Documenting outside IR35 status in a watertight way

[dx4100]

There's always plausible deniability too if the person who agreed to any arrangements leaves and incoming management disagree.

I had that work in my favour where I managed to convince a new manager that the one who left under a cloud said I didn't need to fill in certain tracking nonsense and could WFH two days a week

This man (or lady) contracts

[webberg]

There is no approved list of "documents" that will protect you.

HMRC will, if they have a mind, start by ignoring all the documents and instead look at what you did and how you did it.

They may start by asking the client questions about how you are supervised, controlled or directed: who approves payments to you and why - on what criteria: does the service you provide have to be you or could be any one of a number of people: what qualifications might those substitutes need to have: etc.

They may even interview the client. They will certainly interview you.

If so, are you sure that the description given in those interviews, ties in with what the legal documents say?

Having a document that says all the right things but is divorced from the day to day reality is dangerous.

One of the problems with this sector at the moment is that contractors have been told for years and years that a certain contract which contains "so and so" is "safe". Utter nonsense.

Get the facts straight, comply - every day - with the rules, sleep soundly.

[WordIsBond]

Seems like there's a lot of paranoia on this thread.

The client says they would accept an equally qualified substitute. The fact that it may be hard to find such a person changes nothing -- that puts you outside. It's simply not employment if you could send a sub. The case law on this is ironclad. That's why CEST makes it an auto-outside if there is unfettered substitution.

All you need is a Status Determination Statement that you are outside. That's it. If you have that, you are in the clear after April. The only risk is with the client, and all THEY need to be risk free is to not stupidly refute the right of substitution. Write it into the contract and into a Confirmation of Working Practices that YourCo can send any person qualified to do the work. Have the client, for their own protection, run it through CEST and keep a record of the result. Tell them that if HMRC comes calling that all they need to tell them is that if you sent someone sufficiently qualified as a sub, they'd accept it. HMRC will ask if you've done so and they say, 'No, but he could, it's in the contract.' They will ask if you have anyone you could send and they say, 'That's the concern of ContractorCo, not ours. They are a supplier, as long as they supply what we need we don't care how it happens.' End of story and end of case.

If they go stupid later, they are the ones at risk, not you.

Avoid becoming part and parcel. Watch out for all the things contractors could watch out for. It's for their protection. But don't sweat this too much, you are outside and the risk will not be yours after April anyway.

[HoofHearted]

I don't think that fixed-price is by any means essential either for being outside IR35, there are enough non-employee risks present anyways. Sure if you're able to quote that way with little/no *real* risk (and stand to make a decent profit) then fine, but plenty of suppliers do deliverables on a T&M basis, especially if the client isn't able to tell its @rse from its elbow

[webberg]

All you need is a Status Determination Statement that you are outside. That's it. If you have that, you are in the clear after April. The only risk is with the client, and all THEY need to be risk free is to not stupidly refute the right of substitution.

.

I'm not sure I would entirely agree with the above.

HMRC may disagree with the SDS. They may consider that the role is inside IR35.

If so, you are correct in that HMRC will go after the fee payer (probably the agency closest to the PSC). In the event that they do not pay, they will move through the supply chain, ultimately to the end client who created the SDS.

If I was advising that end client and there was even the slightest degree of risk of an inside scenario, i.e. a right of substitution that was practically very unlikely or impractical to implement, then I'd be looking to some form of indemnity from the individual.

There is therefore a negotiation here.

Whilst I admire the attempt to put into black and white something that is unfortunately several dozen shades of grey, the hard reality is that this sector is the gift that keeps giving for HMRC and all parties in it should be looking to protect themselves.

[JohntheBike]

Seems like there's a lot of paranoia on this thread.

The client says they would accept an equally qualified substitute. The fact that it may be hard to find such a person changes nothing -- that puts you outside. It's simply not employment if you could send a sub. The case law on this is ironclad. That's why CEST makes it an auto-outside if there is unfettered substitution.

All you need is a Status Determination Statement that you are outside. That's it. If you have that, you are in the clear after April. The only risk is with the client, and all THEY need to be risk free is to not stupidly refute the right of substitution. Write it into the contract and into a Confirmation of Working Practices that YourCo can send any person qualified to do the work. Have the client, for their own protection, run it through CEST and keep a record of the result. Tell them that if HMRC comes calling that all they need to tell them is that if you sent someone sufficiently qualified as a sub, they'd accept it. HMRC will ask if you've done so and they say, 'No, but he could, it's in the contract.' They will ask if you have anyone you could send and they say, 'That's the concern of ContractorCo, not ours. They are a supplier, as long as they supply what we need we don't care how it happens.' End of story and end of case.

If they go stupid later, they are the ones at risk, not you.

Avoid becoming part and parcel. Watch out for all the things contractors could watch out for. It's for their protection. But don't sweat this too much, you are outside and the risk will not be yours after April anyway.

The client says they would accept an equally qualified substitute. The fact that it may be hard to find such a person changes nothing -- that puts you outside. It's simply not employment if you could send a sub. The case law on this is ironclad.

agreed, a contractual right of substitution means that the contract is for services and not of service and this even if the client subsequently claims that a substitute would not be accepted.

[Paralytic]

HMRC may disagree with the SDS. They may consider that the role is inside IR35.

If so, you are correct in that HMRC will go after the fee payer (probably the agency closest to the PSC). In the event that they do not pay, they will move through the supply chain, ultimately to the end client who created the SDS

Are you saying that (post April 2020) if a private sector client makes (in the eyes of HMRC) an incorrect outside determination, then the liability first falls on the fee payer?

How does that tie with (my highlighting):

Taking reasonable care when making a determination

You must take reasonable care when you make a determination about the employment status of a worker.

Failure to do so will result in the worker’s tax and National Insurance contributions becoming your responsibility.

From What you need to do as a client on April 2020 changes to off-payroll working for clients - GOV.UK

[DeludedKitten]

As well as the prep work that you're already doing, I would tell the client that if HMRC come calling it's important that they do not answer anything without getting professional advice. The last thing you want is for one throwaway comment from the client where they are trying to help you get picked up and misconstrued and used to undermine your defence.

Document the working arrangements. Get the client to sign them off. Have a contractual right of substitution. Bring someone in (even if it's specialised technology, you could get someone in to test the stuff you've produced?). Keep records of things like if there is a server outage and you can't work that day so don't bill for it.

[WordIsBond]

I'm not sure I would entirely agree with the above.

HMRC may disagree with the SDS. They may consider that the role is inside IR35.

If so, you are correct in that HMRC will go after the fee payer (probably the agency closest to the PSC). In the event that they do not pay, they will move through the supply chain, ultimately to the end client who created the SDS.

If I was advising that end client and there was even the slightest degree of risk of an inside scenario, i.e. a right of substitution that was practically very unlikely or impractical to implement, then I'd be looking to some form of indemnity from the individual.

There is therefore a negotiation here.

Whilst I admire the attempt to put into black and white something that is unfortunately several dozen shades of grey, the hard reality is that this sector is the gift that keeps giving for HMRC and all parties in it should be looking to protect themselves.

I don't disagree at all with the final paragraph. But OP's question was what documentation he needs. If he has a SDS that he's outside, it really doesn't matter to him whether HMRC disagrees or not.

From that point on, his role is to do his best to protect the client by keeping an eye on staying outside so the case is strong if HMRC comes calling. That's all. He needs no other documentation.

And if there is a real right of substitution, agreed to by the client, fettered only in that the substitute must be qualified, that's watertight on IR35 unless/until legislation says otherwise. The case law is clear and until HMG legislates on the matter, the case law remains. Employees don't send substitutes, so someone who has a right to do so, acknowledge by both parties, is providing a service and not an employee. It really is a silver bullet, and CEST treats it as such appropriately.

[webberg]

It (substitution) really is a silver bullet, and CEST treats it as such appropriately.

Agreed that substitution weighs heavy in the calculation.

It may in some instances be overcome with other factors but it would take a lot.

I predict that we will see cases in Tribunal in which fake substitution clauses or those impossible or impracticable to apply will be exposed and their worth reduced.

Just be careful.