuinely self-employed or more like employment; however, it can be one of the areas hardest to assess in practice.
Read our article below, created in collaboration with Markel Tax, to understand what Mutuality of Obligation is and how it impacts IR35 status determination.
What is Mutuality of Obligation (MOO)?
Mutuality of Obligation refers to the level of continuity and commitment between two parties to offer and accept work – in the context of IR35 and employment status, it considers whether a client is obliged to offer work, and whether the individual (or limited company contractor) is obliged to accept it. These obligations can significantly affect how HMRC views a working arrangement.
Mutuality of obligation and IR35
When it comes to IR35, the key question becomes: Is there an obligation on the client to offer work, and if offered, is the limited company contractor obliged to accept? If the answer to that question is ‘yes’, then although not conclusive by itself, it is a strong indicator to support an employer and employee relationship.
On the other hand, if the engagement is clearly defined, such as a project with a set scope of deliverables and end date, after which the limited company contractors services are not required, then this is more consistent with genuine self-employment.
It is important to remember that the contractual relationship between the parties should demonstrate a lack of MOO, not just after an assignment has ended, but also during the course of an assignment in order to support an outside IR35 position.
IR35 considerations
If a contractor is found to be working inside IR35 as part of a HMRC investigation, the contractor could be likely to face a significant bill for both income tax and National Insurance Contributions (NIC) – there could also be interest added to the bill as well as penalties.
Genuine limited company contractors who operate outside of IR35 should not be under an obligation to accept work. A contractor’s limited company should be engaged on a contract for services basis to perform a specific task or project.
Once the task or project is completed, the contractor is free to move on to a new client or can be offered a new contract by the existing client, which they have the right to accept or decline.
Umbrella Contractors are not affected by IR35 and therefore do not have to consider MOO, because they are employees of the umbrella company. The move to Umbrellas was a popular choice when the IR35 off-payroll working rules were rolled out to the public sector in 2017 and for the private sector rollout in April 2021. However, following the introduction of the Umbrella Company legislation and joint and several liability in April 2026, affecting recruitment agencies and end clients, we are starting to see these parties being more open to engaging with limited company contractors in order to have more control over their supply chains and their tax and NIC liability exposure. This could mean that those contractors who were forced to operate via an umbrella company may now have the opportunity to work through their own limited company, meaning that MOO could become an important factor for those individuals when deciding their IR35 status for relevant assignments.
MOO is only one factor used to determine employment and whether IR35 applies to a contract. Each case investigated is judged on its own merits, and what could be a significant point in one case may not be the same in another.
This level of uncertainty means it is best practice for contractors to ensure their contracts are reviewed by an expert, so any amendments that need applying can be identified and corrected.
HMRC and tribunals
Mutuality of Obligation is one of the key IR35 tests of employment used by a tax tribunal or court to establish whether a contractor is working as a disguised employee and is therefore subject to IR35 legislation.
In the recent Supreme Court case, Professional Game Match Officials Ltd vs HMRC, it was found that sufficient MOO was present to demonstrate the existence of a contract between the self-employed referees and PGMOL. However, that alone was not sufficient to confirm that the relationship between the referees and PGMOL was that of an employer and employee. The Supreme Court confirmed that further examination of MOO must be given in order to establish the nature and extent of MOO in the contractual relationship. The case was passed back to the First-Tier Tribunal to re-consider the facts of the case in relation to MOO, as well as Control, following the guidance provided by the Supreme Court. It was found that given the referees right to refuse match day opportunities for any reason, MOO, at the level required to support employment, was missing, and therefore the lack of obligation to accept work supported self-employment.
The Supreme Court judgment, which sets the highest legal precedent, will now provide the lower courts and tribunals with a clear steer on how MOO should be interpreted in future employment status and IR35 cases.
HMRC generally takes the view that as long as work is being carried out in return for payment, some level of mutual obligation is already in place. However, as seen in the case of PGMOL, tribunals tend to look more closely at how the relationship actually works in practice. They will often consider whether there is any obligation beyond the current task or contract, such as an expectation of ongoing work. This is why the detail of the working arrangement, rather than just the contract wording, can be so important.
Additional IR35 considerations
Mutuality of Obligation is seen as one of the three key status factors towards employment, combined with Control and Substitution:
- Control – who decides how, when and where the work is done
- Substitution – whether the work can be carried out by someone else
- Mutuality of Obligation – the level of commitment between both parties to offer and accept work
The law clearly states that if any one of these three fundamental status tests is missing in a contractual relationship, then it cannot be one of employment.
To learn more about your tax liabilities, use our free IR35 calculator to appreciate the tax saving between being outside and inside IR35, or explore our tax enquiry and legal expenses insurance.
Discover our knowledge centre for more help and guidance or read more about Caunce O’Hara’s contractor insurance.
Please note: This article provides guidance for information purposes only and is accurate at the time of production. It should not be relied upon wholly when making or taking important business decisions – always seek the services of an appropriately qualified professional for personalised tax or legal advice. The views expressed by websites referenced to are limited to those of the websites, and do not necessarily reflect the views of Caunce O’Hara. Caunce O’Hara is not affiliated with any of the brands, companies or websites mentioned in this article.
