Revenue updates Employment Status Manuals with more MOO
The Inland Revenue has updated its Employment Status Manuals with further information on Mutuality of Obligation and Mutual Intention.
The updates are as follows...
'ESM3285 - Opinions on contracts: application of the case law tests - mutuality of obligation
Case law has established that there has to be an "irreducible minimum of mutual obligation" for there to be a contract of service and hence employment (see ESM1071). In the context of IR35 it is a notional contract that is being considered and consequently you must be able to point to an irreducible minimum which would have existed.
In the Judicial Review of the IR35 legislation the judge stated:
"Of course there is in fact no contract between the client and the service contractor, and thus no obligation on either party owed to each other, but it must be significant, when applying the common law test, to consider whether, looking at the actual relationship, and a notional contract, between the client and the service contractor, any obligation would be owed by the client."
The irreducible minimum would comprise an obligation on the part of the client to pay the worker for work done and for the worker to be obliged to do the work. You therefore need to consider whether this would have been the case if the worker had contracted with the client. See the summary of the case of Nethermere (St Neots) Ltd v Gardiner and Taverna [1984] IRLR 240 at ESM7110 for more information on the irreducible minimum of mutual obligation.
ESM3286 - Opinions on contracts: application of the case law tests - mutual intention
Where a case is borderline, mutuality of intention will remove any ambiguity about the employment status. As indicated in the examples of Gordon, Henry and Charlotte in Tax Bulletin 45 (see ESM3311, ESM3312 and ESM3313), it should be assumed that there would have been mutual intention for self-employment when deciding whether IR35 applies. Although the intention of the parties may not have been expressed, bearing in mind that the engagement is with an intermediary rather than an individual you should assume that there was a mutual intention for a contract for services. Therefore in borderline cases the opinion should be that IR35 does not apply.'
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Richard Powell, UKTECH