Reciprocal substitution agreements Reciprocal substitution agreements
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  1. #1

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    Default Reciprocal substitution agreements

    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

  2. #2

    Contractor Among Contractors


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    You are free to do make whatever business arrangement you like - it's your business.

    If you you are contemplating this as an IR35 "defence" - it's pointless, both now and after March 2020.

  3. #3

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    Lots of contractors do this, according to my accountant. That's all I know.

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    Quote Originally Posted by sal View Post
    You are free to do make whatever business arrangement you like - it's your business.

    If you you are contemplating this as an IR35 "defence" - it's pointless, both now and after March 2020.
    I don't see it as a slam-dunk defence in the slightest, rather a practical measure to reduce friction in the case of needing to substitute that enhances my position.

  5. #5

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    Quote Originally Posted by RobSmith View Post
    I don't see it as a slam-dunk defence in the slightest, rather a practical measure to reduce friction in the case of needing to substitute that enhances my position.
    I wouldn't risk my reputation on the line, subbing with someone I don't personally know to be a viable substitute. These are personal friends and people I have worked with before and have their contact details and often keep in touch with to various extend.

    If I ever need a substitute I will just start ringing the list until I find someone available. I don't see how having signed a piece of paper will add any value to the process. HMRC are certainly not going to pay it any attention.

    The only situation where I can see it adding any value is if after March 2020 it's a requirement for outside IR35 determination by a client who focuses the IR35 "defence" on right of substitution, it currently being the only unambiguous pointer for an outside IR35 relationship.

  6. #6

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    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.
    Last edited by northernladuk; 5th November 2019 at 10:58.
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  7. #7

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    Quote Originally Posted by northernladuk View Post
    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.
    Maybe, but in the current climate, it seems that there are lots of potential substitutes on the bench. I know at least five people I 've worked with closely who would be a suitable substitute for myself and are either on the bench or finishing up current contract soon. Mind you that could change next month.

    I think Friends had the right idea for substitutes or 'backups'...


  8. #8

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    Quote Originally Posted by sal View Post
    If you you are contemplating this as an IR35 "defence" - it's pointless, both now and after March 2020.
    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.

  9. #9

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    Quote Originally Posted by TheCyclingProgrammer View Post
    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.
    You are right in what you say but the crux of all RoS clauses is the client giving you the right to do so. It's been brought up in a number of cases and endless discussions and it's all about whether or not the client will accept a sub. In none of these cases or discussions would a sham set up offered by the contractor make any difference what so ever. It's about the right to do so.

    How a business provides a sub is of no interest to the client or a case. They give you the right, it's up to you to make it happen. That's your business, not the clients so really doesn't need documenting or proving.

    At the very best all it will do is give the client some confidence that it's viable, but I very much doubt that as well. Clients are deciding on whether or not to allow this based on the role and their model, not the sham promises of an individual contractor. The next guy after, or another guy doing the same role may not provide this so they can't take the contractors evidence in to account when determining the role.

    Maybe, once they've determined a role is outside the may start asking contractors for this information to make sure their determination is sound but yet again, I very much doubt it. If a client has any notion how B2B contracts work and has had suppliers use subs in the past they'll be comfortable enough to not have to enter in to a paper chase.

    I can't see that it would do much harm to try this but I am really struggling to see any true benefit in a situation where a client understands their contractors and is going to give them an outside benefit based on solid advice and diligence.
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    Quote Originally Posted by northernladuk View Post
    You are right in what you say but the crux of all RoS clauses is the client giving you the right to do so. It's been brought up in a number of cases and endless discussions and it's all about whether or not the client will accept a sub. In none of these cases or discussions would a sham set up offered by the contractor make any difference what so ever. It's about the right to do so.
    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.

    How a business provides a sub is of no interest to the client or a case. They give you the right, it's up to you to make it happen. That's your business, not the clients so really doesn't need documenting or proving.
    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.

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