It’s not just something cows do! MOO is the acronym for Mutuality of Obligation, which exists in employment law when an engager is obliged to offer work to an individual under the terms of a contract, and they are obliged to take it. It is a key test used in employment tribunals and tax cases to determine someone’s employment status.

Recent test case using MOO

A recent employment case (Hafal Ltd. v Miss Lane-Angell [2018]) used the mutuality of obligation test. The case concerned a mental health care worker who was claiming unfair dismissal. She was removed from her rota and offered no further work following a “three strikes and you’re out” policy. An Employment Tribunal initially allowed her appeal but it was overturned by an Employment Appeal Tribunal (EAT) who found clear evidence that she was not an employee because no mutuality of obligation existed. The worker’s contract clearly showed there was no minimum hours required and she only needed to provide services if she was available. Read more about this case

Mutuality of Obligation and IR35

Mutuality of Obligation is also one of the tests used in IR35 cases to determine employment status for tax, along with Personal Service and Control, although HMRC argue that it is always present in contracts. These tests are complex and have evolved over decades of case law. The short video below breaks them down:

HMRC’s CEST tool and MOO

That’s a lot of acronyms in one sentence! CEST is HM Revenue & Customs “Check Employment Status for Tax” service - an online tool to determine the IR35 status of a contract. It was launched by HMRC in April 2017 to coincide with changes to how IR35 is applied in the public sector. These reforms made it the responsibility of the public sector body to determine whether a contract was caught by IR35. CEST was developed to help with the decision, although its use is not compulsory. Since then, there has been a huge backlash from contractor groups that CEST is not fit for purpose because it doesn’t take mutuality of obligation into account. HMRC’s explanation is that it assumes mutuality of obligation is present in all public sector contracts, and if there is no MOO, the chances are the contract will be outside of IR35. Unsurprisingly therefore, they have left it out of CEST. Concerns and confusion around this have been intensified by the government’s plans to extend the public sector rules to the private sector (currently under consultation). The ICAEW have written to the Financial Secretary to the Treasury, warning: “The check employment status tool (CEST) is designed for public sector contracts with the result that is not suitable for use in the private sector. Even though HMRC has undertaken to be bound by CEST decisions, we are concerned that as currently designed it does not command public confidence and needs further work.”

Understanding IR35

IR35 is a complex area but it’s also a really important one if you contract through a limited company, or engage workers who do. For clear, jargon-free information, check out our IR35 help and advice Explore our contractor and freelancer accounting packages which are suitable for contracts both inside and outside of IR35.