Documenting outside IR35 status in a watertight way

[northernladuk]

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.

This already well documented and has happened in the past.

This article quoting Kate Cottrell warns against it
IT contractors warned on IR35 substitution clauses

This article from QDOS goes in to some detail about sham arrangements and some other interesting points about being unable or unwilling which further muddies the waters.
Exercising Your Right of Substitution

And specifically the article mentions

The right to provide a substitute does not necessarily need to be exercised. In HMRC's Employment Status Manuals, it clearly states that "you cannot assert that a right of substitution does not exist just because a substitute has never been provided" (ESM0538), i.e. it is up to the status inspector to prove your hypothetical right is a sham.

So inspectors should already be attempting to uncover sham arrangements so you'd expect to do with more vigor now it's a key part of CEST.

There is even a case where the judge called the clause a sham and ignored the whole RoS from the case.

More reasons where teaming up with a contractor buddy to try look like you are making substitution is more possible won't work.

[northernladuk]

This already well documented and has happened in the past.

This article quoting Kate Cottrell warns against it
IT contractors warned on IR35 substitution clauses

This article from QDOS goes in to some detail about sham arrangements and some other interesting points about being unable or unwilling which further muddies the waters.
Exercising Your Right of Substitution

And specifically the article mentions



So inspectors should already be attempting to uncover sham arrangements so you'd expect to do with more vigor now it's a key part of CEST.

There is even a case where the judge called the clause a sham and ignored the whole RoS from the case.

More reasons where teaming up with a contractor buddy to try look like you are making substitution is more possible won't work.

EDIT :

[WordIsBond]

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

Yes, in CEST it is overcome if you are an officer (director/secretary) as part of the engagement. That's the only thing that overcomes it. I expect in a tribunal that's also the only thing.

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.

That's nothing new, sham contract provisions are already disregarded. But case law also says that difficulty in finding a suitable sub does not invalidate the right of substitution. So I suspect it will again take actual legislation to strike at this, as long as both contractor and client are affirming the right of substitution.

HMRC will certainly ask, 'Would you really let him sub? Wouldn't you insist on interviewing the sub? Wouldn't there be ANY restrictions you'd place on it?' And if the client says anything but, 'As long as the sub is qualified to do the work,' they'll try to use it. There have been cases where HRMC sits down with a HR person who, years later, throws the contractor under the bus by saying, 'Oh, we would have to approve a substitute.' The difference going forward, is that it isn't the contractor on the hook if that happens and likely the client will have lawyers answering that question who know the traps.

Just be careful.

Absolutely. But there's no need for paranoia, either. The new rules will throw a lot of contractors inside who shouldn't be, I'm sure of that. But those who are outside are much more protected.

[JohntheBike]

Yes, in CEST it is overcome if you are an officer (director/secretary) as part of the engagement. That's the only thing that overcomes it. I expect in a tribunal that's also the only thing.

That's nothing new, sham contract provisions are already disregarded. But case law also says that difficulty in finding a suitable sub does not invalidate the right of substitution. So I suspect it will again take actual legislation to strike at this, as long as both contractor and client are affirming the right of substitution.

HMRC will certainly ask, 'Would you really let him sub? Wouldn't you insist on interviewing the sub? Wouldn't there be ANY restrictions you'd place on it?' And if the client says anything but, 'As long as the sub is qualified to do the work,' they'll try to use it. There have been cases where HRMC sits down with a HR person who, years later, throws the contractor under the bus by saying, 'Oh, we would have to approve a substitute.' The difference going forward, is that it isn't the contractor on the hook if that happens and likely the client will have lawyers answering that question who know the traps.

Absolutely. But there's no need for paranoia, either. The new rules will throw a lot of contractors inside who shouldn't be, I'm sure of that. But those who are outside are much more protected.

But case law also says that difficulty in finding a suitable sub does not invalidate the right of substitution

and a contract of service, i.e. employed, is incompatible with a contractual right of substitution.

[webberg]

and a contract of service, i.e. employed, is incompatible with a contractual right of substitution.

Have you not read the above few posts?

Where a "contractual right of substitution" is a sham, a fake, held by a Tribunal to be impossible to apply in real life, it will be ignored and its weight in decision between employed and contractor, to be diminished.

You have read above references to a number of cases and statements and decisions, yet you revert to what is clearly a reliance upon the words in a contract rather than the facts of a real life situation.

The judicial principle is now one of substance over form (and has been arguably for a decade or more) so reliance upon a group of words that have no real effect is dangerously naive.

[JohntheBike]

Have you not read the above few posts?

Where a "contractual right of substitution" is a sham, a fake, held by a Tribunal to be impossible to apply in real life, it will be ignored and its weight in decision between employed and contractor, to be diminished.

You have read above references to a number of cases and statements and decisions, yet you revert to what is clearly a reliance upon the words in a contract rather than the facts of a real life situation.

The judicial principle is now one of substance over form (and has been arguably for a decade or more) so reliance upon a group of words that have no real effect is dangerously naive.

you are entitled to your opinion. I was essentially agreeing with the opinion of the original poster. If the client agrees that a substitute can be sent, even if the contractor would find it difficult to do so, then that would not necessarily invalidate the contractual right of substitution. I remind you that the opposite can be true. If there is a contractual right of substitution, and the client states that a substitute would not be accepted, then that could amount to breach of contract if the contractor attempts to substitute. You need to read more case law to expand your opinion.

[webberg]

you are entitled to your opinion. .

I think you'll find that it's not just my opinion.

The opinion expressed, i.e. a right to substitution is not a magic bullet if it exists only in words and cannot be exercised, is one that appears in the cases mentioned, HMRC Manuals, many opinions from IR35 specialists and in at least one "insurance" contract we have read.

I'm going to be bold and say that this is not an "opinion" but rather a statement of fact.

Judicial principle is that substance outranks form. Courts will look at what the real life situation is and apply the law to that situation, taking into account legal rights and obligations.

They do not start from a make believe world of documented actions which can override what happens in reality. To do so would very soon lead to anarchy.

I repeat that to rely upon words in a document that may bear little or no resemblance to the facts on the ground is naive and is a flimsy defence.

As for the need I may have to read more, I agree. To take from a case etc only those elements that support a position I arrived at previously and to ignore the flow and direction of decisions, will lead me astray. Staying with a view that has been eclipsed and which belongs to the past is also unlikely to help me or my clients. I therefore read almost every relevant case and article etc to try to arrive at an objective view (accepting that nothing will ever be absolute in that regard).

I know however that you will not believe the above. I know that you will continue to advance your view as the first and only truth. If you genuinely believe that form can overcome substance, good luck to you.

[JohntheBike]

I think you'll find that it's not just my opinion.

The opinion expressed, i.e. a right to substitution is not a magic bullet if it exists only in words and cannot be exercised, is one that appears in the cases mentioned, HMRC Manuals, many opinions from IR35 specialists and in at least one "insurance" contract we have read.

I'm going to be bold and say that this is not an "opinion" but rather a statement of fact.

Judicial principle is that substance outranks form. Courts will look at what the real life situation is and apply the law to that situation, taking into account legal rights and obligations.

They do not start from a make believe world of documented actions which can override what happens in reality. To do so would very soon lead to anarchy.

I repeat that to rely upon words in a document that may bear little or no resemblance to the facts on the ground is naive and is a flimsy defence.

As for the need I may have to read more, I agree. To take from a case etc only those elements that support a position I arrived at previously and to ignore the flow and direction of decisions, will lead me astray. Staying with a view that has been eclipsed and which belongs to the past is also unlikely to help me or my clients. I therefore read almost every relevant case and article etc to try to arrive at an objective view (accepting that nothing will ever be absolute in that regard).

I know however that you will not believe the above. I know that you will continue to advance your view as the first and only truth. If you genuinely believe that form can overcome substance, good luck to you.

As I understand the issues, because the UK has no written constitution, we are ruled by case law. Legal briefs are entitled to use case law, irrespective of how old that case law is, in presenting their arguments. You will be aware that the RMC case was judged in the 1960's and the High Court ruled recently on the proroguing of Parliament, based on very old precedent.

Whether or not those judging any particular case, whether in the FTT or the ET/EAT, take notice of any arguments presented, remains to be seen. I do understand that they have to abide by precedent such as the RWC case, until there is further precedent. However, there is at least one case where the judge asserted that, despite the client stating that a substitute would not be accepted, the presence of a contractual right of substitution meant that the engagement could not be one of service, i.e. employment and form outranked substance, as you like to put it. So, to support your argument, you will need to point to precedent set at the same level of the RMC case or higher, related to substitution, which judges are obliged to follow and are not at liberty to come to any other conclusion. We may all then be more enlightened.

There was a story put about many years ago, which although probably not true, might demonstrate where we are with case law.

It was related that as part of a rag week stunt, undergraduates of Nottingham Uni staged an archery practise in the centre of Nottingham. Plod duly attended and tried to move them on. A law student pointed out that under medieval law, archery practise was encouraged and was allowed. Plod left but returned later, claiming that indeed archery practise was allowed, but it must be performed whilst wearing Lincoln green, which the protagonists were not. They were moved on.

[webberg]

Precedent is not static.

Cases which claim to set precedent are often distinguished from later instances on facts or because the law has changed or because the later Judges want to move in a different direction because of developing case law elsewhere.

The world in which the Ready Mix case was heard is an age away from where we are now.

Yes, many elements of the Ready Mix case remain good law, but many do not. Many have been overtaken by later, more relevant, cases.

Precedent is always dependent upon circumstances and facts.

A driver of a truck delivering concrete can easily be substituted because the person taking delivery cares only for the product and the timing.

A project manager for a complex piece of IT cannot be so easily substituted partly because of knowledge but also perhaps because of a need for some form of vetting.

So yes, substitution remains important but it also relative.

Remaining hide bound to elements of cases setting "precedent" whilst ignoring the facts in the instant case is not sensible.

This is my final contribution here. I do not expect you to change your view despite the weight of evidence and therefore further discussion is pointless.

[JohntheBike]

Precedent is not static.

Cases which claim to set precedent are often distinguished from later instances on facts or because the law has changed or because the later Judges want to move in a different direction because of developing case law elsewhere.

The world in which the Ready Mix case was heard is an age away from where we are now.

Yes, many elements of the Ready Mix case remain good law, but many do not. Many have been overtaken by later, more relevant, cases.

Precedent is always dependent upon circumstances and facts.

A driver of a truck delivering concrete can easily be substituted because the person taking delivery cares only for the product and the timing.

A project manager for a complex piece of IT cannot be so easily substituted partly because of knowledge but also perhaps because of a need for some form of vetting.

So yes, substitution remains important but it also relative.

Remaining hide bound to elements of cases setting "precedent" whilst ignoring the facts in the instant case is not sensible.

This is my final contribution here. I do not expect you to change your view despite the weight of evidence and therefore further discussion is pointless.

I don't disagree with anything you've said in this specific post. However, I contend that nothing is set in stone, because as I understand the issues, we don't have a written constitution. Existing precedent can be overturned. That's all I'm saying.