Contractors who work through a limited company that also belongs to them can actually benefit from the practice of substitutes and subcontractors. This can be done through bringing in another worker who takes care of portions of the contract requirements and can provide a cushion if the main contractor has fallen ill or is out on vacation.
The use of a substitute is thought by many IR35 experts to be the only answer to placing a contractor outside of IR35. Using substitutes has always been an indicator of self-employment versus employment.
Contractors who may provide substitutes, especially at short notice and without permission from the client, are firmly outside of IR35, no matter what other evidence is provided.
The Difference Between Substitutes, Helpers and Subcontractors
The difference between substitutes, helpers and subcontractors is important if a tribunal or court becomes involved. Individuals with the proper skill set to replace the contractor directly for a short period of time can be used if the client is informed of this change via the limited company.
Helpers or subcontractors are generally additional workers who are used to perform portions of the contract. It is not required to notify the client that these parties are involved in helping with the contract’s completion.
Substitution is always a compelling argument against being inside IR35, and this is because it implies that there will never be a personal service on the part of the contractor. When substitution is unfettered, which means that the client cannot object, this is the best argument against being inside of IR35.
Subcontractors are engaged on the basis that is intrinsic to the contract’s completion and is therefore not evidence of being inside of IR35 either. Other factors that would point away from being inside of IR35 are hiring subcontractors on their own terms and not the client’s, a delegation of tasks to subcontractors and bearing the job’s risk through the limited company.
Employing Helpers
Contractors who formally employ temporary helpers must follow the rules for income tax and NIC payments to HMRC. These helpers can affect the contract’s risk and cost, so this is often not a work delegation solution.
For the past twenty years, case law has shown the importance of using substitutes and helpers correctly for those who are self-employed. Genuinely self-employed contractors should clearly prove that they have utilized their rights to substitutes and subcontractors easily. For those who make these distinctions clear, HMRC should have no trouble seeing that their status is correct.
