Should you let your contractor send a substitute?
If you don’t allow them to send a suitably qualified replacement, that’s one factor HMRC will consider in deciding whether you actually have a form of disguised employment.
So – whether you pay a contractor via their own personal service company (PSC) or directly as an individual trader, you need to be sure:
- you have a contract that provides for substitution
- you haven’t given yourself an unlimited right to say no
- you keep records of when substitutions were allowed
While it can be tempting to want only the person you pay in all circumstances, this can leave you in the lurch.
- What happens if your single-person contractor gets ill, has a massive system failure, or even a family bereavement?
If you and your freelancer have set up proper substitution arrangements, that may help you both to overcome unexpected business challenges without forcing you to take your business elsewhere or miss a key deadline.
And it will help you with HMRC if they start saying this is really an employee. Make this part of your thinking when you look at who you pay – even if you imagine you won’t ever need it.
What if I really can’t accept a substitute?
If the people you pay are in the UK and you want to be sure you only get them, you may be reaching the point when you should be thinking about employing them. That would also give you more legal control.
Of course, if you are really buying a famous media person and no substitute will do – that’s another thing. But you do need to be really sure of why you can’t accept a substitute and the effect this may have on the status of the person you are paying. Even if you don’t want to employ that person, you may trigger a change in status from ‘in business’ to ‘worker’ if you insist that only they can do the work. And ‘workers’ have a significant number of employment rights – even if they are invoicing you through their own PSC.
We’d love you to check out our REAL agreements for freelancers who invoice you. Your accountant would love it too. They handle substitution and a lot more you are going to need to please the tax man and make a resilient business plan.
We have loads more than we have on this site – so take a look and if the one you need isn’t there – talk to us – have the conversation.
020 3887 0500 (local call rate charges apply – not supercharged ones) or email@example.com
HMRC and IR35
If you are not sure where ducks come into it – have a look at our earlier post – you can find it here. If you like your ‘duck test’ set out in legal and technical terms here is the link to the relevant part of HMRC’s guidance. Please note that HMRC are consulting on changing IR35 – see our earlier post .
For more information on how it is that companies have rights – see our earlier post – you can find it here.
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