Mutuality of Obligation: the IR35 Test Clients Get Wrong

Why mutuality of obligation is the test most often misread

Of the three conditions needed before a working arrangement can be an employment contract, mutuality of obligation (MOO) attracts the most argument and the most confusion. Contractors often believe that a contract-by-contract structure with no promise of further work is enough to guarantee outside IR35 status. Clients sometimes issue mass outside-IR35 determinations on exactly that reasoning. Neither position has been correct since the Supreme Court spoke in Professional Game Match Officials Ltd v HMRC [2024] UKSC 29, and both can be expensive mistakes.

This page focuses on MOO in depth: what it requires, what PGMOL actually decided, and why the HMRC CEST tool's approach to MOO is narrower than the case law. For a full picture of all three tests and how they interact in practice, see our IR35 explained guide. For how to protect an outside determination through working practices and evidence, see our outside IR35 guide.

The two layers of mutuality of obligation

MOO is not a single concept. It has two distinct layers, and most IR35 disputes turn on which layer is in play.

Layer one: the wage-work bargain

The basic or minimal form of MOO is simply the exchange at the heart of any paid arrangement: the engager provides work (or pays) and the worker performs personal service. This wage-work bargain exists in almost every commercial relationship, including straightforward business-to-business contracts. On its own it tells you very little about whether the arrangement is employment or self-employment. For this reason the courts have long recognised that the mere presence of payment-for-services is not enough to constitute the necessary mutuality.

Layer two: the ongoing obligation

The more demanding and genuinely distinguishing question is whether there is an ongoing or over-arching obligation: does the engager have an obligation to continue offering work and does the worker have a corresponding obligation to accept it? This is what some engagement contracts try to exclude with clauses along the lines of "there is no obligation on either party to offer or accept further assignments". The logic is that without an ongoing obligation there is no employment relationship, or even the irreducible minimum of one.

This argument has not disappeared, but it has been significantly constrained by PGMOL, which we turn to now.

PGMOL [2024] UKSC 29: what the Supreme Court actually decided

The case concerned HMRC's challenge to the status of Football Association Premier League match officials under their contracts with Professional Game Match Officials Ltd (PGMOL). The match officials operated under a National List contract that set out their overall terms but explicitly said there was no obligation on PGMOL to offer appointments and no obligation on the officials to accept them. The argument for outside status was that without that over-arching obligation, MOO was absent and the arrangement could not be employment.

The Supreme Court disagreed. It held that, once a match official accepted a specific appointment, there were real and sufficient obligations on both sides within that accepted engagement: the official was obliged to officiate and PGMOL was obliged to pay and to provide the match. MOO existed within each individual appointment even without an umbrella or framework obligation between appointments. The Court confirmed that the absence of an obligation to offer or accept further work after the current engagement ends does not, by itself, negate MOO within the current engagement.

The Court then reaffirmed the position from Atholl House [2022] EWCA Civ 501 and Kickabout Productions Ltd v HMRC [2022] EWCA Civ 502: finding MOO and sufficient control are necessary conditions, but not sufficient conditions, for employment status. Even where both are present the tribunal must proceed to the third, whole-picture stage and ask whether, weighing everything, the contract looks like a contract of service, including whether the worker is genuinely in business on their own account.

On the facts of PGMOL, the Supreme Court found MOO and control satisfied within each accepted appointment, but left the whole-picture question to be decided on remittal. That remittal itself has significance: it signals that MOO plus control does not automatically produce an inside determination; the full multi-factorial analysis still applies.

What PGMOL does and does not change

What changed: the argument that "no obligation to offer future work means no MOO" no longer holds as a simple rule. Tribunals will look at whether obligations exist within accepted engagements, and they will generally find they do once money changes hands for personal service.

What did not change: MOO is still a necessary precondition. A relationship with no mutual obligations at all cannot be employment. And the whole-picture stage still governs. A contractor who establishes genuine business autonomy, carries real financial risk, and operates with genuine control over how the work is done is not inside IR35 merely because MOO is satisfied within each accepted contract.

Where MOO sits in the three-stage test

The framework for employment status in UK tax law comes from Ready Mixed Concrete (South East) Ltd v Minister of Pensions [1968] 2 QB 497, which established what is sometimes called the irreducible minimum. Before a contract can be one of employment there must be: (1) an obligation to provide personal service, (2) a sufficient degree of control by the engager, and (3) mutuality of obligation. PGMOL and the Court of Appeal cases before it confirmed these are the gateway tests.

Passing that gateway does not end the inquiry. The second step is to look at the remaining express and implied terms and ask whether they are consistent or inconsistent with a contract of service. The third step, the whole-picture stage, requires the tribunal to stand back and, weighing everything, ask whether the arrangement looks like employment, including whether the worker is genuinely in business on their own account.

MOO operates at the first stage. It is a necessary hurdle to clear before the analysis reaches the richer multi-factorial assessment. But clearing it is not a finding of employment. For a fuller explanation of all three stages and the other factors the tribunal weighs, see our guide to the IR35 status tests.

Why "no ongoing obligation" clauses have limited effect after PGMOL

Many PSC contracts have included or still include a clause explicitly excluding any obligation to offer or accept further work. These clauses are legitimate and may still have evidential value: they show the parties did not intend an overarching employment relationship. But their effect is now qualified.

After PGMOL, a tribunal examining a contract that contains such a clause will still ask whether, within each accepted engagement, the exchange of obligations was sufficient to satisfy MOO. Where the work is personal service for pay, that exchange will almost always be present. The clause may help at the margins, but it does not, on its own, prevent a MOO finding within the engagement that was actually performed.

Contract language remains worth getting right. A carefully drafted engagement contract that accurately reflects outside-IR35 working practices is better than a loose one. But the firm's consistent position, in line with the leading authority, is that working practices over contract wording: a clause saying there is no ongoing obligation carries far less weight if the practical reality is that the contractor attends the same workplace daily, takes direction from the client, and behaves in every practical sense like an employee. The written terms and the day-to-day reality must both be outside-IR35 consistent.

The history of MOO in the courts before PGMOL

To understand why PGMOL was significant it helps to trace the argument it resolved. For much of the 1990s and 2000s the position was that MOO required both a basic exchange within an engagement and some form of ongoing obligation between engagements, the kind of "global" or "umbrella" contract under which either party was bound in a continuing way. A pure assignment-by-assignment relationship with genuine freedom to walk away between contracts could credibly be argued as lacking that second limb and therefore lacking the necessary mutuality.

The Atholl House and Kickabout decisions in 2022 had already tightened things. Both Court of Appeal cases rejected the idea that the absence of an umbrella obligation meant there could be no employment relationship at all; they confirmed the three-stage framework and held that the whole-picture analysis must be applied even where the parties deny any ongoing mutual commitment. PGMOL then went further by confirming that MOO within the accepted individual engagement is enough to clear the first stage, regardless of what happens between engagements.

The direction of travel in the case law has therefore been consistently towards finding MOO present more readily, not less. That makes the whole-picture analysis at stage three proportionally more important as the substantive battleground for outside-IR35 contractors.

CEST and MOO: why the tool's treatment is narrower than the case law

HMRC updated its Check Employment Status for Tax (CEST) tool on 30 April 2025. The updated version includes a dedicated MOO question and an upfront gateway asking whether a contract exists before the tool proceeds. This was a meaningful improvement: earlier versions of CEST were criticised for all but ignoring MOO in the substantive analysis.

Our position, however, is that CEST's treatment of MOO remains narrower than the case law. The tool can return an "outside IR35" result, or decline to give a determination, on MOO-related grounds in circumstances where a tribunal, applying PGMOL, would find MOO satisfied within the accepted engagements and proceed to the full status analysis. The risk is a false sense of security: a contractor who receives a CEST "outside" result largely on the basis of no ongoing obligation between assignments may be relying on a line of argument that PGMOL has materially weakened.

HMRC's own position is that it will stand behind a CEST result where the user has answered accurately and in a way that reflects the real working practices, used the tool consistently with the guidance, and there is no avoidance intent. That promise is real, but its limits matter: it does not bind a tribunal, and a determination that does not match the actual working practices carries no weight at all. As with any tool, the outputs are only as reliable as the inputs.

Never treat a CEST "outside" result as a guarantee. Pair it with a proper contract review and a working-practices assessment. This is the basis on which our IR35 status review service operates: written contract, actual working practices, and the test from PGMOL applied together.

MOO in the client's off-payroll process

Where the end client is medium or large, it is the client that determines IR35 status and issues a Status Determination Statement under Chapter 10 of ITEPA 2003. A valid SDS requires a reasoned conclusion reached with reasonable care. How the client analyses MOO in that process has practical consequences for contractors.

One common pattern since 2021 is the blanket outside-IR35 determination: a client deciding that all its contractors are outside IR35 because their contracts contain no ongoing obligation clause and therefore MOO is absent. Post-PGMOL that reasoning is fragile. A client applying it across an entire contractor population without assessing each engagement individually is not taking reasonable care for the purposes of ITEPA 2003 s.61NA: the SDS is liable to be invalid, and an invalid SDS moves the liability for any PAYE and NIC to the client itself. This is a significant risk for clients, not just a contractor-side problem.

If you receive what appears to be a blanket determination, whether inside or outside, that does not reflect the specific terms and working practices of your engagement, you can use the client-led disagreement process. The client has 45 days to consider representations and respond with reasons, either confirming the original determination or issuing a revised one. For detail on how the SDS process works and how to challenge a determination you believe is wrong, see our guide to challenging an IR35 determination.

What the off-payroll rules say about MOO indirectly

ITEPA 2003 does not define employment for status purposes; that remains a case-law question. What Chapter 10 does do is shift who performs the analysis. A valid Status Determination Statement requires the client to consider the working practices and the contract and reach a reasoned view. A client that defaults to the old "no ongoing obligation therefore outside" shorthand, rather than examining the three-stage test in light of PGMOL, is not discharging that obligation. HMRC's published guidance and the ESM manuals updated after PGMOL reflect the Supreme Court's holding, so a client whose SDS reasoning relies on pre-PGMOL MOO analysis is out of line with HMRC's own current position.

This matters in practice because the HMRC ESM update (February 2025, following PGMOL) signals that HMRC itself will apply the post-PGMOL reading when auditing SDS processes. An inside-IR35 determination that was challenged partly on MOO grounds before February 2025 may need to be revisited in light of that updated guidance.

MOO and working practices: what outside-IR35 looks like in practice

Establishing that MOO does not point firmly towards employment requires more than a clause. The working relationship itself needs to reflect the absence of an integrated, ongoing employment-type obligation. Some features that support an outside position on MOO and the wider status analysis include:

• Discrete, project-based engagements with a defined statement of work and a clear end point, rather than an open-ended "on and off" arrangement.
• The contractor genuinely being free to decline specific work, reschedule, or end the engagement, and having done so in practice.
• No expectation of further work after the project concludes (supported by the actual history of the relationship, not just a clause).
• The contractor marketing services to multiple clients, taking on other engagements, and operating as a business rather than an effective sole-client worker.
• Financial risk: the contractor absorbs cost overruns, provides their own equipment, or operates on a fixed-price or output basis.

None of these is a silver bullet, but a body of evidence across several of them, documented and consistent with the written contract, gives a far stronger position than a contract clause standing alone. See our outside IR35 guide for the full working-practices framework.

The substitution right also interacts with MOO: a genuine, unfettered right to send a qualified substitute means the personal-service limb of the irreducible minimum is weakened, which tends to reduce the weight the tribunal places on the overall arrangement. For a detailed treatment of how the substitution clause is analysed and what makes it genuine rather than a sham, see our page on the substitution clause and IR35.

How MOO shapes the IR35 risk profile

The practical implication of PGMOL for a contractor's IR35 planning is this: do not rely on a no-ongoing-obligation argument as the primary defence of outside status. MOO will almost certainly be found to exist within each accepted engagement once money and personal service are both present. The outside case must be built on the whole picture, especially on control (genuine professional autonomy over how the work is done), substitution (a genuine and exercised right, not a paper clause), and the in-business-on-own-account indicators.

That whole-picture analysis is exactly what a specialist contract review and working-practices assessment addresses. If you have any doubt about whether your current or proposed engagement sits inside or outside IR35, the consequences of getting it wrong under Chapter 10 include the client or fee-payer facing a PAYE/NIC liability and potential debt transfer, and under Chapter 8 the PSC itself owing a deemed employment payment at year-end. The cost of uncertainty is high on both sides.

The in-business-on-own-account indicator

At the whole-picture stage, one of the most powerful indicators that a tribunal will weigh is whether the worker is genuinely in business on their own account. This question, drawn from Market Investigations Ltd v Minister of Social Security [1969] 2 QB 173 and firmly embedded in the post-Atholl House framework, looks beyond the MOO and control gateway to ask whether the economic and commercial reality of the arrangement is one of independent trading.

Factors that support a "yes, in business on own account" finding include: operating with multiple clients simultaneously or sequentially; bearing financial risk (fixed-price contracts, warranty obligations, absorbing the cost of mistakes); investing in equipment, intellectual property or a team; actively marketing services; having a reputation in the market under the worker's own or their PSC's name; and being able to profit from efficient delivery beyond the day rate. These are the indicators that PGMOL itself pointed to when directing the remittal tribunal to consider the whole picture.

A contractor who operates through a genuine PSC, holds outside-IR35 contracts across multiple clients, invests in their professional standing and business infrastructure, and can demonstrate actual financial risk, is building the right kind of evidence base. MOO will be present in each accepted engagement; the question the tribunal will ask is whether that mutual obligation, and the degree of control, are embedded in a relationship that overall looks like employment or like arms-length commercial contracting between two businesses.

Evidence and documentation

Because the whole-picture analysis is inherently factual, the quality of the evidence base matters enormously. Points that can be documented and preserved include:

• Correspondence showing the contractor negotiated the engagement terms (rate, scope, end date) as a business, not an employee being onboarded.
• Records of other concurrent or sequential clients during the same period.
• Business expenses records showing the contractor bears their own equipment, insurance, professional indemnity and development costs.
• Written engagement scopes that define deliverables or outputs, rather than hours or attendance.
• Any instances where the contractor declined, renegotiated or ended an assignment, reinforcing the absence of any practical obligation to continue.

This kind of contemporaneous documentation is harder to dismiss at tribunal than a clause drafted years before the dispute. Building the file at the start of an engagement, rather than reconstructing it after an enquiry opens, is the right approach.

Our IR35 contract review service applies the full three-stage test to your written terms and your actual working practices, and gives you a written opinion you can use as part of your audit trail. If you want to understand how your position stands before signing a new engagement, a review before the contract starts is the most cost-effective point to do it. Specialist advice for IT contractors, engineering contractors, finance contractors and the other professions most commonly affected by off-payroll determinations is available through our contractor-type pages.