Freelance body rubbishes new CEST for omitting Mutuality

A freelance services body has clarified that its generally positive assessment of HMRC’s changes to CEST does not extend to the tool still omitting Mutuality of Obligation.

The Freelancer & Contractor Services Association told ContractorUK that the omission of MOO is so grave, that Check Employment Status for Tax is a “fundamentally flawed” tool

“The tool [updates have] not addressed Mutuality at all, which continues to show HMRC’s arrogant disregard for the judiciary by ignoring IR35 case law,” the FCSA said.

“And this [omission] is despite the number of well-documented and publicised [IR35] cases that HMRC has lost because their interpretation of MOO is inaccurate.”


Status firm Qdos Contractor agrees, saying MOO wasn’t patched into CEST because HMRC assumes it exists in every engagement, ‘even though tribunal rulings show otherwise.’

Indeed, the last two ruling from the IR35 courts, the Helen Fospero case and RALC Consulting Ltd V HMRC, show MOO (specifically, a lack of) was key to HMRC losing both.

“Wrongly, HMRC believes that MOO always applies by virtue of work being done in exchange for payment, which is over-simplistic,” says FCSA's chief executive Julia Kermode.

“In broad terms, MOO should be thought of whether there is an ongoing indefinite obligation for the client to offer work and whether there is an ongoing obligation to execute that work.”

'Mutuality is necessary'

A spokesman for HMRC said in a statement: “It is assumed that someone using the [CEST] tool will have already established Mutuality of Obligation.

“[Mutuality] is necessary for a contract to exist, otherwise there would be no need [to] use CEST to determine the status of the existing or hypothetical contract.”

Another reason HMRC is unlikely to put MOO into CEST is because the tool asks about MOO aspects, like the contract for work; the contract for payment and the pattern of engagement.

'CEST poses a risk'

But it’s not reason enough for Qdos CEO Seb Maley. “At this [late] stage in the game, CEST [still] doesn't [fully] take into account Mutuality of Obligation,” he said.

“[So the tool] still isn’t fit for purpose and poses a risk, not just to contractors, but to the agencies and end-clients that rely on it when determining IR35 status.”

In line with Mr Maley’s alert, an MoJ arm’s length body, Government Facilities Services Ltd, has become the second CEST user -- after the NHS – to make wrong IR35 status decisions.  

'Ignoring case law'

In its annual accounts, GFSL disclosed an “unquantifiable contingent liability” to cover “any underpaid tax” as a result of using CEST to incorrectly assess some PSCs as outside IR35.

The FCSA’s Ms Kermode said: “MOO is an essential element of IR35 status and until HMRC’s position is revised, its CEST remains fundamentally flawed by ignoring case law.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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