IR35 and Mutuality of Obligations: What Contractors Need to Know in 2025/26

Why Mutuality of Obligations Matters

When it comes to IR35, few tests cause as much confusion as Mutuality of Obligations (often shortened to MOO). For years, contractors, advisers, and even judges have wrestled with what it actually means and how it should apply.

If so, that can point towards an employment relationship. If not, it may support genuine self-employment. But in practice, it’s far from straightforward.

The Three Key Tests for Employment Status

The starting point remains the landmark Ready Mixed Concrete (RMC) case. This set out the three essentials of an employment contract:

1. The worker provides their own work or skill in return for payment.
2. The worker is subject to a sufficient degree of control.
3. Other provisions of the contract are consistent with employment.

Mutuality of Obligations is central to the first stage. If there’s no obligation on either side to offer or accept work, then there may be no employment contract at all.

HMRC’s Simplified View

HMRC takes a fairly blunt position. From 2025/26, their stance is that whenever work is provided in return for pay, MOO is automatically present. That means in HMRC’s eyes, the factor is always satisfied.

This is why you won’t see much mention of MOO in the Check Employment Status for Tax (CEST) tool, other than a small “gateway” question added in 2025. For contractors, this is frustrating. By ignoring the nuance, HMRC effectively stacks the deck against those arguing they are genuinely self-employed.

Case Law and Mutuality

The courts, however, have taken a more nuanced approach. Several cases have shaped the boundaries of MOO:

• Nethermere v Gardiner (1984): confirmed that there must be an “irreducible minimum of obligation” on both sides for employment to exist.
• Cornwall County Council v Prater (2006): a teacher working under successive contracts was free to reject new assignments, but once she accepted, she was obliged to complete them. Each individual contract contained mutual obligations.
• Carmichael v National Power (1999): part-time guides were found not to be employees because there was no obligation to accept work between assignments.
• PGMOL v HMRC (2024): referees were not required to accept future games, but once they did, they were obliged to referee and file a report. The Supreme Court ruled that even without an overarching contract, employment could exist during the period the work was being carried out.

Taken together, these cases show why MOO is such a grey area. The presence or absence of obligations depends on the fine detail of each engagement.

The Contractor’s Challenge

For contractors, the difficulty lies in proving that no ongoing obligation exists. The ability to accept or reject work on its own is not always enough. Once a contract is accepted, the courts often find that sufficient mutual obligations are present to suggest employment – at least for the duration of that contract.

Similarly, the right to terminate an agreement early does not remove MOO. It may be a pointer towards self-employment when considering the bigger picture, but it does not wipe away the obligations that exist while work is ongoing.

Why MOO is Still the Hardest Test

The reality for 2025/26 is that MOO remains the hardest IR35 factor to argue. Control and personal service can usually be analysed with reference to day-to-day working practices. Mutuality is murkier. The inconsistency between case law and HMRC’s approach only makes matters worse.

For contractors trying to stay outside IR35, relying solely on MOO is a risky strategy.

Practical Takeaways for Contractors

If you’re working through your own limited company, here’s what to keep in mind:

• Assume HMRC will consider MOO present in any paid engagement.
• Be prepared to demonstrate your independence using the other tests – especially control and the right of substitution.
• Keep contracts clear and aligned with how you actually work in practice.
• Remember that each engagement can be judged on its own facts.

Final Word

Mutuality of Obligations is unlikely to go away as a battleground. For contractors, the safest course is to treat MOO as part of a wider status picture, not the silver bullet. A comprehensive approach – considering personal service, control, and the overall nature of the contract – is essential for proper IR35 compliance in 2025/26 and beyond.