Right of substitution - IR35 status

[tim123]

Believe that the PCG are supporting an appeal of this decision, it will be an interesting one as it seems to be inconsistent with previous rulings.

http://www.shout99.com/contractors/s...le.pl?id=48586

Commissioners

# Dragonfly Consulting Ltd

I don't agree (that it is inconsistant).

The judge made a finding of fact that the substitution clause was very weak. As a finding of fact he doesn't have to follow any precidence at all here.

And then he made a ruling of (I think) mixed fact and law that the combination of:

1) a very weak subs clause,
2) very very little work for other clients (one day in 4 years IIRC),
3) a very small amount spent on a training course (a few hundred pounds),
4) a very large amount of Direction and Control from the client (including large chunks of MOO).

pointed to employment.

Where's the inconsistancy?

What's inconsistant IMHO, is the quantity of each of (1) - (4) in the press release, compared to that which is in the actual case. You can talk up your non-IR35 pointers as much as you like, but if they aren't really significant amounts, the judge IS going to ignore them.

tim

[MARTYN]

Believe that the PCG are supporting an appeal of this decision, it will be an interesting one as it seems to be inconsistent with previous rulings.

http://www.shout99.com/contractors/s...le.pl?id=48586

Commissioners

# Dragonfly Consulting Ltd

Jon Bessell was the director of, and owner of 50 per cent of the shares of Dragonfly Consulting Ltd. Operating through an agency, he provided his services from April 2000 to January 2003 to the AA as an IT system tester.

He provided his own training, provided some of this own equipment, including his own chair to assist with back problems, had another smaller client, did not receive sick pay from his client and had a different entry pass to employees.

Employees of AA gave evidence as to the nature of the working arrangements. Though substitutes had been used in the past (by others) and there was a letter to Mr Bessell saying that the Appellant (Mr Bessell"will vet and supply a suitable substitute for the assigned consultant. [The Appellant] will manage the selection process with input from the assigned consultant. Any training costs … would be … at [the Appellant's] expense.", other members of staff confirmed that AA would wish to vet a substitute and would be 'unhappy' if a substitute turned up unannounced and unforeshadowed.

The Commissioner agreed that the 'very limited right of substitution is not inconsistent with employment and does not point strongly away from it'.

Special Commissioner, Charles Hellier concluded:"Overall I find nothing which points strongly to the conclusion that Mr Bessell would have been in business on his own account; by contrast when I stand back and look at the overall picture I see someone who worked fairly regular hours during each engagement, who worked on parts of a project which were allocated to him as part of the AA's teams, who was integrated into the AA's business, and who had a role similar to that of a professional employee. Mr Bessell did not get paid for, or go to work to provide, a specific product; instead he provided his services to the AA to be used by them in testing the parts of a project which from time to time were allocated to him. He was engaged in relation to the work to be done on a specific project but not to deliver anything other than his services in providing testing in relation to that project. In my opinion he would have been an employee had he been directly engaged by the AA."

The outstanding PAYE and NI amounted to £99,000.

[tim123]

Is there no way the agency will agree to change the clause? You'd just need to remove 'and this is approved in writing by the Client', which isn't a huge amendment. The rest of the clause is absolutely fine.
.

It would surprise me greatly if the client were prepared to accept such a change.

[Qdos Contractor]

What about adding "Such approval shall not be reasonably withheld" instead of removing it?

That's also fine, although the 'qualifications, skills and experience' criteria should be enough really.

[TheFaQQer]

Is there no way the agency will agree to change the clause? You'd just need to remove 'and this is approved in writing by the Client', which isn't a huge amendment. The rest of the clause is absolutely fine.

Don't call the Revenue.

What about adding "Such approval shall not be reasonably withheld" instead of removing it?

[Qdos Contractor]

Is there no way the agency will agree to change the clause? You'd just need to remove 'and this is approved in writing by the Client', which isn't a huge amendment. The rest of the clause is absolutely fine.

Don't call the Revenue.

[fridge]

I am thinking to call HMRC see what they think. Is that a good idea?

It's a very bad idea. Get the contract professionaly reviewed instead.

B&C

[Hex]

I am thinking to call HMRC see what they think. Is that a good idea?

It's a very bad idea. Get the contract professionaly reviewed instead.

[dmitri_k]

Looking at what I’ve researched so far and what people are saying over here, it looks like I am falling inside IR35 on this one.

But as ASB pointed out, that it makes it more likely to be inside, but does not make it inside and all the points will be considered, i.e. that I am running an online business as well as being a contractor and use profits from one side of the business to invest in another.

I am thinking to call HMRC see what they think. Is that a good idea?

[ASB]

My accountant advised me that due to the fact that it says "approved in writing" will definitely make the contract inside IR35.

I hope you are misquoting your accountant. The fact that the right of substitution is fettered may make it more likely that it is caught. It does not make it caught. It all depends on the rest of the contract and the actual working arrangements.

If it is only 6 weeks the short duration *tends* to make it less likely to be viewed as course (it was once stated in the house that < 1 month was not caught but I can't be bothered to find the reference in hansard).

[Ruprect]

For a one and a half month contract it is not going to make a lot of difference unless you are on stupid money.

Unfortunately, you have sought advice and that advice is that the contract is inside IR35, so if you ignore that advice and don't pay up all the inside IR35 taxes then it could be treated as deliberate tax evasion which is a whole extra load of tulip that you don't want.

Just my opinion, I am no expert.

I think this advice is misguided and scaremongering.

[Fishface]

this text should clearly put you outside -

"The work undertaken is NOT made of hire"

means you are not controlled - thus independant.

[Denny]

Basically, a fettered right of substitution is very often just a way of saying 'no' without saying it directly.

The best way of thinking about it is to imagine you are signing up with a firm of accountants: say Mr Williams of Nixon Williams, for example. Now he will simply allocate a member of his accountancy team to carry out the work as your account manager (assuming that is how they work). Does he need your permission in writing to do this? No. This isn't simply because they have their own premises either.

The other thing about a fettered RoS written like it is in your contract is that it strongly implies that you have to work on site as well. Otherwise, why would you need permission if you have your own premises or can shove some work to someone else who works from their office or home? The client wouldn't even know about it if you were the principal point of contact. So D&C is implicit in your fettered RoS as well, if a client needs to sign it off. This implies the responsibility for the sub is passed to the client, not you, and it strongly implies you are in a job, not doing expert services to sell back to the client. All of these were primary considerations in the latest Dragonfly case.

If the contract said that you, the named contractor, would initially perform the task, but may substitute during times of pressure or to carry out other work, but must undertake to ensure that your sub is suitability qualified and that you take all responsibility for their work, and would do or arrange any substandard work to be brought up to standard free of charge in your own time without cost to the client, this would still be 'fettered' but does not pass responsibility back to the client. So it would still be outside ir35.

Yours is not written that way though.

[Gonzo]

Get some perspective

Hello,

Got my 1st contract, which lasts for 1.5 months. One of the points in the contract says:
================================================== ========
3.2 The Contractor warrants that the Services shall be initially performed by such Personnel named in the Assignment Schedule. The Contractor may propose a replacement to perform the Services in substitution for the named Personnel, but any such proposed substitute shall only be accepted if the proposed replacement has the necessary qualifications, skills and experience and this is approved in writing by the Client.
================================================== ======

My accountant advised me that due to the fact that it says "approved in writing" will definitely make the contract inside IR35. That was the only point in the whole contract.

I also have my own online business apart from being a contractor, would that count as well if I am being investigated?

I had to go with the contract as it is as was difficult to change that clause. Now I have a choice to pay myself as outside of IR35 or as normal PAYE with high tax.

I had a read on a number of websites and think that I am safe. What do you think?

Cheers

D

For a one and a half month contract it is not going to make a lot of difference unless you are on stupid money.

Unfortunately, you have sought advice and that advice is that the contract is inside IR35, so if you ignore that advice and don't pay up all the inside IR35 taxes then it could be treated as deliberate tax evasion which is a whole extra load of tulip that you don't want.

Just my opinion, I am no expert.

[dmitri_k]

Hello,

Got my 1st contract, which lasts for 1.5 months. One of the points in the contract says:
================================================== ========
3.2 The Contractor warrants that the Services shall be initially performed by such Personnel named in the Assignment Schedule. The Contractor may propose a replacement to perform the Services in substitution for the named Personnel, but any such proposed substitute shall only be accepted if the proposed replacement has the necessary qualifications, skills and experience and this is approved in writing by the Client.
================================================== ======

My accountant advised me that due to the fact that it says "approved in writing" will definitely make the contract inside IR35. That was the only point in the whole contract.

I also have my own online business apart from being a contractor, would that count as well if I am being investigated?

I had to go with the contract as it is as was difficult to change that clause. Now I have a choice to pay myself as outside of IR35 or as normal PAYE with high tax.

I had a read on a number of websites and think that I am safe. What do you think?

Cheers

D