In this section we take a little bit of time talking about the key players in any IR35 determination with a few notes and considerations on why it might be beneficial to have them in, or out of your contract post-April 2021.
Let’s start with, what I’d consider at least, to be the biggest stumbling block in any IR35 determination:
Right of Substitution
This is the ability to demonstrate that the end client does not need you personally to deliver the service, and that anyone with relevant skills, qualifications and experience could deliver them successfully.
Well, there’s plenty of other people in your community who could do just that, so it sounds simple enough to just tick that box, right?
Wrong.
The difficulty usually comes from the fact that the Right of Substitution must be unfettered and that the substitute must be provided through the same Personal Services Company (PSC), meaning that neither the client nor agency has any say in the decision on who the replacement is and won’t be able to interview them before they start.
From a client’s perspective this can leave them feeling as though they could end up short changed with someone that isn’t as good as the person they brought in originally, however if that does turn out to be the case then they can still terminate the contract with the PSC when that happens.
Whilst this sounds like a risky play on the surface, consider this: The contractor is obligated to provide you a like-for-like substitute, they must pay for the substitute themselves, if there is a handover period to get them up to speed the PSC will pay for the second persons time meaning you could have two sets of hands onboard for the price of one, and the PSC will also pay for any training that needs completing as part of the job.
When weighed up against the other option in which the original contractor has to leave the post, of having to spend more time with an agency finding someone new, getting them started and up to speed, all the while having no-one on board to complete the mounting pile of work, would you not agree that NOT having a Right of Substitution clause is in fact the worse of the two options?
Mutuality of Obligation
Mutuality of Obligation, MOO for short, comes in to play if the end-client must provide paid work for the contractor and the contractor must accept and complete the work. A mutual obligation, so to speak. A genuine contract arrangement should be engaged on a ‘contract for services’ as opposed to a ‘contract of services’ basis to mitigate this.
An analogy that might help paint a clearer picture of this would be if you paid someone to fit your bathroom. When they’d finished the job would you be obligated to find more work for them to do until you fire them or they resign, or would your agreement come to an end. And whilst on assignment could you task them with completing other tasks and jobs without first getting their agreement to do so?
To clarify further, a contract for service is money paid to a company to carry out work on a specific assignment or project, whereas a contract of service is money paid to an employee by an employer to complete any work they deem fit as part of the role.
This is where the difference lies in having or not having a MOO clause in your assignments. Are you being brought on as a general ringer to pick up bits of work across multiple projects and be directed at the clients say so, or are they bringing you in to help on a specific piece of work or project that once completed will mean the end of your arrangement?
With that in mind, why should an end client be happy NOT having a Mutuality of Obligation clause when they’re using a contractor for their project?
Well, if they’re truly hiring a contractor for a specific project or assignment and not just as a disguised employee, then it’s really a no brainer. They get the peace of mind that once the project they need an extra set of hands with is completed that they can say farewell to the contractor without having the worry of having to find them extra work that might not be there.
Supervision, Direction or Control
The final major consideration in any IR35 determination is Supervision, Direction or Control (SDC). There are 3 parts to consider as part of this, so I’ll aim to give you a brief breakdown of each with a couple of things you can consider, and put to any end clients as suggestions when negotiating your next assignment.
Supervision: Understood to mean that the contractor’s work is closely supervised. In reality this could mean that any work completed is thoroughly checked throughout by the client and all work must be signed off on before moving on to the next task.
Direction: Merely being told what the task at hand is and the end goal shouldn’t constitute as direction. In the context of SDC, direction is the client delivering instructions on exactly how they should perform each task, which the contractor must oblige to.
Control: This is commonly broken down into 4 parts: Where, when, what & how.
Where: Does the client dictate the location of where the work is completed? i.e. on their site. It is also worth noting that ‘where’ is often seen as a neutral factor as a lot of genuine contractors need to be on a client’s site to complete work.
When: Can the client tell you specifically when the tasks must be completed or do you have the discretion to make a decision on that?
What: Can the end client change the scope of the work you’re working on and the tasks you’re supposed to be completing without your approval?
How: Is the client giving you a detailed list of instructions telling you how each task and the overall work must be completed, or do you have the ability to decide on your own, providing the end result is correct?
An analogy for not having Supervision, Direction or Control when working with a company would be when you pay a construction company brought in to build a building. Yes, you’ll tell them your plans, where you want the bathroom to go, how big the kitchen needs to be and what flooring you want in each room, but once they’re on with the project you won’t be telling them how to mix the cement or lay the foundations. Equally if anything needs changing after they have started, they’d come back to you and ensure that you’re happy with their decision before they do it, and any changes you want to make after they have started would be consulted over and agreed by both parties.
Whilst you’re giving them guidance and a framework for what needs completing with a goal in mind, you’re not telling them what they should be doing minute by minute, and as long as they get to where they need to be and it’s up to standard, that’s what they’re there for.
In a contract for services assignment the end-client should be brining on a contractor for their expertise and experience in completing the work they need doing, so allowing them to do that without constant interruption and direction would make complete sense.
I appreciate that there’s a lot of information to take in with just these 3 points and whilst the analogies are a good way of painting a picture of how it would work, again they are not definitive. But they make up a large proportion of the overall determination of an assignments IR35 status, so understanding why and how each impacts on that statement and learning how to have real conversations on why it would be beneficial to either have, or not have them as part of the working practices will make all the difference.
There are a few other smaller factors that go in to a Status Determination including financial risk, exclusivity, employee benefits and rights of dismissal, more details of which are available on the contract resource area at here.
If you have any questions feel free to contact us at [email protected] or call 0161 833 1044.
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