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HMRC stands by MOO omission from CEST tool

HMRC stands by MOO omission from CEST tool

HMRC has come forward with an explanation for why it has omitted mutuality of obligation (MOO) from its CEST tool. It is not changing its decision on the matter despite concerns raised by experts. 

In a paper published this week, HMRC set out its reasons for not considering MOO amid concerns that CEST is inaccurate.

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CEST is a tool used to determine whether an engagement should be classed as employed or self-employed for tax purposes. By answering a series of questions, contractors receive HMRC's view on whether the Intermediaries legislation (IR35) should apply.

Concerns ignored

Numerous contractor consultancies and freelance advisory services have publicly questioned why the tool does not ask about MOO – the obligation of the employer to provide work and the employee to accept it.

HMRC’s interpretation of MOO has also been rejected by judges, as cited in the recent cases of Armitage versus HMRC and Smith versus Pimlico Plumbers.

HMRC has confirmed that the reason it does not test for MOO. This is because it assumes it is present in all public sector contractor engagements.

“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,” the paper said. “It is assumed that a person using CEST will have already established MOO. MOO 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.”

HMRC continued to explain: “Where work is provided and remuneration is paid we will assume that there is mutuality of obligation and that a contract exists. For the avoidance of doubt, the CEST online tool assumes that a contract exists or is being considered. We do not anticipate the tool being used outside of these circumstances.”

A fundamentally flawed tool

This explanation has done little to address industry concerns.

“It is extremely disappointing that HMRC’s paper remains unchanged from an earlier draft first shown to the IR35 Forum in March,” IPSE’s director of policy and public affairs Simon McVicker said. “They have completely failed to engage with arguments put forward by IPSE and other experts that their position on mutuality of obligation – that it is always present in any contract – is fundamentally flawed.”

Julia Kermode, chief executive of FCSA, agrees there is a problem. “I am concerned that publishing HMRC’s position on Mutuality of Obligations on the IR35 Forum website may give the impression that the stakeholders (i.e. non-HMRC representatives) on the IR35 Forum endorse their position. I very much doubt that many of us do,” she said.

“FCSA responded to HMRC’s draft MOO paper very clearly stating that we do not agree with their view. Further, 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. 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.”

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