IR35 & Mutuality of Obligation in 2026/27: Explainer for Contractors

Mutuality of Obligation (MOO) has historically been one of three key tests for deciding IR35 status, alongside Control and Right of Substitution.

Is Mutuality of Obligation widely understood?

Despite being quite simple on the face of it, MOO has commonly been difficult to establish and not fully understood in general, writes off-payroll rules expert Charlie Hemsworth, director of specialist status advisory Bauer & Cottrell.

In 2024, the Supreme Court's ruling in the high-profile 'PGMOL' case concerning football referees set an important precedent which affirms that MOO always exists in an individual engagement.

What is the Wage-Work bargain of IR35/MOO?

This core principle is known as the 'Wage-Work bargain,' which means that there is Mutuality of Obligation where a party agrees to perform work, and an engager agrees to pay for that work.

Crucially, and contrary to some earlier employment status case decisions, 'PGMOL' found that there does not need to be an ongoing obligation to offer or accept future work for MOO to be present.

What's the key IR35 Mutuality issue for contractors in 2026/27?

The position in 2026/27 on MOO (or 'Mutuality' as it's also known) means that in most contractor engagements, MOO will exist at least to some degree and is no longer the 'clincher' to Outside IR35 status that it may have been previously.

However, the overall extent of MOO is still important. And the key issue now is not whether MOO exists, but whether the overall level of obligation between you and your client looks more like employment or a genuine contract for independent services.

So, we know MOO exists in each individual contract while it is in force.

However, in an independent contractor relationship, that obligation should end when the contract ends.

With IR35, what's an example of limited Mutuality of Obligation?

Helpful factors that show limited ongoing obligations may include:

• A contract with a defined end date that is linked to completion of specific services.
• No contractual obligation on the client to offer further work beyond the agreed scope.
• No contractual obligation on you to accept further work.
• Immediate termination provisions.
• No work = no pay.
• Any contract extensions or renewals being agreed under separate commercial agreements.
• Freedom to work for other clients concurrently.

What Mutuality points to Outside IR35?

These seven 'limited MOO factors' show that each contract stands alone.

If you've got a few of them present in your contractor engagement and it's Outside IR35, that's good because they demonstrate that the client is engaging defined, time-bound services, where the obligation exists only for that defined period.

What Mutuality points to Inside IR35?

By contrast, Inside IR35, or an employment relationship, usually involves an expectation that work will continue indefinitely, with the individual forming part of the organisation's ongoing resource.

If your services resemble a 'job' or you have an open-ended contract, it may appear that the client is effectively retaining you as part of their workforce, with an expectation of ongoing work and availability.

What are MOO hallmarks of an overarching contract?

Factors that might imply an expectation of ongoing work and availability, in the shape of what's called an 'over-arching' contract, due to MOO, include:

• Open-ended contracts.
• Engagements involving Business As Usual-type job roles rather than project-related services.
• Long notice periods.
• Retainer arrangements involving payment for 'first call' on your services, or payment for periods during which no services are performed.
• Continuous contract renewals where you are moving from one project to another over extended periods of time, with no other clients in the same period.

Am I no longer Outside IR35 if I've got a long notice period?

Whether the above factors are detrimental to an Outside IR35 position, in each case, will depend on the overall context of the relationship.

However, if more than one of the above five 'over-arching' contract factors is in play, MOO could be just one of several issues pointing towards an Inside IR35 position.

I mention 'contract renewals' in the list above.

However, the need to extend contracts is not unusual for contractors working on large-scale IT projects.

Should IT contractors get a new agreement at contract renewal?

In an extension or renewal situation, IT contractors should ensure that a new agreement (or formal amendment) is signed each time the contract is extended. You should also ensure the terms contain adequate lack of MOO clauses — i.e. no obligation to offer or accept further contracts.

This gives both parties the opportunity to reconfirm that the terms remain reflective of the arrangements in practice, and helps demonstrate a series of independent commercial engagements, rather than a single ongoing relationship.

Do notice periods negate Mutuality of Obligation?

A common misconception is, "I can give notice to terminate the contract early, so there cannot be MOO".

This is wrong, as notice periods by their very nature create MOO (an obligation to provide services during the notice period). And they are generally considered an employment feature.

In addition, the right to terminate a contract early does not remove MOO from the engagement while it is in force.

That said, the existence of a notice period is not necessarily inconsistent with a commercial contract for services; it is simply one factor that will contribute to the overall picture.

Is a one-month notice period a signal of too much MOO?

Providing that the notice period is short in duration relative to the contract length — no more than a month, and the shorter the better — it will not typically have significant impact on IR35 status in isolation.

If both parties can terminate immediately without notice, even better from an IR35 standpoint.

Should contractors in 2026/27 bother arguing that there is no MOO?

MOO remains relevant in 2026/27.

Therefore, trying to argue that mutuality does not exist at all will not get you anywhere in the new tax year, commencing April 6th 2026.

What does a good IR35 position look like in 2026/27?

The key IR35 tests of Control and Right of Substitution now carry far more weight when deciding IR35 status. If you can demonstrate strength in these areas, along with factors that show you are genuinely 'in business on your own account' — with no obligations beyond the agreed engagement — you are in a good IR35 position.

However, working with a single client indefinitely, performing an ongoing operational role or being moved around over an extended period of time because you are 'useful', is likely to put you Inside IR35 for reasons beyond the presence of MOO.

Final takeaway: How key will Mutuality of Obligation (MOO) be for IR35 in 2026/27?

All contractor engagements will contain MOO to some degree. In 2026/27, the key takeaway with Mutuality is about ensuring that the overall level of obligation remains consistent with your company operating as an independent business.

And this is why it is essential to consider the whole picture.

If in doubt, it's always advisable to engage a specialist to assess your IR35 position.