Mutuality of Obligation
Mutuality of Obligation is the obligation of employers to provide work for their workers, the obligation of their workers to do the work and the obligation of the company to pay them to do it.
This arrangement is only ended when the worker is terminated or made redundant or the worker gives notice and leaves the company. If a contractor is to be outside IR35 then he or she must differentiate themselves as much as possible from the way a permanent employee operates.
Mutuality of Obligation is one of the big three IR35 Factors that point to someone having a contract of service (caught by IR35) or a contract for services (outside IR35).
According to HMRC’s own website:-
“There must be an irreducible minimum of mutual obligation for there to be a contract of service. That irreducible minimum is that the engager must be obliged to pay a wage or other remuneration. Also, it obliges the worker to provide his or her own work or skill.”
Mutuality of Obligation Dos and Don’ts
1. The contractor should put into his or her contract that he or she has no obligation to do work if offered and the client has no obligation to provide it
2. The company should engage the contractor for a set piece of work rather than for a set period of time
3. If renewals are likely the first contract should say Engaged for Project A phase 1 and the next one should say Engaged for Project A phase 2
4. Contractors should not have rolling contracts as HMRC would see that as evolving into a contract of service
5. It would be better if there was no notice period in the contract. That’s because employees give. Any ‘end’ clause should be related to the end of a particular task or group of tasks
6. Once a project, task or group of tasks ends the client should not be obliged obligation to pay the contractor. That’s even if the task or group of tasks is finished early or is no longer needed
Differentiating Between Contractors and Permanent Staff
Even if there is proved to be mutuality of Obligation this does not make the contractor inside IR35 as it depends on other factors like Control.
However, it is best to try to differentiate yourself from employees in as many ways as you can as regards your way of working and operating.
Therefore, the less you look like an employee the better.
If you know anyone else who would find this article useful, please share it with them using the social media buttons at the top and bottom of the page.
Ad – Contractor Services
If you think you can benefit from using an umbrella company, or do you need some professional advice on which umbrella company is right for you? Fill out the form below to receive expert advice.
For all necessary business insurance, including IR35, try Business Insurance for Contractors