sole trader tax

CEST without MOO counters IR35

CEST without MOO counters IR35 law, but should we really be surprised?

There has been no letup in the criticism of HMRC’s IR35 tool (CEST) in recent months, with pressure mounting on The Treasury to finally explain their thinking behind the absence of MOO (Mutuality of Obligation) in the controversial technology.

And just recently, HMRC responded and published a paper in an attempt to justify why this fundamental factor in the IR35 decision making process is missing in the tool the Government have claimed to be a success since its release in 2017.

The second paragraph of the report summarises HMRC’s stance:

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

Unsurprisingly, a number of IR35 experts have made their feelings clear, with many making the quite valid point that MOO is an important factor to take into consideration when setting status compliantly. In short, specialists have argued that MOO certainly doesn’t always exist in a working arrangement, and to presume it does counters case law and throws the 750,000 answers the tool has provided into question.

But cast this to one side for a moment, and HMRC’s defence isn’t altogether surprising, despite the fact it appears to contradict IR35 legislation. Increasingly, tribunals are won and lost on the grounds of control and personal service, rather than Mutuality of Obligation. It could be argued though, that CEST’s logic isn’t capable of accurately assessing these two other defining factors of IR35 either.

That control and personal service seem to play more pivotal roles in court isn’t to say that MOO’s absence in CEST is justified though. By not considering it in an IR35 assessment, any resulting decision based on the tool’s answer has not been made in accordance with the legislation. And because of this, many of the answers HMRC’s IR35 solution has provided in the past year could be in doubt.

For MOO to play a defining role in CEST, it has been said its very definition needs greater consideration, as Qdos Contractor’s Head of Tax, Andy Vessey, explained:

“Until the higher courts provide us with a detailed definition of MOO, HMRC will continue to bat it off in typical fashion by stating that tribunal decisions – that properly consider the concept of MOO – do not set legal precedent. Until HMRC is willing to revise its position, they will quite simply stick to their guns.”

This speaks volumes of HMRC’s approach not only to CEST, but to IR35 changes in general. Arguably, The Treasury’s unwillingness to listen to specialists – whether in the media, parliament or IR35 forum meetings – has led them to a point where the tool they built to improve compliance looks to be doing the very opposite.

Will the Government ever admit this? Not according to one journalist, who argues that if HMRC were to confess that CEST is flawed, every IR35 decision based on the tool’s answers could be scrutinised, leaving the door open for contractors to challenge them. Given CEST has been used several hundred thousand times, the Government would have a full-blown crisis on their hands.

Because of CEST’s failings, contractors are currently feeling the threat of IR35 perhaps more than ever. And there’s no denying that the Government’s lack of sensitivity towards independent workers, HMRC’s blind faith in CEST and the clear eagerness to extend public sector changes to the private sector while encouraging engagers to use the tool is a dangerous concoction.

That said, CEST is not mandatory and independent assessments are perfectly acceptable. Ultimately, this is a message that must make its way to public sector companies and, with further reform apparently on the horizon, the UK’s 5.7m private sector businesses that could soon be tasked with setting IR35 status.

The perceived convenience of the tool and HMRC’s promise to support the results it delivers makes CEST – on the face of it – an obvious and easy choice for businesses. But in reality – and should engagers want to ensure their own IR35 compliance and retain contractors – a more considered approach is needed. What’s more, there’s nothing to suggest that CEST is capable of providing answers that would stand up in an IR35 court case.


  • Andrew Harrison says:

    MOO is at the heart of being a Contractor. When I say that a piece of work will be done by Friday then I am obliged to deliver it and the recipient is obliged to pay for it. That is a mutual obligation but is limited in scope so is not relevant to employment status. Everything we do down to buying an icecream creates a temporary agreement to do something for each other, even HMRC don’t argue that this is an employment relationship. The MOO that isn’t there for a Contractor is the one that gets a contract extended automatically or even a 3 month contract run to its end. I have been on contracts where there was a heap of stuff still to be done but no renewal for budget or personality or management change reasons. So that’s the rules, you walk and look for the next contract – it may not be the happest time (particularly financially) but if you don’t accept that non renewal will happen then go permanent.

  • Soprano says:

    A point echoed here:

    I think they cannot simply discard MoO and I see no reason why the Taylor review should suggest that it be de-emphasised, as I see it as pivotal to whether there is an employment relationship or not, as do the courts. It would be easy enough to get an answer from the higher courts, but they probably don’t want one, because it would not go in their favour, would undermine the CEST and would be a test savvy clients could meet through properly drafted contracts which reflect the working reality, wherein MoO will usually be entirely absent.

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