A startling revelation about HMRC’s viewpoint on mutuality of obligation (MOO) in public sector contractor employment has emerged.

Assuming that mutuality of obligation is present in every contract a contractor signs when working in the public sector, HMRC failed to include this test in its Check Employment Status for Tax (CEST) tool.

This means that the CEST tool and the case law that underpins the IR35 legislation – vital as it is for contractors with regards to their taxation – do not match up.

It’s quite the oversight, and HMRC will no doubt be somewhat red-faced after the problem came to light following a recent webinar involving the NHS and was highlighted to the public by Contractor Calculator.

The man at the centre of the storm is Mark Frampton, Policy Advisor on IR35 for HMRC.

During the Working through intermediaries: implementing IR35 guidance in the NHS webinar, Frampton was asked to name ‘an instance where MOO wouldn’t be present during a question and answer session’.

His response, according to a transcript from the webinar, was: ‘It would rarely, if ever be the case in public sector hiring. That is why we did not put questions into the tool about it.’

This has landed HMRC in hot water, as without the MOO test being included as part of the wider CEST testing, there is a risk of inaccurate final decisions about a workers’ employment status.

MOO essentially centres on a contractor agreeing to provide a service for a contracted period of time, and the organisation in question will pay for the services the contractor provides accordingly. However, once the contracted term is complete, there’s no obligation on either side to keep working or paying.

The truth of the matter is some contractors will have a MOO element to their contract in the public sector and others won’t.

But HMRC telling a major public sector body that it’s alright to ignore it when deciding status risks erroneous judgments being made, and a contractor could be found to be inside IR35 when this shouldn’t be the case.

For a government agency to show such overt laxity is something many public sector contractors – plenty of whom will have nothing but dislike for HMRC following the IR35 reforms – will find very disappointing.