Reply to: Substitution

[WordIsBond]

This is all rather academic though, and is starting to look like a polished turd

You're not wrong.

[Old Greg]

Well spotted!

[northernladuk]

Am I right or am I right?

[missinggreenfields]

Am I right or am I right?

[jamesbrown]

Am I right or am I right?

You're not wrong.

[jamesbrown]

A client accepting this is a strong indicator that they do not see the individual as their employee.

Agreed, there are many indicators of being in business, rather than employed, but not all of them demonstrate a lack of personal service. That's the only point I'm making w/r to substitution; that it's a very clear demonstration of lack of personal service, whereas subcontracting can be less definitive. This is all rather academic though, and is starting to look like a polished turd

[Old Greg]

More than likely they do, but the question is completely unanswerable, as it: 1) depends entirely on the particular circumstances; and 2) to make any informed generalization, would require a sample size that simply isn't available in practice, because almost all cases are won, especially when there is professional representation.

Which is why the pragmatic solution is probably to: get a good contract; structure the business arrangement sensibly around max. no. of days to be called off etc.; get insurance or join IPSE; do your best to act in a B2B manner in completing the contract; understand the risk and put some money aside just in case; don't worry about it too much.

Am I right or am I right?

[Contreras]

OK I understand now and agree 99% with the points well made. Only taking issue with one finer point. (selectivity quoted)

For example, a contractor may undertake a contract in which the supply of some equipment is needed, and this supply might be subcontracted. That arrangement would say nothing about lack of personal service in the day-to-day delivery of the services.

This is different to say where an employee purchases equipment and is re-reimbursed by the company. The employee carries no liability if that equipment turns out not fit for purpose, faulty, unsafe or even causes injury, except in their duties to have done diligence on the supplier, etc. Whereas a contractor doing this is the supplier so long as the client sees it that way and carries the risk both financially and legally.

I think this can say something about lack of personal service in the day-to-day delivery of the services, but it depends upon context obviously. For example adding a markup to cover for overheads is not something an employee would need to, or could, do. A client accepting this is a strong indicator that they do not see the individual as their employee.

If the supply is minor and/or without markup, or the client is simply bypassing their own procurement process, then it is more easily dismissed. Fwiw, this is exactly the situation I find myself in, hence the interest.

[jamesbrown]

Is this true in practice, if a contractor uses an IPSE or equivalent contract template and has IR35 insurance? I would reckon that most contractors in this position who are somewhere on the sham arrangements continuum win out. Any views?

More than likely they do, but the question is completely unanswerable, as it: 1) depends entirely on the particular circumstances; and 2) to make any informed generalization, would require a sample size that simply isn't available in practice, because almost all cases are won, especially when there is professional representation.

[jamesbrown]

Subcontracting and substitution are not the same thing, I get that. What I don't get is, when YourCo remains responsible for delivery then why either would be any more or less relevant to IR35. A permie could sub out work sanctioned by and on behalf of their employer, but in that case (and regardless of the reason for subbing) they would never be contractually liable for the sub's actions.

Either could be made up as a sham. Are you saying that subcontracting is more likely to be a sham than substitution?

No, I'm not saying that. I was making two separate points, one addressed to CP and one addressed to the OP. Subcontracting and substitution are not the same thing w/r to employment status. Indeed, substitution is a particular instance of subcontracting that necessarily demonstrates a lack of personal service, whereas subcontracting generally does, but might not. This is a technical point, nothing more, and it presupposes that either arrangement is made in good faith (i.e. I'm not making a point here about sham arrangements). For example, a contractor may undertake a contract in which the supply of some equipment is needed, and this supply might be subcontracted. That arrangement would say nothing about lack of personal service in the day-to-day delivery of the services. As I said, substitution has little meaning beyond employment status; there's no commercial reason to distinguish between substitution and subcontracting.

The second point was directed to the OP and was about sham arrangements in general. These are cast aside whenever they are identified. A sham arrangement is one in which an impression is created that does not exist in reality. If the impression is correct and exists in reality, it is not a sham, by definition, even if it is not commercial in origin. Let's face it, substitution clauses (unlike subcontracting clauses more generally) are not commercial in origin, but they are powerful w/r to employment status when they reflect reality. I make no judgement on whether the OP has a sham clause in mind, I'm just indicating that, where they are found, they are cast aside as not reflecting reality. An example of a sham (in my non-legal opinion) would be a situation where the contract indicated an unfettered RoS, whereas the OP conspired with their client to allow a substitution as a "one off" simply to tick an IR35 box (i.e. a highly fettered RoS in reality).

[Contreras]

Subcontracting and substitution are not the same thing, either conceptually or for the purposes of IR35. Substitution involves sending someone on behalf of YourCo to perform services that would otherwise have been performed by you personally. Beyond employment case law, it has little practical application. Thus, for example, subcontracting a component of a project that you are personally unable to deliver, because you don't have the skills, would be materially less relevant in establishing employment status than a valid substitution. In short, subcontracting is good, substitution is better.

Subcontracting and substitution are not the same thing, I get that. What I don't get is, when YourCo remains responsible for delivery then why either would be any more or less relevant to IR35. A permie could sub out work sanctioned by and on behalf of their employer, but in that case (and regardless of the reason for subbing) they would never be contractually liable for the sub's actions.

Either could be made up as a sham. Are you saying that subcontracting is more likely to be a sham than substitution?

[Lance]

Yeah, I wasn't suggesting cash only. Sole trader != cash only.

I know you weren't.
Although my experience of sole traders is that they all want cash only (except for stuff they have to claim VAT back).

[Old Greg]

To the OP, you cannot introduce sham arrangements and expect these to hold under investigation. The whole point of IR35 is to look through any contractual arrangements and working practices that are designed to obfuscate and to establish the reality of the relationship between the contractor and the client. At the very least, you'd be on shaky ground (depending on what the client says about the reality of the relationship under investigation).

Is this true in practice, if a contractor uses an IPSE or equivalent contract template and has IR35 insurance? I would reckon that most contractors in this position who are somewhere on the sham arrangements continuum win out. Any views?

[WordIsBond]

Yeah, I wasn't suggesting cash only. Sole trader != cash only.

[Lance]

Another completely outside the box approach. I'm assuming this is direct (no agent involved). Given the dividend tax, the tax distinction between self-employed and limited company is a lot less than it used to be. You might consider just doing this contract as......

cash only ?

IANAL but I don't condone this approach.