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DKB
21st March 2017, 20:10
A friend of mine is working for a Government body who decided that they would use the Employment Status Checker tool provider by HMRC to determine each ltd contractors status.

They've changed tact slightly and have now emailed all contractors and asked (well, copied and pasted from the tool itself) if they substituted, who would pay the substitute?

They have made a rule that if the contractor says they will pay the substitute then they can remain outside IR35, but if they answer that the client pays the substitute then the contactor will be deemed inside IR35.

The issue with this of course is that you can answer the questions on the tool by saying the client won't allow substitution or that it is allowed but the client pays them and you can still be outside IR35 if you're not managed and choose how, when and where you do your work from etc etc.

I can see how this is a nightmare for PS organisations, but can they just make up their own rules to determine your employment status? To make a blanket statement is one thing but to make up your own criteria of what's 'In' seems pretty iffy to me!!

Thanks

SueEllen
21st March 2017, 20:14
He who pays the piper calls the tune...

MrMarkyMark
21st March 2017, 20:33
A friend of mine is working for a Government body who decided that they would use the Employment Status Checker tool provider by HMRC to determine each ltd contractors status.

They've changed tact slightly and have now emailed all contractors and asked (well, copied and pasted from the tool itself) if they substituted, who would pay the substitute?

They have made a rule that if the contractor says they will pay the substitute then they can remain outside IR35, but if they answer that the client pays the substitute then the contactor will be deemed inside IR35.

The issue with this of course is that you can answer the questions on the tool by saying the client won't allow substitution or that it is allowed but the client pays them and you can still be outside IR35 if you're not managed and choose how, when and where you do your work from etc etc.

I can see how this is a nightmare for PS organisations, but can they just make up their own rules to determine your employment status? To make a blanket statement is one thing but to make up your own criteria of what's 'In' seems pretty iffy to me!!

Thanks

I thought that was the true definition of a proper sub anyway.

Your Co gets paid by the client, YourCo then pays the sub.

DKB
21st March 2017, 20:37
That was kind of my view, they can do what they like.

He's ok as he can substitute and happy to put any sub through his company so deemed outside still. We both agreed it seemed a bit underhand For the uninformed to pick and choose what what aggregation of results deem somebody in or out rather than just let the tool do the work. Jeez!

MrMarkyMark
21st March 2017, 20:41
That was kind of my view, they can do what they like.

He's ok as he can substitute and happy to put any sub through his company so deemed outside still. We both agreed it seemed a bit underhand For the uninformed to pick and choose what what aggregation of results deem somebody in or out rather than just let the tool do the work. Jeez!

PS though, right :confused:

DKB
21st March 2017, 20:47
I thought that was the true definition of a proper sub anyway.

Your Co gets paid by the client, YourCo then pays the sub.

That's my definition of it too, you're not subbing if you're not paying the sub.

The issue is....and it's appreciated that the tool is a guide and not an official review....but you can say the client pays the sub or that it's never happened the tool still shows you as being out. I personally don't necessarily think that's wrong, it's just that the end client on this occasion has used the tool to assess contractors and has made their own criteria to put people inside

DKB
21st March 2017, 20:48
PS though, right :confused:

And therein lies the problem :)

northernladuk
21st March 2017, 21:19
A friend of mine is working for a Government body who decided that they would use the Employment Status Checker tool provider by HMRC to determine each ltd contractors status.

They've changed tact slightly and have now emailed all contractors and asked (well, copied and pasted from the tool itself) if they substituted, who would pay the substitute?

They have made a rule that if the contractor says they will pay the substitute then they can remain outside IR35, but if they answer that the client pays the substitute then the contactor will be deemed inside IR35.

Not seeing what the problem is here. So many contractors don't have a clue what subbing is so to reduce the risk of a contractor crying foul and putting the client in a position they have made it clear.


The issue with this of course is that you can answer the questions on the tool by saying the client won't allow substitution or that it is allowed but the client pays them and you can still be outside IR35 if you're not managed and choose how, when and where you do your work from etc etc.

But you don't use the tool so why is that is this an issue?


I can see how this is a nightmare for PS organisations, but can they just make up their own rules to determine your employment status? To make a blanket statement is one thing but to make up your own criteria of what's 'In' seems pretty iffy to me!!

Thanks

Can't see how they are making up the rules. They are clarifying the substitution process to make reduce their risk. In fact it's great surely. They are are showing they are more than happy to accept a sub. No worries of it being a sham even if it's not your risk anymore.

It's a shame they didn't go one step further and point out they expect the contractor to bring the sub up to speed at their own cost and time. Leaving Friday and another body turning up Monday isn't subbing. If not that some will think the other person turns up and they work together with the client paying both of them.

I don't see a problem here at all. What am I missing?

DKB
22nd March 2017, 10:50
Can't see how they are making up the rules. They are clarifying the substitution process to make reduce their risk. In fact it's great surely. They are are showing they are more than happy to accept a sub. No worries of it being a sham even if it's not your risk anymore.

I don't see a problem here at all. What am I missing?

There is of course absolutely nothing wrong with clarifying the rules and safeguarding themselves. The issue is that hiring managers don't know anything about IR35 so have taken proactive steps to determine contractors employment statuses by using HMRC's tool to assess each person.

They have found that when they answer questions on the substitution clause, selecting 'it's never happened' or 'the end client pays', makes no difference to the end result, each one is found outside of IR35 as they aren't managed, choose how they want to do the work and where from etc. I'm no expert on IR35, but if the tool deems these people to be out of IR35, then I'd assume that this could be fairly accurate, it's HMRC's tool based on logic they have provided around the legislation.

So despite people being deemed outside by the very tool created by HMRC to guide people through, that organization is now saying that IR35 is only determined by who pays a sub if one is provided.

Those contractors who can/will pay a sub will fall outside, those that say no will fall inside, simple. However, this isn't the issue, it's not to do with people being found inside or out it's to do with changing goalposts. If HMRC don't necessarily put people inside based on this (as proved by the tool they provide), then how can it be ok for an organisation to make up their own view of what constitutes being inside or out because they didn't like the original outcome.

northernladuk
22nd March 2017, 11:08
They have found that when they answer questions on the substitution clause, selecting 'it's never happened' or 'the end client pays', makes no difference to the end result, each one is found outside of IR35 as they aren't managed, choose how they want to do the work and where from etc. I'm no expert on IR35, but if the tool deems these people to be out of IR35, then I'd assume that this could be fairly accurate, it's HMRC's tool based on logic they have provided around the legislation.

And there is the bit you aren't getting. The clients aren't fully versed on IR35, that's to be expected but the tool is just a guide. It's never meant to be definitive. If you are 'assuming' something is 'fairly accurate' would you put yourself at risk by taking it as a given? I certainly wouldn't, hence the client further steps. Sometimes those steps are rubbish, sometimes they aren't. That's not really our call.

The comment 'HMRC's tool based on logic' should strike fear in to anyone that is even remotely touched by all this.

malvolio
22nd March 2017, 11:27
now saying that IR35 is only determined by who pays a sub if one is provided.

...which is entirely correct. A substitute is only a substitute if they are working as you under your contract and being paid by you. Anything else is either a replacement or a sub-contractor.

It's a subtle difference but a very important one. You can replace an employee very easily, and you can offset some of their work to another worker equally easily. Neither is a substitution in employment law, which says, put simply, the substitute is a one-for-one replacement for the engaged worker under the same contract and Ts&Cs as the original worker and paid out of the original worker's income.

LondonManc
22nd March 2017, 11:29
I thought that was the true definition of a proper sub anyway.

Your Co gets paid by the client, YourCo then pays the sub.

+1 for this.

If your paying a builder and he chooses to sub in a plumber because his usual one is not available, would you expect to pay for the substitute? (If you're answering anything other than no, please can I quote for your next piece of building work)

northernladuk
22nd March 2017, 12:30
+1 and not wanting to be a broken record you'd expect the replacement builder to turn up aware of the job and be able to just pick the tools up and get on with it. Not turn up and spend hours learning what needs to be done.

DKB
22nd March 2017, 13:08
Thanks for the responses, but my question wasn't what constitutes substitution.

Individual assessments were performed on each contractor, some fell inside, some out. Some of the responses given regarding substitution were 'It's never happened' and 'Can sub but the client pays the person'. This result still put these people outside IR35 according to the tool due to the weightings of the other responses given, ultimately the fact that they are unmanaged, don't work on site etc.

I also understand that the tool doesn't necessarily give a definitive answer.

The frustration experienced is that the goalposts keep changing. The tool has been used as they know nothing about IR35, fine. Now they have a whole load of contractors deemed outside of IR35 using the tool, they have sent an email (an exact copy and paste from the tool) to contractors to answer.

If you answer 'never happened' or 'client pays' within the tool, you're outside of IR35 (according to the tool and depending on what other answers you've given). If you respond this way via email to the question asked, the tool results are forgotten about and only this single question asked by email is taken in to consideration.

For an organisation that has relied on the tool as they know nothing about IR35, it seems a bit odd that they would now take matters in to their own hands and hang everything off of one question. IR35 isn't just about substitution

DKB
22nd March 2017, 13:19
And there is the bit you aren't getting. The clients aren't fully versed on IR35.


The issue is that hiring managers don't know anything about IR35 so have taken proactive steps to determine contractors employment statuses by using HMRC's tool to assess each person

Well I thought I was pretty clear on that one. The whole point of this thread is that organisations use the tool, don't like the result, make their own decision of what puts somebody in or out and then completely disregard the results from the tool.

I know nothing about Building Regs but wouldn't say the fact a ceiling is made from asbestos is ok just because I'm happy that all the power sockets are the right height off the ground as that's the important bit for me.

I guess they're within their rights to do whatever they want

malvolio
22nd March 2017, 13:24
Thanks for the responses, but my question wasn't what constitutes substitution.

Individual assessments were performed on each contractor, some fell inside, some out. Some of the responses given regarding substitution were 'It's never happened' and 'Can sub but the client pays the person'. This result still put these people outside IR35 according to the tool due to the weightings of the other responses given, ultimately the fact that they are unmanaged, don't work on site etc.

I also understand that the tool doesn't necessarily give a definitive answer.

The frustration experienced is that the goalposts keep changing. The tool has been used as they know nothing about IR35, fine. Now they have a whole load of contractors deemed outside of IR35 using the tool, they have sent an email (an exact copy and paste from the tool) to contractors to answer.

If you answer 'never happened' or 'client pays' within the tool, you're outside of IR35 (according to the tool and depending on what other answers you've given). If you respond this way via email to the question asked, the tool results are forgotten about and only this single question asked by email is taken in to consideration.

For an organisation that has relied on the tool as they know nothing about IR35, it seems a bit odd that they would now take matters in to their own hands and hang everything off of one question. IR35 isn't just about substitution
No but it's a pretty conclusive indicator (in HMRC's eyes at least) since an employee cannot have this option.

Anyway I read your question as being challenging their definition of substitution, which they have got right. The point of the tool is that you don't know about IR35 and so need guidance to help you make the decision. The bolded bit is wrong - someone has got that backwards.

LondonManc
22nd March 2017, 13:25
Thanks for the responses, but my question wasn't what constitutes substitution.

Individual assessments were performed on each contractor, some fell inside, some out. Some of the responses given regarding substitution were 'It's never happened' and 'Can sub but the client pays the person'. This result still put these people outside IR35 according to the tool due to the weightings of the other responses given, ultimately the fact that they are unmanaged, don't work on site etc.

I also understand that the tool doesn't necessarily give a definitive answer.

The frustration experienced is that the goalposts keep changing. The tool has been used as they know nothing about IR35, fine. Now they have a whole load of contractors deemed outside of IR35 using the tool, they have sent an email (an exact copy and paste from the tool) to contractors to answer.

If you answer 'never happened' or 'client pays' within the tool, you're outside of IR35 (according to the tool and depending on what other answers you've given). If you respond this way via email to the question asked, the tool results are forgotten about and only this single question asked by email is taken in to consideration.

For an organisation that has relied on the tool as they know nothing about IR35, it seems a bit odd that they would now take matters in to their own hands and hang everything off of one question. IR35 isn't just about substitution

That contradicts what you put earlier, doesn't it?

DKB
22nd March 2017, 13:38
No but it's a pretty conclusive indicator (in HMRC's eyes at least) since an employee cannot have this option.

Anyway I read your question as being challenging their definition of substitution, which they have got right. The point of the tool is that you don't know about IR35 and so need guidance to help you make the decision. The bolded bit is wrong - someone has got that backwards.

I'd agree with that, it certainly shows a clear separation between contract and employee.

When you answer the questions, you can say you're the worker, limited company, not an office holder, you've never used a sub, the client would accept a sub, the client pays the sub, the person works how they want and from where etc etc etc and it still puts you outside IR35 and to be treated as self-employed.

WordIsBond
22nd March 2017, 13:47
For an organisation that has relied on the tool as they know nothing about IR35, it seems a bit odd that they would now take matters in to their own hands and hang everything off of one question. IR35 isn't just about substitution
I honestly don't get what your problem is here.

This client is willing to give you an outside determination if you say that you would pay a sub if you brought one in. They'd pay you, you'd pay the sub. Why would you not just jump at that, get your outside determination, and move forward?

Were you planning on bringing in a sub and asking them to pay him? If so, why? If not, then who cares if they are covering their backsides in this way?

I don't get it. We're seeing people where the client has declared everyone inside, where the client is clueless, where the client still doesn't know what they are doing. You have this nice client who is asking you to sign a probably pointless statement and they'll declare you outside. Just do it.

northernladuk
22nd March 2017, 13:48
Haters gonna hate.

LondonManc
22nd March 2017, 14:37
I honestly don't get what your problem is here.

This client is willing to give you an outside determination if you say that you would pay a sub if you brought one in. They'd pay you, you'd pay the sub. Why would you not just jump at that, get your outside determination, and move forward?

Were you planning on bringing in a sub and asking them to pay him? If so, why? If not, then who cares if they are covering their backsides in this way?

I don't get it. We're seeing people where the client has declared everyone inside, where the client is clueless, where the client still doesn't know what they are doing. You have this nice client who is asking you to sign a probably pointless statement and they'll declare you outside. Just do it.

Paying a sub one day @£500 versus paying inside IR35 tax rates and losing all your expense allowances. Hmmm. Can I phone a friend? :suicide:

Whorty
23rd March 2017, 12:23
Could be being dumb here, and I'm sure someone will call me out, but I do have a question on subs in practice if you came through an agency ....

Let's say I get a PS gig at £500 pd through an agent. Agent gets 15% so £75 per day. Client therefore pays £575 to agent, agent pays MyCo £500. All nice and simple.

Now let's say I know someone keen to go contracting and he/she has same skill set as me. But, as they are new to contracting they're happy to take £450 pd.

I think, wey hey, i'll sub them in, pay them £450, cream £50 each day for doing naff all, and go and get myself a sun tan (or new contract ... whatever suits).

Now clearly there are risks to this .. new guy/gal is rubbish and I get called back in but now I have a new contract/haven't finished my book yet whilst sitting on the beach. but how would agencies feel about this? Would their contract with MyCo even allow this scenario to happen, even if the client agrees?

Obviously if you're direct, then less of an issue, but via an agent?

northernladuk
23rd March 2017, 12:29
I think, wey hey, i'll sub them in, pay them £450, cream £50 each day for doing naff all, and go and get myself a sun tan (or new contract ... whatever suits).

But you aren't doing naff all really. You have to organise payments in and then out to the sub but no, you aren't doing the work. I'd expect if you do it properly you should be keeping in touch with the client and the sub. You are still ultimately responsible.

I theory you should also be spending time with your sub to get them up to speed. The Sub will expect paying for this so it's coming out of your pocket. Putting a sub in purely to get £50 a day isn't really going to work. It might as they might accept the bod but it shouldn't. Depends on the situation and length of sub.


Now clearly there are risks to this .. new guy/gal is rubbish and I get called back in but now I have a new contract/haven't finished my book yet whilst sitting on the beach. but how would agencies feel about this? Would their contract with MyCo even allow this scenario to happen, even if the client agrees?

Eh?? It's written in to your contract that you can sub. It's part of the ESS tool you can sub that the client signed up to. It's all there in writing and is a pretty fundamental part of keep ourselves outside of IR35. Agent doesn't care. They do naff all for their money like you say you are going to. As long as they keep getting their money they shouldn't care.

EDIT : Actually that said, if you are putting in another bod just to cream some money off that could look more like you resourcing a gig than subbing it at which point the agent might start getting twitchy. It would depend on the situation, length of gig etc but am just guessing here.

SueEllen
23rd March 2017, 12:32
If you are in a public sector gig the agency has to tell the client the amount they are paying you so they can publish the anonymous data either on their website or if someone makes an FOI request.

The only time agency percentages are virtually transparent is in the PS.

LondonManc
23rd March 2017, 13:20
Could be being dumb here, and I'm sure someone will call me out, but I do have a question on subs in practice if you came through an agency ....

Let's say I get a PS gig at £500 pd through an agent. Agent gets 15% so £75 per day. Client therefore pays £575 to agent, agent pays MyCo £500. All nice and simple.

Now let's say I know someone keen to go contracting and he/she has same skill set as me. But, as they are new to contracting they're happy to take £450 pd.

I think, wey hey, i'll sub them in, pay them £450, cream £50 each day for doing naff all, and go and get myself a sun tan (or new contract ... whatever suits).

Now clearly there are risks to this .. new guy/gal is rubbish and I get called back in but now I have a new contract/haven't finished my book yet whilst sitting on the beach. but how would agencies feel about this? Would their contract with MyCo even allow this scenario to happen, even if the client agrees?

Obviously if you're direct, then less of an issue, but via an agent?

I'd suggest that as long as the agent keeps getting his £75 a day he won't care. If that's not the case, he shouldn't consider himself an agent.

If there is an issue, you have to get back on site and suck it up or you lose the £50 you're making plus anything you'd make from taking the contract back off your sub.

malvolio
23rd March 2017, 13:20
Just to be pedantic, your £500 a day sums are wrong. If the agency is on 15% he will charge the client £588 and a bit, probably rounded up to £600. You get some of his money, not the other way round.

Whorty
23rd March 2017, 13:26
But you aren't doing naff all really. You have to organise payments in and then out to the sub but no, you aren't doing the work. I'd expect if you do it properly you should be keeping in touch with the client and the sub. You are still ultimately responsible.

I theory you should also be spending time with your sub to get them up to speed. The Sub will expect paying for this so it's coming out of your pocket. Putting a sub in purely to get £50 a day isn't really going to work. It might as they might accept the bod but it shouldn't. Depends on the situation and length of sub.


Eh?? It's written in to your contract that you can sub. It's part of the ESS tool you can sub that the client signed up to. It's all there in writing and is a pretty fundamental part of keep ourselves outside of IR35. Agent doesn't care. They do naff all for their money like you say you are going to. As long as they keep getting their money they shouldn't care.

EDIT : Actually that said, if you are putting in another bod just to cream some money off that could look more like you resourcing a gig than subbing it at which point the agent might start getting twitchy. It would depend on the situation, length of gig etc but am just guessing here.

That's exactly my point, won't the agency get twitchy that they are finding the work, but you are creaming off the top? I know that you're really not (or at least shouldn't be) doing naff all, but I was painting the extreme picture. Just pointing out/asking if there would be an alignment between what the tool/PS might agree to, to get you outside, but in reality what the agency would actually agree to as your contract is with them, and not the PS.

Using the builder analogy doesn't work for many of us as builders find their own gigs, and hence there is no intermediary to get in the way.

But to contradict you, or at least put it out there for an agency to respond to, they will care as they are doing all the hard work to win the clients, get on the client PSLs etc. As much as many on here see agents as pimps, or worse, they do a very valuable and difficult job (if you don't think so, try a day or 2 of cold calling and see how you feel at the end of it). Or better still, stop using agents and cold call all those potential clients yourselves to win the work and see how far you get, so yes, I think many agents may feel short changed if we skimmed off the top.

WordIsBond
23rd March 2017, 14:06
I think many agents may feel short changed if we skimmed off the top.
I don't see it. They charge the client £588, pay you £500. How you satisfy the client and how you spend that money is your business, not theirs, they are getting their cut.

At renewal time, they might not be open to proposals to cut their percentage from 15% to 12%, though. They might laugh in your face. But they aren't likely to care through the course of the contract.

Also at renewal time, they may talk to your sub and say, "Hey, we'll give you £475 instead of £450 if you go direct with us. Let's cut out the middle man and split the difference." But until then, who cares?

Whorty
23rd March 2017, 15:55
I don't see it. They charge the client £588, pay you £500. How you satisfy the client and how you spend that money is your business, not theirs, they are getting their cut.

At renewal time, they might not be open to proposals to cut their percentage from 15% to 12%, though. They might laugh in your face. But they aren't likely to care through the course of the contract.

Also at renewal time, they may talk to your sub and say, "Hey, we'll give you £475 instead of £450 if you go direct with us. Let's cut out the middle man and split the difference." But until then, who cares?

Fair enough, it was just a thought as these conversations are progressing. Be interesting to know if anyone has ever sub'd someone in, and they themselves came through an agency, and how all this panned out in reality rather than our assumed reality.

DKB
24th March 2017, 10:01
To update on my friends Substitute which maybe didn't come across as clear as it could have done.....

His client said they'd use the Employment Status Tool and base their decision on that.

They then changed focus and have pretty much forgotten what the tool says but have implicitly written to contractors asking who pays the sub if a sub is made. The outcome is that if the contractor pays the sub then they'd be deemed outside of IR35. Apart from the feeling of moving the goalposts a bit, no real problem here.

They've now deemed one guy INSIDE of IR35 because despite the fact his contract says he can sub, the client says he's allowed to sub, but because his company doesn't employ anybody, they don't see who he can sub to so have said he's inside IR35 due to the fact he has nobody to sub to.

They have of course had it explained to them how substituting works so are now contemplating removing the ability to sub and therefore every contractor will be inside IR35.

northernladuk
24th March 2017, 10:13
They are being very pragmatic about it that's for sure.

DKB
24th March 2017, 10:24
I honestly don't get what your problem is here.

This client is willing to give you an outside determination if you say that you would pay a sub if you brought one in. They'd pay you, you'd pay the sub. Why would you not just jump at that, get your outside determination, and move forward?

Were you planning on bringing in a sub and asking them to pay him? If so, why? If not, then who cares if they are covering their backsides in this way?

I don't get it. We're seeing people where the client has declared everyone inside, where the client is clueless, where the client still doesn't know what they are doing. You have this nice client who is asking you to sign a probably pointless statement and they'll declare you outside. Just do it.

As per my update post, there's nothing wrong with being deemed in or out based on the substitution rule. It's the subtle moving of the goalposts that has made people feel like they are trying to change the outcome. Every contractor was put outside IR35 using the tool which surprised people. They then decided not to use the results from the tool and just focus on the sub clause. This isn't an issue of course, it's just the feeling people got that management weren't happy that all contractors were deemed outside of IR35 so tried another avenue. This avenue has now been tried and again every contractor is still outside of IR35. Now they say contractors can't sub if they don't have employees so have nobody to sub to so are inside of IR35. Substituting has been explained to management. There are now discussions about not accepting subs and feels like a deliberate act to put all contractors within IR35.

This never really came across in my original post but was what I was trying to get at.

DKB
24th March 2017, 10:26
They are being very pragmatic about it that's for sure.

If being pragmatic is following orders from the top to do whatever is required to put people inside IR35, then yes, very pragmatic indeed!!