IR35 is a sticky piece of legislation originally introduced under the Labour Government in 1999. Fully titled “IR35: Countering Avoidance in the Provision of Personal Services”, the purpose of the measure is to eradicate the practise of an individual providing services to a company as a Contractor, when in fact they are existing as an employee. This has led to many new and existing contractors wondering if their work falls in or outside IR35. In this series we will examine the main indicators of IR35 status.
Substitution is one of the three main indicators of IR35 status used by HMRC to determine a contractor’s employment status.
In the case of a regular employee, the employee themself must complete all the work given to them by their employer – they cannot delegate the work to a third party outside the organisation. In this case there can be no “Substitution”. If a contractor is seen to be working in this way, they would usually be classed as a “disguised employee” and fall within IR35 legislation.
In a standard contractor / client scenario, a contractor will be free to outsource their services to a third party, as long as the terms of the contract are not violated and the cost to the client is not affected. In this case Substitution is perfectly acceptable, and if a contractor is free to “substitute” themselves for a third party, they are usually deemed to be outside IR35 legislation.
See Part 1: IR35: What is “Mutuality of Obligation”?
See Part 3: IR35: The What, Where, When and How Tests
See Part 4: IR35: Other Determining Factors
See Part 5: Direction & Control