Sub-contracting vs substitution

[speling bee]

OK, so we think that successfully exercising RoS is nearly a magci bullet to demonstrate that a contract is outside IR35. Substitution is a form of sub-contracting. So what about other forms?

What if I contract with another supplier for them to build an MS Project schedule, for genuine business reasons, not just to prove myself outside IR35. I might not even tell my client. It feels to me that this is not something an employee would do (and if they did it would be most un-employee like), and it does feel like something a 'proper business' would do. I did £200-odd worth of work for a consultancy a few weeks ago and they certainly didn't tell their client. How do we think this would play to demonstrate that a contract is outside of IR35?

[Notascooby]

Considering the evidence: ineffective or sham substitution clauses

[speling bee]

Considering the evidence: ineffective or sham substitution clauses

But I'm not talking about a substitution clause that is ineffective or sham. I'm talking about subbing out work.

[Notascooby]

But I'm not talking about a substitution clause that is ineffective or sham. I'm talking about subbing out work.

See second link (added after no doubt)

[malvolio]

Sub-contracting is not substitution (or did we already say that?).

There's nothing to stop you sub-contracting part (or even all) of your work. It won't make any difference to an IR35 case though since employees can do the same: after all, your line manager does it all the time...

[speling bee]

See second link (added after no doubt)

Thanks. Interesting. I wonder how much this is HMRC's view and how it would stand up in court - i.e. that the client must know about the subbie for it to be a true substitute.

I am however thinking that there may be a middle ground. My client may not be happy to accept that I am sending someone in to replace me for four weeks. But if I advised them that I am paying a 3rd party to do a piece of work, I doubt they would bat an eyelid. Does that put the contract outside IR35?

[northernladuk]

See second link (added after no doubt)

I have to say that second article doesn't sit right with me, particulart this paragraph.

This distinction is critical, because if a subcontractor is genuinely substituting, delivering an element of what the contractor has been contracted to deliver, then that demonstrates in the clearest possible way that the contract is not one of personal service: “Without personal service, the hypothetical contract imposed by IR35 cannot be one of service - which means IR35 does not apply.”

I don't agree with the first line that a subcontractor is substitution. It seems to me that they are different things so to prove on is the other doesn't work. You either substitute yourself to the client, with their agreement as is normally written in the contract, or you get someone else to do the work and you present the solution to the client on behalf of the company.

If that is the case the we are all ok, we pay each other £200 to do a project plan or other minor piece of work and we are all IR35 free. That's got to be bollocks surely.

The article also doesn't cover what happens if the subcontractor is brought in to do something extra. Surely if that was the case you would be providing a solution from multiple sources so are no longer a PSC and instead delivering a solution. According to that article they both amount to the same but again that can't be the case surely?

[northernladuk]

Sub-contracting is not substitution (or did we already say that?).

There's nothing to stop you sub-contracting part (or even all) of your work. It won't make any difference to an IR35 case though since employees can do the same: after all, your line manager does it all the time...

We did but that article seems to say the opposite.

I totally agree with the comment Mal says if you are sub-contracting your own work out but there is, as I mentioned, the option of subcontracting a piece of work you can't do and delivering it as a solution. Say I did database backend stuff and I subcontract a front end web interface and give them that as a packaged solution. I believe this would no longer make you a PSC and the contract would be one of a supplier not single person solution so IR35 wouldn't be a problem. Depends on what your subcontracting and why I guess.

I can't for the life of me see how Mr Sinclairs argument can stand up as the contract says accept subbie with clients consent. If you get someone else to do your work without telling the client you haven't delivered a substitute as per the contract so worthless for IR35 surely.

[speling bee]

Sub-contracting is not substitution (or did we already say that?).

There's nothing to stop you sub-contracting part (or even all) of your work. It won't make any difference to an IR35 case though since employees can do the same: after all, your line manager does it all the time...

Some sub-contracting is substitution and some isn't.

I don't think the line management is a correct comparison. The line manager does not pay you out of his own pocket to do his work. He has an employment duty to ensure that the work is done within the management structure. This highlights the differences, not the similarities. However, whether this is a pointer to IR35 is a different question. Has it been tested at law?

[andrewb]

I am however thinking that there may be a middle ground. My client may not be happy to accept that I am sending someone in to replace me for four weeks. But if I advised them that I am paying a 3rd party to do a piece of work, I doubt they would bat an eyelid. Does that put the contract outside IR35?

Do you (or YourCo) have an NDA with the Client? Does it let you (or YourCo) pass enough information to the 3rd party to do the piece of work? That might get the Client's attention (but it's entirely fixable, if the Client wants to play).