An IR35 expert answers our questions on the ‘Right of Substitution’ – considered to be the most important test in determining employment status. It is also a topic which generates more questions from contractors than almost any other.
Thanks to Seb Maley from IR35 protection specialists, Qdos, for answering these questions.
Why do I need the right to provide a substitute?
It is your company taking on the contract, not you as a person (your name is not on the contract, your company is – or should be), so you, yourself are not bound to fulfil the contract, your company is.
Your company should therefore be able to provide a different person (with the relevant skill, experience and qualification) to undertake the work it has been contracted to complete.
Note that your company should still maintain the contract and be responsible for the substitute, including their payment.
Many contractors have a habit of thinking of themselves and their company as a single entity because generally they very much are, but it is time to think differently.
Do I need to use a substitute in order to get proof that I have the right?
Although it is considered the golden ticket to proving yourself as being ‘outside IR35’, it is not necessary to make a substitution if you do not need to. Many contractors are specialist in their fields and as such, may not know another contractor that can complete the same services. Likewise, and more commonly, most contractors never need to use a substitute or it would only be for a day, for example, which is often logistically unworthy of actually substituting.
This is an arguable point with which would be put to the inspector in the event of an IR35 investigation.
How do I prove I have the right to substitute without actually substituting?
Unfortunately, there is no definite way of proving your right to substitute without actually using it. You can argue that in the hypothetical situation that you did require to send a substitute and had a suitable candidate, your end user would not refuse them (unless on reasonable grounds such as skill, qualification and experience) and your company would still be responsible the paying such substitute and any work they carry out.
Proving that hypothetical situation however, is a little trickier. Obviously your contract is your first port of call and should have a clause stating the right to substitute in your contract. More importantly, is your true right. The hypothetical situation above must be a true one and more importantly, your client must agree.
Often the management or HR team don’t entirely understand the world of contracting or the contracts that have been agreed to, especially if they are not used to dealing with this type of worker, and it is them who HMRC will speak to in the event of an investigation.
It is important, therefore, to establish that those at your client’s site are in agreement on your right to substitute.
A confirmation of arrangements form is a good way of doing this. It is a form which is completed by someone at your client’s site (usually someone with some sort of management role that you deal with regularly) and confirms your working practices including your right to send a substitute.
Although the form is not legally binding, you may come across some hesitation and it is important not to lose rapport with your clients by pushing them to sign it if they do not want to.
At the very least, try and obtain some verbal confirmation so you can have some peace of mind that they will answer HMRC favourably in the event of investigation.