Mutuality of obligation

20 August 2018

This article was featured in the September 2018 issue of the magazine.

Peter Minchinton, employment taxes senior manager for PSTAX, contends that MOO is very relevant when considering the tax status of a worker

When I was very young my father was posted to the naval base in Simonstown, South Africa. On our return we lived on a farm for a few months, until our accommodation on the UK naval base was ready. Accordingly, I learnt that pigs went oink, sheep went baa and cows went moo. Little did I know that fifty years later I would still be considering ‘moo’ in a somewhat different context.

Over the years case law has established that mutuality of obligation (MOO) is present in any contract, whether it is one of employment or with a supplier. Without MOO there can be no contract at all. As a result, HM Revenue & Customs (HMRC) has recently taken the position that MOO should be assumed to exist already when considering employment status. 

Tax status is based on cases heard before the courts and tax and employment tribunals. One of the landmark cases on tax status is Ready-Mix Concrete (South East) Ltd v Minister of Pensions and National Insurance from 1967. In the judgment, Mr Justice MacKenna said: “A contract of service [employment] exists if the servant agrees that in consideration of a wage or other remuneration he will provide his own work and skill in the performance of some service for his master”. Although the language is somewhat archaic, it does define the master/servant relationship that is required for an engagement to be one of employment.

So, how do the obligations arise? From the employer it will be ‘in consideration of a wage or other remuneration’. For the worker it will be that ‘he will provide his own work and skill in the performance of some service for his master’. An important point here is the provision of his or her ‘own work and skill’, which is where the question of personal service comes in. If the worker can send a substitute to do the work then there is no MOO between the worker and the engager. There will be contractual obligations, because the worker will have agreed to provide the services, but does not have to do so personally. 

As mentioned above, HMRC’s view is that MOO exists when any contract is in existence, describing this as “the irreducible minimum”. In a recent paper on the subject, HMRC said “where work is provided and remuneration is paid we will assume that there is mutuality of obligation and that a contract exists”. Whilst this is a reasonable comment, it is too simplistic an approach. 

At a meeting in December 2017, HMRC noted claims in contractor bulletins and at roundtable discussions that MOO is omitted from its check employment status for tax (CEST) service. The HMRC view is that CEST does not explicitly look at MOO; it is designed to determine whether an existing or future contract will be one of employment or self-employment. It is assumed that a person using CEST will have already established MOO, which is necessary for a contract to exist; otherwise there would be no need to be using CEST to determine the status of the existing or hypothetical contract.

This contradicts the general industry opinion which is that, potentially, even where a contract does exist, the execution of that contract can demonstrate a lack of MOO. This would apply where the engager had no obligation to offer work and the individual had no obligation to accept work offered.

One cannot look at a contract in isolation. If I engage a glazier to mend a broken window pane, he or she agrees to mend it and I agree to pay him or her for the work. There is MOO because a contract exists, but does that make the glazier my employee? Of course it doesn’t. Therefore, we need to look outside of that single consideration and see what other obligations there are on both sides of any engagement.

HMRC guidance in its Employment income manual states that other factors in addition to the MOO – which is deemed to exist by the time the CEST tool is used – are actually of greater importance. However, in our view, that doesn’t seem to be borne out by the conclusions reached in various legal cases and the view of many commentators on this subject. For example, in the recent employment appeal tribunal (EAT) case of Hafal v Lane-Angell (‘H’, ‘LA’), MOO was indeed deemed to be the key factor in deciding that someone was not employed. 

The details of this employment law case, which could yet be further appealed, shows that MOO is a highly relevant consideration. LA was a bank worker for H and would tell H when she was available for work, whereupon H would put LA on an on-call shift rota. If work was available, H would telephone those on the rota who could accept or reject the work. The EAT, overturning the decision of the employment tribunal, found that the working arrangement demonstrated no obligation to provide or accept work and there was no overarching contract of employment. 

The EAT decided the question of whether LA was an employee by reference to MOO; the engagement letter negated mutuality of obligation in respect of work being offered or performed. Accordingly, the EAT allowed H’s appeal and substituted a decision that LA was not an employee. Whilst the details of this case are quite specific, MOO was deemed to be a key factor in deciding if the person was employed or self-employed.

Where these individual contracts arise, one needs to look at what happens outside of them. Is the engager obliged to provide further work and is the worker obliged to accept it? One example is that of interpreters. With the plethora of languages in the UK many organisations (e.g. government departments, including HMRC) require interpreters and will have several ‘available’.

Are interpreters employees or providers of services? One assumes that government departments will not take somebody off the street who says that they can speak the language but will require evidence that their knowledge of the language is to a high standard and that they keep that knowledge up to date. In these security conscious times the interpreters will also have to go through some form of security clearance before they can be accepted.

In our experience with these types of organisation, it is usually the case that the interpreters are not guaranteed any work, nor are they required to accept any assignment if offered. We have seen that interpreters provide services to many different organisations and so can pick and choose what work they wish to do. Indeed, for some of the more rarely spoken languages the interpreters may only be used on rare occasions and so would not be relying on one engager for a steady stream of income.

This concept of ‘one-off’ engagements and MOO crops up with numerous other workers (e.g. best interest assessors in deprivation of liberty safeguarding reviews and social care reviewers in child care cases). In all these the worker is engaged to complete a review and write a report, after which there is no ongoing obligation on either side for further work.

MOO is only one of the aspects of status that needs to be considered. As with all status cases, if MOO is not present then there cannot be a contract. Unfortunately, there is no straightforward answer and each case needs to be considered on its merits. Cases before the courts and tribunals have given different interpretations of MOO and so all the pros and cons need to be considered. As mentioned above, HMRC will always say that MOO is there in any contract between worker and engager, so it can be a fight to overturn such thinking.

And on that note, I’m going back to the farmyard where I know what is meant by MOO. 


HMRC’s Employment Status Manual (see para ESM0543 states the following:

The irreducible minimum requirements for a contract of employment are:

  • the requisite mutuality of obligation present

  • a sufficient degree of control being exercised on the part of the engager

  • other provisions of the contract being consistent with a contract of employment.