Substitution??? Substitution??? - Page 2
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  1. #11

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    Quote Originally Posted by WordIsBond View Post
    I don't KNOW. I'm speculating.

    It's not groundless speculation. It comes at a time when clients have to make a determination. So it clearly is IR35 related. Someone knows enough to know substitution matters.

    OP has no obligation to educate his client on the intricacies of substitution vs subcontracting. All he has to do is convince them to say they'll accept a substitute, and it's an outside determination. He doesn't have to use the sub, and if HMRC asks if they'll accept a sub they say yes, and trot out this piece of paper to say, "We've done our due diligence, he's got an agreement with a company that will provide a SQEP and we'll accept that."

    HMRC says, "Ok," and goes to find a softer target.

    They aren't asking to have a MOU with the sub company, they are asking him to provide one. So the MOU states that OP's Ltd will engage SQEP's Ltd to provide the services, and pay for them, in the event that OP needs or desires a substitute. Sorted.
    Except, as far as IR35 defence is concerned, it is not a substitute unless the new worker is working to the existing contract in its entirety under the exact same rates and Ts&Cs and for the original PSC.
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  2. #12

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    Quote Originally Posted by WordIsBond View Post
    I don't KNOW. I'm speculating.

    It's not groundless speculation. It comes at a time when clients have to make a determination. So it clearly is IR35 related. Someone knows enough to know substitution matters.

    OP has no obligation to educate his client on the intricacies of substitution vs subcontracting. All he has to do is convince them to say they'll accept a substitute, and it's an outside determination. He doesn't have to use the sub, and if HMRC asks if they'll accept a sub they say yes, and trot out this piece of paper to say, "We've done our due diligence, he's got an agreement with a company that will provide a SQEP and we'll accept that."

    HMRC says, "Ok," and goes to find a softer target.

    They aren't asking to have a MOU with the sub company, they are asking him to provide one. So the MOU states that OP's Ltd will engage SQEP's Ltd to provide the services, and pay for them, in the event that OP needs or desires a substitute. Sorted.
    My point is that neither of us know what the client is asking.

    The OP speculates that the client is probably clueless and I agree with the OP.

    Why this speculation? Most businesses have no concept of "substitution" w/r to suppliers because it is not a commercial concept, it is an employment law concept.

    So I prefer my interpretation that the client is clueless about the meaning of "substitution" and the OP is more likely to get an agreement that looks like subcontracting unless they educate the client about what it means and education works more smoothly when it's handled by legal-person to legal-person (the more expensive contract reviewers will negotiate the finer points with a client).

    Until April, the OP should care about the contractual/real terms w/r to IR35. After April, sure, the client carries the responsibility for an SDS and the fee payer carries the liability if it is wrong and the client took reasonable care when producing the SDS. So, in one sense, the OP shouldn't care post-April, but I think there's no harm in pointing them in a good direction.

  3. #13

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    Quote Originally Posted by malvolio View Post
    Except, as far as IR35 defence is concerned, it is not a substitute unless the new worker is working to the existing contract in its entirety under the exact same rates and Ts&Cs and for the original PSC.
    But they would be, or at least could be. The sub's company would be subcontracted for the period of the substitution to provide the sub to the OP's company, who would then provide them (under the same T&Cs) to the client. The client would still pay the OP's co the agreed rate, and the OP's co would pay the sub's co whatever rate they had negotiated (which could be higher or lower than what the OP's co was paid).

    The MOU being asked for is basically just evidence that the OP could provide a substitute: they wouldn't necessarily have to provide that particular substitute, but they have evidence that they could if they needed or wanted to.

    Unless I've missed something.

  4. #14

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    Quote Originally Posted by drmouse View Post
    But they would be, or at least could be. The sub's company would be subcontracted for the period of the substitution to provide the sub to the OP's company, who would then provide them (under the same T&Cs) to the client. The client would still pay the OP's co the agreed rate, and the OP's co would pay the sub's co whatever rate they had negotiated (which could be higher or lower than what the OP's co was paid).

    The MOU being asked for is basically just evidence that the OP could provide a substitute: they wouldn't necessarily have to provide that particular substitute, but they have evidence that they could if they needed or wanted to.

    Unless I've missed something.
    And many contractors will think that's easy to do and completely miss the mark. The agent/client will most likely be looking for a decent sized setup that has an existing employee they can draft in. Think about the big outsourcers, they just draft another body on their payroll in and jobs a good un. With most contractors they will look to some contracting mate that might be able to help and provide their details. Anyone with a hole in their bum will know that's just not feasible as there is little to no chance that person will be available at the time. All you can evidence is that you understand how it works, you would be willing to resource them via job portals or something and put them in seamlessly as required. Bearing in mind this is all theory and guesswork it's not really going to count for much.
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    Quote Originally Posted by northernladuk View Post
    All you can evidence is that you understand how it works, you would be willing to resource them via job portals or something and put them in seamlessly as required. Bearing in mind this is all theory and guesswork it's not really going to count for much.
    However, it's been shown in previous cases that it would not be up to you to prove you could supply a sub, but for HMRC to prove you couldn't. The burden of proof lies on HMRC.

    From April, that would translate into HMRC having to prove that the client couldn't have got a substitute from you (slight flip due to who they'd be going after). If the client has evidence that you have an available source for a sub, that's a step in the right direction.

    And, quite frankly, the main thing contractors (at least those who are already compliantly and legitimately working outside IR35) have to do is reassure their clients that they are outside. We're used to accepting the risk of an investigation, the client isn't, so anything we can do to assuage their fears is a good thing (fig leaf or not).

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    Quote Originally Posted by jamesbrown View Post
    My point is that neither of us know what the client is asking.

    The OP speculates that the client is probably clueless and I agree with the OP.

    Why this speculation? Most businesses have no concept of "substitution" w/r to suppliers because it is not a commercial concept, it is an employment law concept.

    So I prefer my interpretation that the client is clueless about the meaning of "substitution" and the OP is more likely to get an agreement that looks like subcontracting unless they educate the client about what it means and education works more smoothly when it's handled by legal-person to legal-person (the more expensive contract reviewers will negotiate the finer points with a client).

    Until April, the OP should care about the contractual/real terms w/r to IR35. After April, sure, the client carries the responsibility for an SDS and the fee payer carries the liability if it is wrong and the client took reasonable care when producing the SDS. So, in one sense, the OP shouldn't care post-April, but I think there's no harm in pointing them in a good direction.
    Yes I think the client is more than likely clueless but I will provide them with a shoddy bit of paper to appease them to hopefully get an outside determination but I can't see that being the outcome. Although I don't think it would ever stand up in court but if it's them at risk from April who cares.

    It's worrying the legislation changes kicks in in 9 weeks and this is how my clients acting.

    I thought that by stating who the substitute is before any right is exercised is against ir35 anyway as it should be that I can send anyone. Not a particular person they vet first?

  7. #17

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    Quote Originally Posted by drmouse View Post
    However, it's been shown in previous cases that it would not be up to you to prove you could supply a sub, but for HMRC to prove you couldn't. The burden of proof lies on HMRC.

    From April, that would translate into HMRC having to prove that the client couldn't have got a substitute from you (slight flip due to who they'd be going after). If the client has evidence that you have an available source for a sub, that's a step in the right direction.

    And, quite frankly, the main thing contractors (at least those who are already compliantly and legitimately working outside IR35) have to do is reassure their clients that they are outside. We're used to accepting the risk of an investigation, the client isn't, so anything we can do to assuage their fears is a good thing (fig leaf or not).
    I don't think this one is about HMRC. After April the client has state to agree to accept a sub to provide an outside contract. Before they are making that decision they want to know if the contractor can properly supply one so they aren't requesting something that won't happen which (rightly or wrongly) may expose them to some risk. I don't think some shoddy bit of paper will do that.

    We've had this question a number of times and I've also pointed out that the role is assessed not the contractor. By asking the individual contractor of his capability they haven't assured the role, they've assured the contractor which is a bit backwards. They should tick the 'yes a sub can be applied', make the determination and then ask each supplier (contractor) if and how they can.

    It's all a bit of a mess whichever way you come at it though.
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  8. #18

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    Quote Originally Posted by northernladuk View Post
    I don't think this one is about HMRC. After April the client has state to agree to accept a sub to provide an outside contract. Before they are making that decision they want to know if the contractor can properly supply one so they aren't requesting something that won't happen which (rightly or wrongly) may expose them to some risk. I don't think some shoddy bit of paper will do that.

    We've had this question a number of times and I've also pointed out that the role is assessed not the contractor. By asking the individual contractor of his capability they haven't assured the role, they've assured the contractor which is a bit backwards. They should tick the 'yes a sub can be applied', make the determination and then ask each supplier (contractor) if and how they can.

    It's all a bit of a mess whichever way you come at it though.
    I can see the logic.

    The end client needs to know a sub is available - so they find a large firm that can provide a suitably qualified sub for every position and then work backwards to the point that everything is fine.

    The slightly mad logic goes I would prefer Eek but a TCS sub is acceptable and TCS have available subs so yep eek is outside as he can (via our and now his) TCS contract offer a sub.
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  9. #19

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    Quote Originally Posted by malvolio View Post
    Except, as far as IR35 defence is concerned, it is not a substitute unless the new worker is working to the existing contract in its entirety under the exact same rates and Ts&Cs and for the original PSC.
    You keep saying this but all the client cares about is knowing that there's someone OP can get in who is qualified to do the work.

    And all OP needs to care about is that the client is sufficiently satisfied to give an outside determination.

    We're in a brave new world where we don't have to construct an ironclad case for HMRC, we have to convince the client.

  10. #20

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    Quote Originally Posted by jamesbrown View Post
    My point is that neither of us know what the client is asking.

    The OP speculates that the client is probably clueless and I agree with the OP.

    Why this speculation? Most businesses have no concept of "substitution" w/r to suppliers because it is not a commercial concept, it is an employment law concept.

    So I prefer my interpretation that the client is clueless about the meaning of "substitution" and the OP is more likely to get an agreement that looks like subcontracting unless they educate the client about what it means and education works more smoothly when it's handled by legal-person to legal-person (the more expensive contract reviewers will negotiate the finer points with a client).

    Until April, the OP should care about the contractual/real terms w/r to IR35. After April, sure, the client carries the responsibility for an SDS and the fee payer carries the liability if it is wrong and the client took reasonable care when producing the SDS. So, in one sense, the OP shouldn't care post-April, but I think there's no harm in pointing them in a good direction.
    And I'd just point them in a good direction by the MOU I'd provide, and not worry about it. OP is supposed to provide the MOU, so he can have it describe real substitution and the thing is sorted.

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