IR35: Ignorance of Substitution Alters Nothing

Employment Appeal Tribunal ruling may aid contractors

A recent Employment Appeal Tribunal (EAT) ruled that a right of substitution is not diminished by the fact that an individual is ignorant or oblivious to that right.

In the case of UK Mail Ltd v Creasey, the judge found that Mr Creasey was not an employee nor a 'worker' of UK Mail Ltd for whom he had provided his services as a sub-contract van driver for between 10 – 15 years. The judge's ruling overturned that of the Employment Tribunal that originally found Mr Creasey to be a 'worker' following his claim for unfair dismissal, thus enabling him to claim some basic employment rights. 

For the purposes of the Employment Rights Act 1996 a 'worker' is defined as:

'an individual who has entered into or works under (or, where the employment has ceased, worked under) :

(a) a contract of employment, or

(b) any other contract, whether express or implied and (if it is express) whether oral or in  writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer or any profession or business undertaking carried out by the individual'

The nature of the relationship between Mr Creasey and UK Mail Ltd was regulated by a document called the 'subcontractors' agreement'. Under this agreement UK Mail were not obligated to provide Creasey with work and acknowledged that there would be periods when the drivers services would not be required. There also existed a right of substitution that required written approval of a replacement worker by UK Mail before it could be invoked, although this would not be unreasonably withheld.

The van driver classified as a subcontractor needed to obtain the consent of UK Mail in order to engage what the Respondent described as a ‘subsubbie’ (substitute). A letter was provided to the subcontractor advising them on what was required in order to obtain approval. UK Mail advised the subcontractor that they might base their policy of engaging a ‘subsubbie’ in a similar manner to how the Respondent engaged a ‘subcontractor’. This entailed:

  • The completion of an application form.
  • Proof of the individual’s right to take up paid employment within the UK.
  • Proof of identification and residence.
  • Completion of a security declaration form.
  • Receipt of a Scottish basic disclosure.
  • Five years work [sic] history without gaps.
  • Five years work [sic] references.
  • Character references taken up orally and in writing, each covering a two year period within   the previous period.
  • The ‘subcontractor’ was then required to declare in writing that he or she and their employees, agents or subcontractors had satisfactorily passed screening and vetting in accordance either with the Respondent’s procedure or one that they had developed which was their equivalent.

Mr Creasey was unaware of the substitution clause and consequently never appointed a replacement during the time he worked for UK Mail. Nor was he aware that approximately 7 drivers out of a group of 56 did use substitutes.

At every stage where Mr Creasey was required to undertake some part of the contract he was juxtaposed to “the Personnel” suggesting that another person as well as Creasey could carry out the obligations contained within the agreement and as such Mr Creasey's personal service was not a requirement of the contract.

Central to the proposition of this case was the judgment laid down in the 2009 EAT case of Premier Groundworks Ltd v Jozsa in which it was contended that where a party has an unfettered right to decline personally to perform obligations under the contract but can delegate them for any reason to someone else, he cannot be a worker. The fact that conditions are imposed upon the substitute as to suitability or qualification does not affect the question of whether there is any fetter on the right. If the party has to satisfy some condition himself, such as demonstrating that he is sick or unable to perform the work, then there is a fetter, but if it is choice, there is no fetter.

In IR35 enquiries where a right of substitution is being argued over, HMRC will seek to establish whether both parties understood from the outset that such a right existed with a view to undermining and disproving that right. Where some doubt may exist therefore then this latest judgment may prove helpful to freelancers who find themselves in that position.

2 Comments

  • Andrew says:

    Interesting how this argument is now reversed. You never get to see how you have been effectively screwed by an agency contract, and this is called ignorance, and enables IR to deem you caught by IR35. Its like saying you don’t know all the secrets held by MI5 but can be held responsible by virtue of ignorance?
    Surely there is a duty of care for the supplier here to ensure that all employees and contractors are aware of the entire situation at the point when they accept an engagement, and when changes are made?

  • J says:

    To even suggest that supplier A who provides a service to B could be subject to tax liabilities as a consequence of a contractural arrangement between B and C, defies imagination. It is equal to not believing the government made agreement to reduce visa waiting time to two hours from weeks so that the big corporations could bring over foreigners to take our jobs and expertise. Why not tax them for their real cost to our nation?

Leave a Reply

Your email address will not be published.

★ ★ ★ ★ ★

Very pleasant. Excellent price for what I needed. I will be a returning customer.

Rhino Review

Mr Paul D

Great staff. Customer focused and a team who recognise and understand their customers 100%.

Rhino Review

Vijay S

Fantastic accountants who helped me submit my last 2 years personal tax returns! I really rate this company!!!

QAccounting Review

Natalie

Fantastic service.

Rhino Review

Marco G

Been with QAccounting for several months now, very good service, very personal and the best prices I have seen.

QAccounting Review

Muhammed A

I switched over to QAccounting a few months ago and haven't looked back. I get to speak to my own client manager and accountant, the prices were the best I had seen, and I paid exactly what it said online (no extra costs). Very happy with QA.

QAccounting Review

Jeremy H