Mutuality of Obligation

IR35 is a sticky piece of legislation originally introduced under the Labour Government in 1999. Fully titled “IR35: Countering Avoidance in the Provision of Personal Services”, the purpose of the measure is to eradicate the practise of an individual providing services to a company as a Contractor, when in fact they are existing as an employee. This has led to many new and existing contractors wondering if their work falls in or outside IR35. In this series we will examine the main indicators of IR35 status.

Mutuality of Obligation refers to the relationship between a contractor and his/her client.

 

In the case of a regular employee, an employer is required to ensure the employee has work to carry out at all times. This is their obligation to their employee. In turn, the employee is required to complete any work (within reason) they are given – that is their obligation to their employer. Hence, they have a mutuality of obligation.

In the case of a contractor, a client will supply a single piece of work. Outside this single project, the client has no obligation to supply further work, and once the project is finished the contractor is not required to accept any further work. There is no mutuality of obligations between the two parties in this situation.

If a mutuality of obligation exists between a contractor and a client (i.e. if a client is obligated to provide a contractor work on an ongoing basis), HMRC would usually deem that contractor to be inside IR35 legislation, and as such would be a “disguised employee”.

See Part 2: IR35: What is “Substitution”?

See Part 3: IR35: The What, Where, When and How Tests

See Part 4: IR35: Other Determining Factors

See Part 5: Direction & Control

Photo by moppet65535 – CC