IR35 Forum members fail to endorse MOO paper
IR35 Forum members have started rejecting the suggestion that they endorse HMRC’s position on Mutuality of Obligation.
Spelt out in a paper published on Friday, the suggestion has been created by the Revenue’s decision to upload the document to the IR35 Forum’s website.
The issue is that, at the time of writing, none of the forum’s external members appear to support the stance, outlined by HMRC and displayed on the forum’s homepage.
“[This] may give the impression that the stakeholders -- i.e. non-HMRC representatives -- on the IR35 Forum endorse their position, but I very much doubt that many of us do,” says Julia Kermode of the Freelancer & Contractor Services Association.
David Kirk, director of accounting specialists David Kirk & Co said: “[The] Institute of Chartered Accountants in England and Wales [of which David Kirk & Co is a member] have not endorsed this [paper], which we understand [contains] HMRC's view only.”
Qdos, a non-member of the forum but a leading IR35 status advisory which successfully defended Jensal Software Ltd against IR35, agrees.
“Mutuality of obligation is one of the fundamental factors to take into consideration when setting IR35 status in accordance with the legislation,” said the advisory’s boss Seb Maley.
“MOO isn’t present in every contractor engagement, so to make an IR35 decision assuming that it is casts doubt over the hundreds of thousands of answers the tool has provided.”
The Revenue takes the opposite view. In its paper, it says CEST does not test for MOO because it is “assumed that a person using CEST will have already established MOO” to exist.
“MOO”, adds HMRC, “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.”
In other words, and contrary to what many IR35 experts argue, “all contracts need MOO between the parties,” wrote a disagreeing ICAEW, in its letter to the Treasury Financial Secretary.
“However, CEST needs to cover the specific master and servant MOO test prescribed by the courts”, said the institute.
“[This is] whether there is an obligation on the worker to work and an obligation on the other party to pay the worker and to continue to make work available during the time of the contract.”
'Not fit for purpose'
Qdos’ Seb Maley, who previously worked at the tax authority, believes it is “wrong of HMRC to assume that MOO exists in every contract.”
He added: “That CEST omits this shows right away that the tool is not fit for purpose.”
The FCSA agrees. “Quite simply MOO is an essential element of IR35 status, as borne out in recent cases,” it said.
“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.”
Another IR35 Forum member, the Association of Independent Professionals and the Self-Employed (IPSE), shares the concern about last year’s changes to IR35 being applied universally.
“This problem [CEST not testing for MOO] will become even more acute if the government rolls out the IR35 changes to the private sector, where the sheer variety and complexity of engagements inevitably means that mutuality of obligation cannot be said to exist in every case.”
The association added: “How can the government, in good conscience, even consider extending the ill-judged IR35 changes to the private sector without fixing fundamental problems with the CEST tool?”
IPSE believes the whole situation smacks of HMRC being in denial. “They have completely failed to engage with arguments put forward…that their position on mutuality of obligation – that it is always present in any contract – is fundamentally flawed.
“This isn’t just IPSE’s view, it is also the court’s view,” the association said. “Two more tribunal cases have come to light which directly undermine HMRC’s position.
“These two cases make it clear that something more than simply pay for work performed is required to establish the necessary mutuality of obligation for an employment relationship.”
'Head in the sand'
Simon McVicker, IPSE’s director of policy and public affairs reflected: “This is a crucial point because the CEST tool, which HMRC encourage clients and individuals to use to determine IR35 status, doesn’t consider mutuality of obligation at all.
“It is totally unacceptable for the government to ask people to use a tool which is so out of step with the latest tribunal decisions. The failure of the HMRC paper to even acknowledge those tribunals suggests they have their heads in the sand.”
His comments coincide with the fresh publication of the latest IR35 Forum minutes – documenting a meeting that was held in May.
Much more overdue has been the publication of HMRC’s MOO paper, originally promised for publication back in January 2018 but delayed until this month, for reasons a HMRC spokesman was asked about but which were not addressed in the spokesman’s response.