PAYROLL INSIGHT
Mutuality of obligation
Peter Minchinton, employment taxes senior manager for PSTAX, contends that MOO is very relevant when considering the tax status of a worker
W hen I was very young my father was posted to the naval base in Simonstown, South Africa. On our return we lived on a farm for a few months, until our accommodation on the UK naval base was ready. Accordingly, I learnt that pigs went oink, sheep went baa and cows went moo. Little did I know that fifty years later I would still be considering ‘moo’ in a somewhat different context. Over the years case law has established that mutuality of obligation (MOO) is present in any contract, whether it is one of employment or with a supplier. Without MOO there can be no contract at all. As a result, HM Revenue & Customs (HMRC) has recently taken the position that MOO should be assumed to exist already when considering employment status. Tax status is based on cases heard before the courts and tax and employment tribunals. One of the landmark cases on tax status is Ready- Mix Concrete (South East) Ltd v Minister of Pensions and National Insurance from 1967. In the judgment, Mr Justice MacKenna said: “A contract of service
[employment] exists if the servant agrees that in consideration of a wage or other remuneration he will provide his own work and skill in the performance of some service for his master”. Although the language is somewhat archaic, it does define the master/servant relationship that is required for an engagement to be one of employment. ...does define the master/servant relationship that is required for an engagement to be one of employment So, how do the obligations arise? From the employer it will be ‘in consideration of a wage or other remuneration’. For the worker it will be that ‘he will provide his own work and skill in the performance of some service for his master’. An important point here is the provision of his or her ‘own work and skill’, which is where the
question of personal service comes in. If the worker can send a substitute to do the work then there is no MOO between the worker and the engager. There will be contractual obligations, because the worker will have agreed to provide the services, but does not have to do so personally. As mentioned above, HMRC’s view is that MOO exists when any contract is in existence, describing this as “the irreducible minimum”. In a recent paper on the subject, HMRC said “where work is provided and remuneration is paid we will assume that there is mutuality of obligation and that a contract exists”. Whilst this is a reasonable comment, it is too simplistic an approach. At a meeting in December 2017, HMRC noted claims in contractor bulletins and at roundtable discussions that MOO is omitted from its check employment status for tax (CEST) service. The HMRC view is that 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
| Professional in Payroll, Pensions and Reward | September 2018 | Issue 43 28
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