Contractors' Questions: Is a weak right of substitution fatal with IR35?
Contractor’s Question: From an IR35 standpoint, could a weak substitution clause, compounded by the client requesting me personally -- by name, be mitigated by the fact that there are only about a dozen people worldwide who can do what I’ll be engaged to do?
Via my PSC, I’ve 20 years’ experience in this niche. I always provide my own equipment and have spent £7,500 since 2014 on training/certification. Would these pointers outside IR35, plus no mutuality of obligation, outweigh the ‘inside’ ones, notably the weak substitution?
Expert’s Answer: Firstly, it is important to note that a lack of substitution does not automatically mean you are caught by IR35. The ‘trinity’ of factors used when determining status -- substitution, control and mutuality of obligation – should all be present if possible, but if one is lacking it doesn’t necessarily point to disguised employment.
To quote Mr Justice Park in the Usetech case:
“…where a worker has to undertake the work personally that does not mean the worker must be an employee. There are many examples (e.g. in the professional field) where self-employed individuals have to undertake the work they have agreed themselves. The lack of a right to provide a substitute may be a pointer to employment but it is certainly not conclusive on its own.”
If a contractor’s expertise is so unique, it will reinforce the argument that it is highly unlikely that there would or could be any right of control exerted over them. This is the factor I would be looking to highlight in the event of an IR35 enquiry.
Should there be an absence of a right of control by the end-user then, together with the fact that the limited company has made significant investment in training, provides their own equipment (although this would have to be quantified), and an absence of mutuality of obligation, then this would be sufficient to place the contract outside of IR35.
Remember, IR35 status should always be assessed in the round, i.e. by looking at all of the evidence and building an overall picture. If the overriding impression is one of self-employment, then there is a strong chance that a tribunal would uphold that.
As an aside, it would be interesting to see what result HMRC’s imminent IR35 tool would give based on your scenario.
The expert was Seb Maley, the chief executive of IR35 advisory Qdos Contractor.