fb-pixel
Information

Mutuality of Obligation (MOO)

Avatar
Written by Caunce O'Hara
Last updated November 25, 2019

Mutuality of Obligation refers to the obligation of the employer to provide work and pay for it. This is combined by the obligation of the employee to personally undertake the work.

This is typical of most employer/employee relationships where the employee is paid on a regular basis (usually monthly) and is asked to perform a variety of tasks that can go beyond their core role within an organsiation.

Mutuality of Obligation, or MOO, 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.

If a contractor is found to be working inside IR35 as part of a HMRC investigation, the contractor could be likely to face a steep bill for both income tax and National Insurance Contributions (NIC). There could also be interest added to the bill as well as penalties.

Combined with Control and Substitution, Mutuality of Obligation is seen as one of the three key pointers towards employment.

Genuine limited company contractors who operate outside of IR35 should neither expect nor receive Mutuality of Obligation. 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.

Umbrella Contractors are not affected by Mutuality of Obligation, because they are employees of the umbrella company, so are not affected by IR35.

The move to Umbrellas was a popular choice when IR35 was rolled out to the public sector in 2017 and is thought to be the favoured option for the private sector rollout in April 2020.

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.

For information about Contract Reviews, please contact 0333 321 1403

HMRC’s definition of Mutuality of Obligation can be found online at https://www.gov.uk/hmrc-internal-manuals/employment-status-manual/esm0543



Related IR35 content

6 Questions you need to ask yourself about IR35

The fundamentals of IR35 are NOT changing: understanding the key status indicators – personal service, control, and mutuality of obligations – is…

Read more

The impact on contractors of the deferral of private sector IR35 reform until April 2021

Since Steve Barclay, the Chief Secretary to the Treasury announced a 12-month delay to the IR35 private sector reform in…

Read more

Why do I need an IR35 contract review?

If you are a contractor with any doubts as to the compliance and validity of your contract in relation to…

Read more

How does HMRC define a PSC?

IR35 – or the Intermediaries Legislation – was introduced by HMRC in 2000, and was aimed at individuals who were…

Read more

What is IR35 and how does it work?

IR35 – or the Intermediaries Legislation – was introduced by HMRC in 2000, and was aimed at individuals who were…

Read more

What is a contract review and do I need one?

A Contact Review is a report that independent tax specialists such as Markel Tax provide to contractors giving an opinion…

Read more

IR35 changes 2021: What you need to know

The Government has reaffirmed plans to make changes to off-payroll working (IR35) rules effective from April 2021. The main principles…

Read more

What is inside and outside IR35

There is no statutory definition of a contract of service (employment contract) and therefore we must look to the courts…

Read more

Will contractors still need insurance for IR35 after April 6th?

Amendment: On March the 18th 2020, the Government announced that the roll-out of private sector IR35 reform would be postponed…

Read more

What is IR35 and how will it affect you as a freelance contractor?

For many freelancers, IR35 sounds like another jargon term that has no relevance to them and there is a concerning…

Read more

The Right of Substitution

The right of substitution is one of the key tests of your IR35 employment status as set out by the…

Read more

Mutuality of Obligation (MOO)

Mutuality of Obligation refers to the obligation of the employer to provide work and pay for it. This is combined…

Read more

Retain your control as a contractor to keep IR35 at bay

Control is one of the three key points that is used to determine whether a contractor is working inside IR35…

Read more

Why do I need an IR35 contract review?

If you are a contractor with any doubts as to the compliance and validity of your contract in relation to…

Read more

The importance of an IR35 Contract Review for private sector contractors

If you are a private sector contractor, you should be fully aware of the private sector IR35 changes that are…

Read more

What is IR35 and how does it affect you?

This Partner Programme is offered by our partners at Caunce O’Hara Insurance Brokers Limited. To find out more please visit…

Read more

PSCs inside IR35 – Keep Calm and carry out some research

A week on since the Finance Bill 2017 became law public sector contractors who operate through PSCs are facing a…

Read more

IR35 Products & services

Caunce O’Hara’s partnership with Markel enables us to offer a broad range of IR35-based products to protect contractors, fee-payers and end clients across the UK.

IR35 Hub Related IR35 content