Mutuality of obligation requires employers to provide ongoing work for an employee, who then has an obligation to perform that work.
In a self-employed relationship, there is no continuing obligation on either side to offer work or perform the tasks.
This is one of several factors which determine whether an individual is employed or self-employed when it comes to applying IR35 legislation.
The Revenue argues that anyone using its Check Employment Status for Tax (CEST) tool should have already established that mutuality of obligation exists in their arrangement.
But the Freelancer and Contractor Services Association (FCSA) claims HMRC’s stance ignores mutuality of obligation, despite IR35 case law often hinging on whether or not it is present.
HMRC does not expect the tool to be used where this obligation does not exist.
Julia Kermode, chief executive of the FCSA, said:
“Mutuality of obligation is an essential element of IR35 status, as borne out in recent cases, and until HMRC’s position is revised their CEST tool is fundamentally flawed by ignoring case law.
“Any rollout of IR35 reform to the private sector is unthinkable until this is resolved.”
In an additional comment, the Institute of Chartered Accountants in England and Wales said the CEST service does “not command public confidence and needs further work”.
Get in touch with us to discuss IR35 at [email protected]