The substitution clause is the most easily understood of the three key criteria that will determine whether your limited company contract is caught by IR35 or not.
What are the key questions to ask when you read the contract?
- Is there a right to send a substitute?
- Is the right (to send a substitute) restricted in any way?
- Does the client have the right to reject the substitute?
Do these clauses pass or fail?
Example One:
The Supplier’s obligation to provide the consultancy services shall be performed by such member or members of the Supplier’s employees, officers or representatives as the Supplier may consider apropriate, subject to the prior approval of the client. The Supplier shall be entitled to assign or sub-contract the performance of the consultancy services.
= FAIL – the substitution is subject to the approval of the client and is therefore restricted. The right to assign or sub-contract is not the same as a substitution.
Example Two:
The Supplier shall submit to the Client details of the personnel who will be assigned to perform the work, who shall be subject to the prior approval of the Client. Such approval not unreasonably withheld.
= FAIL – again the substitution is subject to the approval of the client.
Example Three:
The Supplier may at any time propose a prospective worker. The Client may at their discretion accept or decline any prospective worker.
= FAIL – the Client has the right to vet the workers and therefore the substitution is subject to the approval of the client.
Example Four:
The Supplier may at any time propose a replacement worker provided that such worker has equivalent qualifications and experience to the initial worker performing the services.
= PASS – the substitute has to be able to complete the work, i.e. have the right qualifications and experience but the client cannot vet the substitute.
Other points to consider
If the work does not have to be performed at the Client’s site then it may be easier to use a substitute to perform some of the services.
What administration has to be complied with to send a substitute, particularly if all the work is performed at the Client’s site?
And finally, just because the contract allows your limited company to send a substitute, it does NOT prevent the client turning your substitute away from their premises on arrival.
Do you need help in decided whether your contract is caught by IR35? At Clearways Accountants we provide all clients with an IR35 contract review service.