The test – ‘mutuality of obligation’ (MOO) – refers to the obligation of an employer to provide work and pay for it, along with the obligation of the employee to personally do the work. It is one of the key tests used by tax tribunals to work out whether a contractor is within IR35.

Late last week, HMRC published a document from the working group into IR35, the IR35 Forum.

The document confirms the CEST tool does not explicitly look into MOO when determining whether someone’s status is an employee or not. This is because HMRC considers that for any contract to exist between an employer and worker to exist, MOO will already need to be established for that contract to be agreed.

This confirmation has not gone down well with industry experts. Dave Chaplin, CEO and founder of online contractor portal ContractorCalculator, called the document “garbled nonsense” that “entirely misconstrues the law”.

Chaplin further called on HMRC to admit CEST has been a “complete failure”, adding were HMRC to make such an admission, 750,000 people would be asking for their worker status to be reassessed.

“Putting a complex employment status test at the heart of the tax system hasn’t worked for the past 18 years, and never will. HMRC has demonstrated it does not understand the law itself, and consistently loses cases in court on this matter. So how can HMRC be expected to educate 5.7m businesses to do something it cannot get right? The whole off-payroll saga is descending into a farce.”

Julia Kermode, CEO of trade association The Freelancer & Contractor Services Association (FCSA), also expressed concerns HMRC’s publication of its position on MOO may give the impression that the stakeholders – including FCSA – on the IR35 Forum endorse HMRC’s position.

“I very much doubt that many of us do,” Kermode said. “FCSA responded to HMRC’s draft MOO paper very clearly stating that we do not agree with their view, and that we believe MOO is a serious omission from their CEST tool.

“Quite simply, MOO 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 roll-out of IR35 reform to the private sector is unthinkable until this is resolved.”

When contacted by Recruiter, an HMRC spokesperson said in a statement: "The MoO paper was requested by the IR35 Forum. The paper is a response to the questions raised by the IR35 forum on mutuality of obligation and sets out our view.

"HMRCs position on MoO is robust and has been developed with regard to all relevant case law and legislation. 

"The Check Employment Status for Tax (CEST) digital service was rigorously tested throughout development, with input from external stakeholders, in accordance with government data standards prior to release. Results have been tested against known case law and settled cases."

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