While this topic is of great significance for determining IR35 status, it should be noted from the outset that Mutuality of Obligation (or MoO) is not applicable to umbrella employees. We outline some case law surrounding MoO clauses that were used to deem IR35 status, and this may be of value to contractors who run their own limited company or SME.
Mutuality of Obligation (MoO) is frequently referenced in IR35 case law. Through examining cases, we can see just how tricky the determination of employment status and specifically MoO, can be. Below, we’ve referenced two instances that highlight how the presence or absence of MoO can impact on the decision of the courts.
If you’d like to know more, read our guide to Mutuality of Obligation.
Jensal Software v HMRC
As excerpted from this ipse article: “In this case the hirer had a series of short contracts with an IT professional. However, mutuality of obligation did not exist because the contractor was engaged under separate, short contracts; there was no obligation to provide work between contracts; there was no continuing obligation on the hirer to provide contracts; and the contractor could not demand further work.
In the Jensal case, the Department of Works and Pensions was the hirer, undermining HMRC’s argument that mutuality of obligation can be assumed in every public-sector engagement.”
Although there was a degree of mutual obligation, which is inherent in all contractual agreements, there were other factors to consider. Most notable of which were, intermittent contracts and no requirement on the end-hirer to provide work in between these contracts.
The summary of this case is, the tribunal was clear that the mutual obligations fell short of those expected in a standard employment relationship. From this, we can take it that HMRC’s mutuality of obligation argument does not stand up to scrutiny, for every contract.
In a more recent case, in July 2019, another IR35 case was won on the grounds of MoO in favour of the appellant – Paul Hawksbee of Kickabout Productions:
The full court documents can be found here:
As excerpted from the above:
“Mutuality of obligation 177. Our conclusions in relation to the first of MacKenna J’s indicia can be summarised as follows:
…(3) In our view, mutuality of obligation does not necessarily require that within the confines of a particular contract or single engagement the employer must offer work, or that the employee must accept work offered, but the presence of such obligations is a touchstone of employment status, while their absence renders the bare existence of mutuality of limited assistance in determining employment status. (178) We turn to the extent and nature of the mutuality of obligation under the two hypothetical contracts.
(179) Under Hypothetical Contract One, the bare minimum of mutuality of obligation does exist, because Mr Hawksbee must provide the services personally, and Talksport must pay for them.
(180) In terms of the obligations on the parties, Mr Hawksbee is obliged to work for at least 222 days a year. However, Talksport is not obliged under the hypothetical contract to provide work to Mr Hawksbee, even though in practice both parties expected that he would perform the minimum number of shows each year barring unforeseen circumstances.
(181) In view of the lack of obligation on Talksport to provide work, we consider that, although the mutuality required by MacKenna J’s formulation does exist, it is not strongly indicative of an employment relationship. A full-blooded employment relationship would typically require an employer to provide work to the employee, not merely for the employee to be obliged to undertake it.”
This case was no easy win for Mr Hawksbee, but the Judge exercised his casting vote in favour of Mr Hawksbee . The fact that mutuality of obligation fell short of what would be expected in an employment relationship was an important factor. An employment relationship would ‘typically require an employer to provide work to the employee, not merely for the employee to be obliged to undertake it.’
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