Substitution

[Redkiwi]

Hi all, some advice would be welcome!

I renewed my SC contract recently and had it checked through QDOS for IR35 compliance. It received a pass and as I viewed my working practises to be compliant I proceded with plans to run my Ltd as outside of IR35.

Last week I received the 'Public Sector Tax Arrangements letter' with a 28 day compliance deadline to choices A, B, or C. Panic ensued and I turned to QDOS's Public Sector Pack Certificate for professional independant help. Their initial view was that my business was in the 'medium' BET's category, but the contract and my interpretation of the practises were IR35 compliant.

Good news, but at the same time I sent a IR35 confirmatory letter to my end client, agent and intermediary to ensure that the IR35 status could be followed though the chain. The chain is complex with my company working through an agent to 2 intermediaries and then to the end client. (Not my choice at all, but I cant do anything about it!)

The end client's commercial manager has responded to the letter with IR35 compliant answers to all but one of my confirmatory questions - the substitution question. He wrote "The only way that (my company) would be able to provide a substitute, is if (the client) asked (each intermediary) who asked (my company) i.e. – the request would need to flow down the whole chain, and I believe this to be highly unlikely of ever occurring. It would also be important to remember, that in this situation, the substitute would also flow up the supply chain, because (the client) would still only have a contractual relationship with (the last intermediary). The T&C’s in the various contracts which allow substitution could be used by the supply chain to enforce (my company) to provide a sub, but only if the end client, was satisfied with that substitute, and again, it is unlikely that this scenario would ever happen." His last comment was contradictory "The only people who can make a decision on substitution, is the (client)", but I believe this refers to a 'veto' and is acceptable due to the heavy security clearance and fairly rare skills needed.

My paranoid question is - does the evidence of clauses for sustitution in my contract and the end client's "substitution could be used" statement satisfy the IR35 issue?

[SueEllen]

That's a potential breach of contract so I would walk due to the difficulties his detailed reply would cause you if HMRC opened an investigation.

[malvolio]

It may not do but it is actually irrelevant to an IR35 defence. You need the right to offer a substitute, and such an offer not to be unreasonably refused; that's it, as defined in extant case law. Clearly, since you are in a niche market, "reasonable" is still fairly restricited, but it is not definitive. If you have the other key pointers properly covered, you are almost certainly not liable under IR35, and a professional assessment of your position should suffice to prove the point.

You might find this page from the PCG site of interest...

[northernladuk]

Remember your sub has to be SC cleared which seriously narrows down the options available. If he isn't he will be reasonably refused. That doesn't mean you have failed the IR35 check, it's just much harder to sub. I don't think this would count against you as much as the client flat out refusing any kind of sub.

[TheFaQQer]

Remember your sub has to be SC cleared which seriously narrows down the options available. If he isn't he will be reasonably refused. That doesn't mean you have failed the IR35 check, it's just much harder to sub. I don't think this would count against you as much as the client flat out refusing any kind of sub.

Not necessarily - the sub has to be able to work in an SC-cleared environment.