IR35 MOO (Your Core IR35 fail)
Mutuality of Obligation
So what’s this? An interesting read.
But. Always a “but” in tax.
My understanding of MOO in IR35 HMRC terminology is more limited. It is taken to mean that the “putative employer” and the “targeted employee” are mutually obligated for the employer to provide work and the employee to do it. This is severely limited when compared to the above legal meaning.
One can quite see that HMRC would want to use the wider definition, but I think that would be rejected by the courts as being “too wide”. This means “too vague” and lacking definition for use in court cases. That legal meaning essentially uses the MOO expression to mean consideration (something to be given in exchange). To be valid, every contract has by law to have consideration and in addition to that it has to be current not “already given” (for that you would have to use a deed).
Consideration already given is known as “past consideration” and is not valid for a new contract, it has to have been current (or future) at contract agreement time. This means at time of offer and then acceptance.
Google it — the great HMRC confidence trick
Of course these days the first thing we do is to search the internet for information (fraught with risk though that may be) and we will find the legal definition. Any unsuspecting searcher will first find the legal definition and if they stop their search at that point will be left with the idea that every contract has MOO regardless. I fear HR workers and corporate people generally lack any experience of these matters and will be using the internet as a port of first call, or disappointingly their only source. I see this as trickery where HMRC are engaging in the use of unpublished jargon. They are creating their own language without telling anyone and certainly not making it generally apparent unless one searches VERY carefully.
They have been doing this with every aspect of taxation and misleading the public as well no doubt as politicians who they persuade to make the laws based on HMRC presentations.
True and fair ?
Often we hear the word “fair”. Taxation has very little to do with being fair, except when it comes to HMRC working very hard to get unfair laws passed reliant on no one really understanding, or that is to say, the majority have no idea of the details. Witness for 100 years (or I think thereabouts) the government absolutely promised it would NEVER tax company profits twice. So profits taxed to corporation (company) tax would never be taxed again when handed to shareholders, at the basic rates of tax. So now they have scrapped that and are taxing these profits twice, in the hands of both the company and the shareholder.
When the Chancellor of the Exchequer is saying it is not fair that shareholders pay less tax, he is carefully ignoring the fact that the company has first paid company tax on all these profits, with no tax free allowances at all, before the shareholder is then required to pay tax on the same profits. The current shareholder rate is basically 7.5% so that and the CT rate (company rate) means an effective rate of 25% in being paid, not 7.5% . That is what I call misleading when claiming that national insurance and tax are being “dodged”. And that is all BEFORE higher rates of tax click in, when combined rates of 55% become relevant.
Wealth and jobs creation
It is not about it being fair (which means fair to employees by the way), it is just different. It is different for very good reason: to encourage the taking of risk by those who make our country rich and create jobs (employment). At the very least to not discourage our risk takers and innovators.
Big companies are not where wealth starts, it is the small ones. The big ones are totally risk averse and spend their time blocking progress while protecting what they have created already, their ideas of risk tend to be child like and uninformed.
Not to mention the “Peter principle” which states that people are promoted to positions of incompetence, which sort of explains my above comment about their approach to risk. Ask anyone who has been self employed for a while how “employable” they think they are. The answer will be “no, I am not at all”. Self employment, or being in business on your own account is a way of life. It is a concept no tick list is ever really going to capture, because it is a state of mind, not a set of facts. Of course there may be many who in reality are not in business on their own account yet find themselves being presented as such by those risk averse HR departments trying to dodge employment responsibilities. Never forget the HR department is not acting in the interests of the employee, but only for the employer. For the employee you need a union and collective negotiation. Seen in this light the HR people do excellent work in their domain of expertise.
Accountability of HMRC?
The House of Lords seems to be more perspicacious, but not listened to so much. An example? Consider that “tax avoidance” has for many decades been perfectly legal and used so everyone understands the difference with “tax evasion”. The famous quote has long been that the difference between the two is “the thickness of a cell wall”, because one is acceptable and the other is a criminal offence. So why have HMRC worked so hard to make them mean the same thing? Because it does not suit them for ordinary folk to understand tax law. For if we understand, we cannot be so easily manipulated to accept things like retrospective changes that go back twenty years to charge tax on matters that to this day remain perfectly legal. Such things that HMRC has been well aware of for the two decades and yet chosen to do nothing at all, not even to express disapproval as a “heads up”. Add to that HMRC won a House of Lords case based on the taxpayer not being allowed to rely for guidance on any of the published HMRC guidance. I kid you not. You cannot rely on any of the published HMRC guidance, by court decision of the Lords. Side note: On 1 October 2009 the Supreme Court assumed the judicial role of the House of Lords.
HMRC’s mutual obligation to us?
Collect the max tax possible using all means necessary? Yes.
The right amount of tax? No chance.
Accountability? None that is apparent, ask “LCAG”.
Transparency? None. Faceless. Exactly who makes the decisions so we can counter?
Clarity? None. Most complex tax system on the planet, but HMRC places serious obstacles to getting professional help and guidance (MSC law).
Of course everything is politics,
and my opinion is that civil servants must not engage in it. They should explain, educate and inform without an agenda, regardless of the political pressure to perform that is placed on them by government. Perhaps this is too lofty an ideal?
Of course it is easy to assign malevolent intent. This may all be perfectly innocent when viewed from the inside. However, last time I was taught, HMRC have a policy of always assuming that the tax outcome achieved in any set of circumstances, is the one the tax payer, or non payer, was planning to achieve. Regardless of whether this “malevolence” is true or not, I view this as an application of “ignorance is no excuse” and it assumes all taxpayers are basically crooks. Ok, perhaps that is a bit strong. Suffice to say they view all taxpayers as wanting to minimise their tax bills, which last time I looked remains perfectly legal, though with the thought controls we see these days I begin to wonder; for example the blurring of avoidance and evasion. Bear in mind everything you do has to be “with view to profit” otherwise it’s not a trade (a business) and not deductible. More usually this is used against hobbyist photographers , and the like trying to claim their camera and film costs against little or no related sales income.