Mutuality of Obligation (MOO) is often overlooked. It is one of the key status tests for IR35, and yet its ambiguity and HMRC’s apparent desire to diminish it leads some individuals to question whether the test is still relevant. However, MOO is a key status test for establishing whether a contractor is inside or outside IR35, and so it should still be regarded as important.
It is therefore a little puzzling that HMRC has downplayed the importance of MOO. For example, in their Employment Status Manual 0543 there are only two lines that cover the test: the client must be obliged to either pay a wage or remuneration and the worker must be obliged to either provide his or her work or skill.
From this, it would appear that just about any contract of employment would satisfy this test, and it therefore appears that MOO is not that helpful in establishing IR35 status. However, it means that MOO needs to be looked at more carefully.
Judge Nowlan said “A touchstone of being an employee is the hope and expectation that there will be some relationship of faithfulness between employer and employee. In other words, the employer will generally endeavour to keep staff employed even when work is short. Contract workers will be dispensed with first … with short term engagements, none of this will be relevant with contract workers.”
Another case showed that it is important not only to consider MOO during and after the contract. For example, services may not be provided for the entire contract or after the contract has ended.