IR35 Review, Not Impressed

[JamJarST]

I secured a new contract with a consultancy and as part of my normal due diligence I sent it off for review to one of the usual sources (name withheld to protect the guilty) and it came back as failing due to the following:

The contract is silent on substitution. A right of substitution is the most important test in terms of IR35, therefore it is essential that the contract has a compliant substitution clause. Please see below example:

The Supplier shall provide the services using suitably qualified personnel of their own choosing. The Supplier reserves the right to substitute any personnel, provided the Client is reasonably satisfied that any proposed substitute possess the necessary skills and qualifications for the satisfactory completion of the services. The Supplier will remain liable for the services completed by substitute personnel and will bear any costs.

Now I am not sure I agree with this, the contract does not name me or anyone else as providing the service and clearly shows a business to business relationship, moreover it contains the following clauses that I believe clearly show that anyone qualified to do so can provide the service:

3.1.3 ensure that the Services are performed by the Workers;
3.1.4 use best endeavours to procure that the Workers use the best materials, techniques and standards and provide the Services with the care, skill and diligence required in accordance with the best practice of the Workers’ industry, profession or trade;

The reviewer also added, and I quote:

Your contract states that you are required to obtain business insurances; therefore it is important to ensure you have the necessary policies in place, so as not to be seen as in breach of contract. Having your own business insurance policies is also positive from an IR35 perspective, as this is a good demonstration of being in business on your own account and suggests you are taking a financial risk. Please see the table below for an initial quote or please call our sales team on #### #### for further details

The contract does not state that at all and I can't help thinking that this review I have been sent is merely a form letter trying to get me to buy more of the reviewer's business.

I replied to the reviewer straight away and whilst I was very quick to receive a contact from their sales team, I haven't heard back on my concerns!!

What say the CUK massive?

[northernladuk]

Too complex to quote but...

The reviewer is correct about the sub clause. Surely you should know this. The clauses you already have talk about existing workers. It makes no provision whatsoever for you to swap and change as you see fit so no substitution whatsoever. Major fail. This is a strong point so not one to be questioned so lightly.

On the insurance I believe insurance is a good pointer to help with IR35 and you should have it anyway.. period.. It is only £140 a year for PI, 220 odd for PI/PL. It is a stupidly low amount of money so you should have it. Problem solved.

I would have though you would have know better being on the forums for so long, particularly about the MOO which we bleat on about constantly.

[JamJarST]

Too complex to quote but...

The reviewer is correct about the sub clause. Surely you should know this. The clauses you already have talk about existing workers. It makes no provision whatsoever for you to swap and change as you see fit so no substitution whatsoever. Major fail. This is a strong point so not one to be questioned so lightly.

On the insurance I believe insurance is a good pointer to help with IR35 and you should have it anyway.. period.. It is only £140 a year for PI, 220 odd for PI/PL. It is a stupidly low amount of money so you should have it. Problem solved.

I would have though you would have know better being on the forums for so long, particularly about the MOO which we bleat on about constantly.

Right I get you on the substitution clause and I asked here cos I wanted a second opinion, although I don't agree that they talk about existing workers, but rather "any" workers.

Whether having insurance is a good idea was not what I asked though was it. The reviewer claimed the contract asked for it and it does not. If they got that wrong, could they have missed something else?

[Greg@CapitalCity]

Well, if the contract is silent on substitution (your contract does not specifically spell this out) then it might be worthwhile taking their advice. I do not however agree that substitution is 'the most important test in terms of IR35'.

And the sales paragraph at the bottom is a bit disappointing considering there is no mention of insurance in your contract.

If these guys are mainstream IR35 specialists, maybe you just got a rookie to do yours.....escalate it, and see what happens.

[JamJarST]

Thanks Greg and Grumpy Pants (sorry NLUK ) I will take back what I said about the substitution and give the reviewesr the benefit of the doubt re the insurance.

[JamJarST]

Not to labour the point too much, the contract defines the workers as follows:

“Workers”
means, adequately skilled, trained and capable individuals provided by the Consulting Company to perform the Services for the Company;

Does this change your advice?

[LisaContractorUmbrella]

If there is no additional schedule that names you as an individual then I may be persuaded that this could be interpreted that you could offer a substitute as long as they were appropriately qualified. However, did you interview personally for the position and was the offer based on your performance in that interview?

[Clare@InTouch]

I believe the substitution clause would need to be more explicit if you wanted to rely on it entirely, not just implied via wording in other clauses.

However, I agree with Greg that this isn't the be all and end all. There are three main factors to consider in IR35, and you only need to succeed on one in order to pass. There have been well known IR35 cases that have been won by the taxpayer even if substitution was missing.

[JamJarST]

If there is no additional schedule that names you as an individual then I may be persuaded that this could be interpreted that you could offer a substitute as long as they were appropriately qualified. However, did you interview personally for the position and was the offer based on your performance in that interview?

I did interview for this and yes it was based upon my knowledge and experience, however as far as I am concerned and more importantly my client, these were business meetings where I successfully promoted the services of my business to my client.

[JamJarST]

I believe the substitution clause would need to be more explicit if you wanted to rely on it entirely, not just implied via wording in other clauses.

However, I agree with Greg that this isn't the be all and end all. There are three main factors to consider in IR35, and you only need to succeed on one in order to pass. There have been well known IR35 cases that have been won by the taxpayer even if substitution was missing.

Well as for MOO and the issue of direction and control I know I am at no risk (IMHO) and neither of these were flagged in the review.

I have gone back to the client re the wording of a substitution clause so this should be sorted very soon. The main advantage with the client is that they used to independent contractors themselves until the y formed this new business, so are very keen to do things correctly for both parties.