The UK’s Supreme Court Takes a Firm Stand on Mutuality of Obligation

UK Supreme Court upholds HMRC's stance on MoO, impacting IR35 classification.

October 17, 2024

In a landmark ruling, the Supreme Court has sided with HM Revenue and Customs (HMRC) against Professional Game Match Officials Limited (PGMOL), delivering a significant blow to how limited company contractors are classified within IR35. The ruling, published in mid-September 2024, follows a hearing held in June 2023 and vindicates HMRC's stance on the Mutuality of Obligation (MoO) argument it first introduced in 2018.

The Supreme Court’s decision supports HMRC’s position that merely agreeing to work for an organisation is enough to establish mutual obligations between parties, which is central to the existence of a contract. This ruling upholds the methodology behind HMRC’s controversial Check Employment Status for Tax (CEST) tool, which does not examine MoO, asserting that MoO is inherent to the existence of any contract. This interpretation has been heavily criticized for oversimplifying the nuanced nature of employment relationships.

The ruling, seen as a significant win for HMRC, has sparked widespread concern among contracting bodies. The UK's leading association for independent professionals and the self-employed, IPSE, expressed its shock at the court's decision, both for the technical loss experienced by PGMOL and the wider implications it has for contractors across the UK.

Implications for the Contracting Industry

Laura Greenwood, leading the compliance team covering all UK contractors at Worksome UK, commented on the ruling, stating:

“HMRC’s case rested on its assertion that limited companies agreeing to work for another party establishes mutual obligations, a key indicator of employment. This is why the CEST tool doesn't account for Mutuality of Obligation, as HMRC argues it is simply necessary for a contract to exist.”

Laura also noted that Worksome’s platform utilises a bespoke tailored approach to the status determination questionnaire that considers inputs from four environments, each having influence over each contractor's booking. The environments are:

  1. Client-controlled meaning the default contract Terms & Conditions, along with any contractor benefits.
  2. Freelancer-controlled, which includes business insurance and their work history.
  3. Historic engagements are based on both parties employment relationship and previous bookings.
  4. Current booking includes where, when, and how projects will be delivered and who pays for what.

For publicly-listed organisations in the UK who have risk-averse approaches, the Supreme Court ruling could mean that many seeking to hire self-employed workers will now face even greater scrutiny and will need to work harder to demonstrate that workers are not subject to control or personal service – key factors in determining employment status under IR35. The broader implications of this ruling are expected to have a lasting impact on the contracting landscape in the UK, as businesses will need to be more vigilant than ever to avoid misclassification under IR35.

Ensure Compliance with Confidence

As the contracting landscape evolves with rulings like this, staying ahead of compliance is more critical than ever. At Worksome, we understand the complexities of managing independent contractors and navigating regulations. Our platform offers a bespoke status determination questionnaire that goes beyond what the CEST tool can do, and is designed to reduce misclassification risk while streamlining contractor management. This bespoke analysis provides a more nuanced and accurate determination of employment status, reducing the risk of misclassification under IR35. Let us help you stay compliant and protect your business from costly mistakes.

Learn more about how Worksome can help your business navigate IR35 and other compliance challenges.