In this five-part blog series, we are going to be taking a look at the three main assessment criteria for evaluating a contractor’s IR35 status, along with the smaller areas that should always be taken into consideration. 

 

The three main assessment criteria are: 

To determine whether a contractor is inside or outside IR35, HMRC will firstly take a look at the written contract between the contractor’s limited company and the agency or end client. They will then go on to look at the actual day-to-day working practices, or the way the work is performed on a daily basis. There are a number of key areas that will be considered in order to maintain compliance, and for part one of this five-part series, we’ll be looking at the first of the three major criteria: the right to provide a substitute. 

While an employee is hired for their personal service to a company, a contractor who works off-payroll is contracted to provide a service rather than their personal skills and, ideally, would be able to send a substitute worker in to cover them if required. 

 

Although in an ideal world this wouldn’t ever happen, a contractor should always have this right, and it must be a genuine one – and it is one of the strongest tests of self-employed that exists. In 1999, we saw the tribunal case of Express and Echo Publications Ltd vs. Tanton, in which a Devon-based newspaper delivery driver argued that he was self-employed because he was engaged under a contract for services, as opposed to being engaged under a contract of service (which would signify an employer-employee relationship). 

 

The contractor, Tanton, was instructed where to deliver newspapers to, drove a vehicle provided by Express and Echo Publications Ltd and wore a uniform displaying the company’s logo. Payment was made for the newspaper round rather than on an hourly or daily basis. 

 

The tribunal originally found that the driver, Tanton, was employed by Express and Echo Publications Ltd. However, upon the case being appealed, the judgment was overturned because the tribunal found that Tanton did not have to provide his services personally and that this was inconsistent with a contract of service. Tanton actually took six months off work owing to ill health, and sent a substitute to work in his place during this time. 

 

The Judge at the tribunal said, “In [a] clause of the unsigned agreement it was stated that ‘In the event that the contractor provides a relief driver, the contractor must satisfy the company that such a relief driver is trained and is suitable to undertake the services.’ The finding as fact that Mr Tanton had to provide someone else if he was unable or unwilling to provide the services personally meant that, from day one, he never had to perform the services himself. The company only had a limited right of veto over any substitute.” 

Here is some suggested wording you could include in your ‘right of substitution’ contract clause: 

 

 

Please note that you should always consult with your accountant or lawyer before you add or change any wording in any current or future working contracts. 

We can’t stress enough the importance of ensuring you’re up to date and fully compliant with off-payroll working rules. As many of you will know, HMRC released their Draft Legislation for IR35 Private Sector change from April 2020 last month, which has been met with some confusion and worry about how it might affect current contractors. The team at Effective Accounting has been preparing for this for several months and know that many of you are concerned about the changes and how they will affect you. 

 

It is now time to prepare for the changes and ensure you are equipped with the information you need to communicate effectively with your clients to get your IR35 status confirmed and move forward. 

To support you through these changes, we have put together an IR35 Private Sector: 5-Step Action Pack, which includes: 

 

 

Learn more in this free guide we've created for you, which you can download by clicking here.