Genuine substitution for IT Contractors

If you are a Contract Software Professional such as a Business Analyst, Developer, Tester etc, you'll know that IR35 has always been lurking in the background and in April 2020, deciding if you are outside of IR35 will move to your end client.

If you operate via a Limited company, there are many things that you need to do to stand a chance of winning a tribunal court case against the HMRC. However, based on several cases, there are three points that have a big impact on your chances of winning.

Here’s a very brief summary of each of those three points.

Mutuality of Obligation (MOO)
This means that you have no obligation to accept further work from the client and they have no obligation to offer you any other work. (Helps to prove that you are outside of IR35)

Substitution
You have the right to supply your client with someone other than yourself. This is someone that you have interviewed and determined that they can do the same job as you.  (Helps to prove that you are outside of IR35 and that it is not all about you sitting at a desk at the client's office.)

Control
In an ideal world they would be no client control. But you will need to get it minimised.
For example: The end client may want to enforce coding standards if they need to maintain it.

They may have certain ways that they want documents laid out.

Those two things are probable defendable in tribunal/court.
But you need to avoid bigger things such as “start at 9:00” or being in the client’s office every day.

(The less control a client has indicates that you are more likely to be outside of IR35)

Genuine substitution
This article is about one of the features in our service that connects you directly with end clients who do not mind you supplying a genuine substitute.

Before I begin, you need to be aware that I am not an IR35 adviser and I have no legal capacity. It is essential that you communicate with your accountant and IR35 insurer.

You've probably previously had clauses included in your contracts to specify that you can supply a substitute. But you may have known that substitution would have been quite difficult in practice.

How would the substitute get up to speed with whatever you were doing? How would you handover your work to them?

So, whilst you might have had a substitute clause, it does not reflect reality which the HMRC are far more interested in.

We want to make substitution a reality and something that is done regularly.

We have a service where you have a genuine substitute who is constantly up to speed with what you are doing.

Very simply, there are two end clients. You and your substitute (partner) swap every 4 to 8 weeks, or whatever is convenient to all parties.

We are working with end clients who are happy with this arrangement and will assess you as being outside of IR35, subject to all the other points that they consider to indicate that you are outside.

Every few days you will attend catch-up meetings at the other end client via something like Skype. You will constantly be up to speed regarding the status of the project at the other client.

At swap over time you will have an in-depth handover with your substitute partner.

If you are interested in genuine substitution opportunities, at our website, first register as a Contractor, then tick that you are interested in contracts that offer a genuine substitution opportunity.

You'll see that you can also set a minimum daily rate. This helps us to find two projects with roughly the same rate. For example, one project might be £375 per day, the other might be £410 per day. Swapping regularly ensures that you and your partner get an average over the length of the arrangement.

You will be able to communicate with your potential substitute before agreeing to proceed. You might even arrange to meet them, it's up to you. Basically, you need to ensure that you have equal skills so that substitution is workable in practice.

How it works
You will have a contract with one client, as you always have done. I will refer to that as your main client. (Your partner will have a contract with the other client.)

Whilst you are working at your main client, everything is the same as your previous experience. You submit an invoice and your company gets paid.

Note: You should avoid anything to do with timesheets. Timesheets are too closely related to employment.

When you swap over and your partner is working at your main client, it is still you that sends the invoice to your main client. Except that at the end of the month you will need to pay your partner for the time that they were substituting for you at your main client.

On the other side of the partnership. When you are working at the secondary client, it is your partner who will be paying your company at the end of the month.

That's it, no big changes or anything to worry about.

But it represents genuine substitution that is implemented on a regular basis.

Please note, we are not involved with contract negotiations. That is your responsibility as it is your company that are providing the service. We introduce you to the end clients and then get out of your way.

The Association of Independent Professionals and the Self-Employed (IPSE) has a standard contract template that you can start with. You will need to edit it to suit your individual circumstances. You’ll need to do this with a professional contract writer and your IR35 insurer.

https://www.ipse.co.uk/resource/ipse-template-ltd-contractor-agreement-outside-ir35.html

You will also need to have initial meetings at your main client so that you can demonstrate that your company can provide the required services. Remember, you represent your limited company, you do not do interviews and you do not present a CV.

We are working with many end clients and explaining the importance of genuine substitution. They fully understand that they will need to set up different user accounts for you and your partner.

You might need to start at one client before we find a matching second project and substitute partner. You can increase the chances of finding a secondary client and partner if you set your location preferences as wide as possible. As we educate end clients about the importance of remote working, it will become a lot easier to find second clients and partners.

If you are interested, just register via the link below and complete your profile to let us start finding your first shared project.

https://www.uksoftwarejobs.co.uk/ContractorIntroduction

Unlike Recruitment Agents, we put you in direct contact with the end clients. As a Director of your Limited company, you should not be getting anywhere near the concept of being recruited or anything to do with talent acquisition.

Image by Gerd Altmann from Pixabay

Examples of where having genuine substitution has been a deciding factor in winning an IR35 Tribunal

https://www.pinsentmasons.com/out-law/news/contractor-wins-ir35-ruling

https://www.freelanceuk.com/ir35_ir591/substitution_and_exclusivity.shtml

https://www.yoursmartteam.co.uk/2018/07/11/ir35-another-hmrc-court-thumping

https://www.qdoscontractor.com/ir35/ir35-case-studies/jensal-software-ltd-vs-hmrc

https://www.qaccounting.com/substitution-ir35-golden-bullet/

https://smallbusiness.co.uk/deliveroo-victory-self-employment-case-2541598/