HMRC have released a paper on Mutuality of Obligation in an attempt to explain why this was missed off its CEST tool and its approach when considering it in IR35 cases.

Mutuality of obligation (MOO)  has two elements:

  • An engager is obliged to offer work to the worker
  • A worker is obliged to do the work offered

Where both are present this is an indication that the contract would be one of employment; if they are not this is a strong indication that the worker is self-employed (or outside IR35  if operating via an intermediary). Mutuality of obligation was one of the deciding factors in Uber's 2017 employment appeal.

HMRC’s Check Employment Status Tool (CEST) does not include any Mutuality of Obligation questions which means that its use is limited to cases where there is not a factor. i.e. it would be no good using the tool in any case where people might be self employed.

HMRC have produced their paper to try and explain why they ommitted the important test and this shows that HMRC's CEST tool needs to be used in a very different way to that possibly envisaged by most tax and employment professionals. 

HMRC says:

  • All contracts have mutuality as otherwise no contract would exist; without an obligation for the parties to do something the arrangement is not a contract and may be an unaccepted offer or heads of terms which will become a contract when accepted or by conduct such as starting work.
  • Where work is provided and remuneration is paid HMRC will assume that there is mutuality of obligation and that a contract exists.
  • CEST does not explicitly look at MOO as it is designed to determine whether a contract is one of employment or self-employment; it is assumed that a person using CEST will have already established MOO as it is necessary for a contract to exist in the first place.

HMRC will consider a range of factors to establish whether a contract is an employment contract or a contract for services. 

  • Factors to consider include delegation and substitution; they refer to the Ready Mix Concrete case. 
  • A series of short engagements where a worker works on and off for one employer will result in separate short contracts for each engagement; the cases referred to by HMRC here are employment tribunal cases with unique circumstances and not IR35 cases.
  • Where there is such a series of contracts and there is no mutuality of obligation between each engagement this is irrelevant to mutuality of obligation during each engagement.  


There you have it: as clear as mud! It turns out that there is a hidden step: Step 1 - is there MOO? If the answer is no then don't use the CEST tool, as you are probably self employed). Then again, perhaps avoid the CEST tool until a more comprehensive version is provided.

External link:

HMRC paper on Mutuality of Obligation



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