Reciprocal substitution agreements

[northernladuk]

I'm not talking about sham setups. I'm talking about the complete opposite. I'm talking about genuine RoS clauses that the client are 100% willing to let you use if necessary.



On the contrary - from April 2020 allowing a contractor to occasionally use a substitute if necessary is completely in the interest of the client. It's pretty much a bullet proof IR35 defence. Some clients (as we have seen) will decide not to engage contractors on an outside IR35 basis at all because they aren't interested in dealing with the risk assessment. Others will realise that it is in their interests to have access to the best contractors who are only interested in working outside IR35 and will take the necessary steps to ensure they can do so without risk.

Besides taking steps to ensure contracts and working practices are in check, allowing a genuine RoS is about the easiest box they could tick. It will force the best clients to do what we've always wanted them to do and treat us like actual suppliers of services and not temporary employees.

Not all clients will get it, but the ones that do will be the ones that attract the best talent. My current client is already working hard to ensure that they can classify all contractors as outside IR35 from April onwards.

Completely agree with everything in the above. It's all about the client honouring that right. My point was around contractors providing pieces of paper saying their mate will sub for them means nothing.

[WordIsBond]

Hi All,

Like many of you, I've worked around other contract professionals who work in much the same area of expertise that I do. It strikes me that creating a B2B agreement with such a contractor for the purposes of substitution might be no bad thing and allow me to substitute more easily, as well as creating demonstrable evidence that I have a plan for substitution should I ever be investigated.

Does anyone have any experience of this? Thoughts about whether it's a good idea, or even worthwhile would also be appreciated.

Regards,

Rob

I agree with those above.

A) If it helps to convince a client to agree that the right of substitution exists, and so agree to an outside determination, it's useful, obviously.
B) If your client is a small business, so you are responsible for IR35 determination, the fact of having this kind of agreement would be one more thing you could argue that you are acting like you are in business for yourself. Might help in a borderline case, something more to put in your IR35 dossier. Not a game changer.
C) Makes it more practical to actually do a substitution, obviously.

Won't do a bit of good if your client is a large or medium company and they don't agree to substitution. They'll make their determination without regard to any such thing. Won't help much if it is a small company and they don't agree to it either. It CAN help you get clients to agree to substitution if they see you've got people on board who could do it.

[DeludedKitten]

Completely agree with everything in the above. It's all about the client honouring that right. My point was around contractors providing pieces of paper saying their mate will sub for them means nothing.

The upper tier tribunal found that having the contractual right was important, even if the client would have refused, when JohnTheBike took his employment claim through the tribunal system.

While I have many issues with that case, the judges ruling that having the right (even when the client testified that they wouldn't accept one) is an important precedent to have set.

[sal]

Disagree. A solid right of substitution is one of the easiest ways to avoid IR35. Its probably fair to say that a lot of substitution clauses aren't worth the paper they are written on (not reasonably unfettered, the client would never agree anyway etc.) but if you can combine a solid substitution clause with a B2B agreement in place that would mean you could realistically send a sub at short notice, then it seems like a very good IR35 defence - now, and also post March 2020 if your clients are either a) a small business not impacted by the changes or b) a client that is willing to go to the effort to work with contractors on an outside IR35 basis.

To be honest, I think a strong right of substitution - with clients being completely on board with the idea - could end up being one of the strongest defences against IR35 going forwards. Post March-2020, if a client wants to engage contractors on an outside IR35 basis, adding an unfettered RoS clause *and* genuinely being willing to allow substitution has got to be the simplest way for them to do that and cover themselves.

Of course, you don't *need* an agreement in place in advance if you already have a good network of contacts that you could call upon.

I agree with what you are saying about RoS being the best IR35 "defences". I even commented to that extend in my later post.

But you took my quote a bit out of context. I meant that having a piece of paper with contractor X is pointless. I didn't say that having a strong RoS clause in the contract and even better ClientCo agreeing that it's unfettered.

[perplexed]

It's a waste of time and is nothing more than a paperwork exercise.

If it's with another contractor then anyone with a hole in their bum knows the chances of the other contractors being available when you need them is slim to nil.

Doesn't matter how you find your subs and if anything I'd say this smacks more of playing the Ir35 game than it does filling a business need so worthy of more attention than less.

Other people disagree with this so if you think it will help then go for it.

I'd disagree somewhat.

The company I'm a director of is providing services to an end client. Whilst I can trust myself when providing said service, should substitutes be provided I want people that can be trusted to provide good service - after all, would be representing my company, should thinks go nipples vertical, my companies reputation in the line of fire.

I've a core of good contractors I know that I'd trust to seemlessly step in. Should none of them be available, then I'd use my social network to get recommendations. If none come through, then and only then would I look to the market.

I get and agree with your point if someone is only doing it from a "ha! beaten IR35!" perspective. Doing it as a solid business approach is a different matter.

[ChimpMaster]

Of course, RoS in a contract is good and necessary, but working practises trump the contract so long as you can prove them. Now I thought I had a good RoS clause in my contract, until QDos told me to removal the word "approval" because it meant that the right wasn't so clear and hence the client's approval would be needed (according to the contract).

Needing approval isn't necessarily a problem, but it weakens the outside-IR35 argument because it means the client can deny the substitution.

Ultimately though, what matters is if you can actually get a sub in, regardless of whether approval is needed or not. This is something I managed to do, for a short period while I was on holiday. I offered the sub and I actually asked the client if they were happy with the idea and they said it was OK. It has to be done properly: the client didn't meet/interview the sub, and I took care of the contract and paid him.

Even Qdos say that if you can get a sub in, even for a single day, it can make your IR35 defence so much stronger. There is no chance that an employee could substitute someone else in for day.

I guess what I'm trying to say is: don't fret too much about the contractual clause on RoS (but obv. have a good one), and instead try and actually get a sub in, even for a very short time. This would pretty much bullet proof your IR35 defence.

[perplexed]

Of course, RoS in a contract is good and necessary, but working practises trump the contract so long as you can prove them. Now I thought I had a good RoS clause in my contract, until QDos told me to removal the word "approval" because it meant that the right wasn't so clear and hence the client's approval would be needed (according to the contract).

Needing approval isn't necessarily a problem, but it weakens the outside-IR35 argument because it means the client can deny the substitution.

Ultimately though, what matters is if you can actually get a sub in, regardless of whether approval is needed or not. This is something I managed to do, for a short period while I was on holiday. I offered the sub and I actually asked the client if they were happy with the idea and they said it was OK. It has to be done properly: the client didn't meet/interview the sub, and I took care of the contract and paid him.

Even Qdos say that if you can get a sub in, even for a single day, it can make your IR35 defence so much stronger. There is no chance that an employee could substitute someone else in for day.

I guess what I'm trying to say is: don't fret too much about the contractual clause on RoS (but obv. have a good one), and instead try and actually get a sub in, even for a very short time. This would pretty much bullet proof your IR35 defence.

I'd disagree about "approval" being a problem. Using common sense, services provided are to produce a system in say Java. Your substitute is someone whom has only ever programmed in COBOL... there's an inherent lack of ability to perform the service. Providing service in a SC environment, circumstances in substitutes background mean they fail SC - and also, given your company won't be able to sponsor for SC anyway, rely upon client bearing cost for doing so...

There are many valid reasons imo for a client to need to have approval on substitutes. If not, you could get anyone off the streets to fill in...

[Lance]

I'd disagree about "approval" being a problem. Using common sense, services provided are to produce a system in say Java. Your substitute is someone whom has only ever programmed in COBOL... there's an inherent lack of ability to perform the service. Providing service in a SC environment, circumstances in substitutes background mean they fail SC - and also, given your company won't be able to sponsor for SC anyway, rely upon client bearing cost for doing so...

There are many valid reasons imo for a client to need to have approval on substitutes. If not, you could get anyone off the streets to fill in...

what you say is mostly right..... Except for one important detail... RoS as an IR35 defence needs to be unfettered. Client approval is NOT unfettered.

Forget RoS as an IR35 defence unless you can evidence it, and to do that you need to use it.
Evidence is SLIGHTLY IMPORTANT...
With SDC you can evidence far more easily.
With MOO you can evidence more easily.
RoS is amazing evidence when you use it. Until then it's just a potential (probable) sham clause.

[perplexed]

what you say is mostly right..... Except for one important detail... RoS as an IR35 defence needs to be unfettered. Client approval is NOT unfettered.

Forget RoS as an IR35 defence unless you can evidence it, and to do that you need to use it.
Evidence is SLIGHTLY IMPORTANT...
With SDC you can evidence far more easily.
With MOO you can evidence more easily.
RoS is amazing evidence when you use it. Until then it's just a potential (probable) sham clause.

That's my point. I don't believe it can ever be truly unfettered in a meaningful sense.

Any substitute has to, imo, be able to provide the service to an adequate level to fulfill the contract. Hence I tend to think that end client not having any right of veto is somewhat naive - after all, they vet contractors in first instance.

[northernladuk]

But that what is in the wording of the clause. They cannot refuse any suitably qualified candidate.

By only allowing a suitably qualified sub you take away the need for the client to have a say.