Santa's not the only one who needs helpers

Use the festive season to find yourself a substitute

Many contractors are unlikely to be thinking about their tax affairs during the festive season. There are far more interesting things to worry about, such as what to wear to the Christmas party, buying Christmas presents, and outdoing the neighbours with the most outrageous Christmas lights.

It’s a very sociable time of year and although you might not like to think too much about your IR35 status, using the most sociable time of year to do some networking and speaking to some like-minded individuals could be hugely beneficial to your IR35 status for the New Year and once IR35 reform is implemented within the private sector in 2020.

 

2018 - A year of tax tribunals

2018 has seen a number of Tax Tribunal cases, triggered by Jensal Software, which Qdos successfully defended in late 2017. Jensal Software was one of the first cases taken to the Tribunal since 2011, so there was a considerable period of time where HMRC were not keen to defend cases at a Tax Tribunal. Whilst this can be extremely stressful for contractors, First-tier Tribunal cases do help to remind us where the land lies from an IR35 perspective; ultimately, HMRC are not necessarily the ones who make the final decision.

Recent Tax Tribunal cases have shown us that the key status tests which have always been important remain so, and that Ready Mixed Concrete (1968), albeit an old Employment Tribunal case, is still one of the most useful cases to set your stall by.

Having the right to provide a substitute is not essential, and recent tribunal cases have shown us that it’s possible to defend status cases without such a right. This was highlighted in the case of PGMOL v HMRC, where the referees did not have a right to provide a substitute, but they were still found to be genuinely self-employed, based on control and a lack of Mutuality of Obligation (MOO).

 

Is the right to provide a substitute still that important?

In a word, yes. It casts less doubt over your employment status, so if control and MOO also work in your favour, you’re going to have to do much less arguing with HMRC to prove your self-employed status. Additionally, with all three factors in your favour, the case is unlikely to end up at a Tax Tribunal which can be extremely costly, time consuming and very stressful.

In the case of Jensal Software, although the contractor - Ian Wells - had not provided a substitute, the end client accepted that Jensal Software did have the right to provide a substitute, because they recognised Jensal Software to be a genuine contractor.

Remember; “…it is the right of substitution that is important. The fact that substitution has not actually occurred during a contract is not necessarily relevant.” (ESM0535).

If you never exercise a right to provide a substitute, it does not mean that the right is not genuine. If the right is accepted and recognised by the end client, the likelihood is that a Tribunal would accept it as a genuine right.

If substitution is not viable, it’s not the end of the world. Engaging helpers will also demonstrate a lack of a requirement for personal service, and although perhaps not quite as far reaching as providing substitute, a contractor who can engage helpers is far more likely to be genuinely self-employed, than one whose personal service is required.