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Contractors, your view of substitution is wrong

It’s time contractors thought differently about the right of substitution and how to prove outside IR35 status

Because there has been no real solution to the problem since IR35 was enforced 20 years ago, a contractor’s view of the right of substitution is likely to be set in stone.

It’s well known that substitution – which can have a huge, if not conclusive impact on a contractor’s IR35 status – is impractical and implausible, so why would your thoughts on substitution have changed over the years?

However, I am going to make a bold statement here – your view on substitution is wrong. It’s traditional, quite archaic and makes it difficult or, in some cases impossible for you, along with the vast majority of contractors, to legitimately exercise this right.

In my opinion, there needs to be a significant shift in your current mindset to understand how the challenges around substitution can be overcome so you can cement your outside IR35 status.

Contractors suffering from a case of anchoring

From where I stand, when it comes to substitution, contractors are suffering from a case of ‘anchoring’. This is a cognitive bias where an individual depends too heavily on an initial piece of information offered to make subsequent judgments during decision making.

But it’s clear to see why anchoring is causing such a problem for contractors, most of whom want to exercise their right to provide a substitute and increase their chances of operating outside IR35. The most obvious example of this would be during a football game, where if a substitution is made – it’s usually a striker for a striker. Instantly there is this assumption that substitution has to be like for like. We need to think differently. We need to start taking a Pep Guardiola approach and investigate switching tactics behind this inferral – as the system for substitution changes, so should your view of it.

There is nothing within HMRC’s guidelines that states that substitution has to be like-for-like – just that the substitute is suitably qualified to complete the task they are being asked to. I have spoken with numerous legal experts on this issue. Lucy Tarrant, CEO of Cognitive Law states:

“Like for like substitution is not, and should not be, needed for a contractor to establish their status outside of IR35.” 

There are a lot of negative factors to consider that make substitution in its current form an absolute nightmare to implement – too many to list. However, the fact of the matter remains – the substitute does not need to be like-for-like at all, contrary to common belief.

By massively overly simplifying the problem, HMRC have anchored the view of what substitution means for the world of self-employment and contracting. This is that a substitute has to be someone who has the same skills as you, capable of doing the same job to the same level and capabilities as yourself. 

Why is substitution impossible in its current state?

Essentially to make this possible, you would be required to build yourself a bench of substitutes. But it’s totally unrealistic to expect someone to wait at the end of the phone ready to take your spot and help a friend out. This isn’t Who Wants to Be a Millionaire! If you’re an expert in your field, then people with the exact same skill set and quality as you are also likely to be engaged.

This would all vary depending on your client or the project you undertake too. The range of skills you acquire or use on a project for a client in banking isn’t likely to be the same as those needed for an insurance company. This is why building a hypothetical bench of substitutes becomes virtually impossible. Even if it was nothing more than a pipe dream, how many able contractors do you think you would need available at short notice? You’ll likely need around 15 substitutes to make this work. We haven’t even considered the cultural differences of each client yet either – another ball game altogether.

I know this because it is the exact issue I have faced with The Sub Bench’s sister company,  Konvergent.

The concept is a simple one, architecture managers are always fighting demand. Projects are handed to them at a moment’s notice and they need access to talent on-demand. Basically, what they’re looking for is a substitute bench of contractors they can call upon as and when they need to. It sounds simple in theory doesn’t it – a bit like HMRC’s view of the substitution clause!

However, the reality of the situation is a lot more complex, and provides huge challenges:

  1. You require an in-house talent team, to find, screen and build the bench of consultants you need. This amounts to a lot of effort and no small degree of expertise. 
  2. Time is a huge issue. If you had a contract starting next week, do you even have the time to build the bench? If you did, how on earth are you going to prepare before the new contract?
  3. How are you going to contact these people? Is your existing network enough? Do you have a LinkedIn recruiter or other suitable tools available to use?
  4. Congratulations if you got to this stage, but how are you going to maintain the bench? Like a garden, it needs constant maintenance in order to be relevant. Are the people you made contact with 3 months ago still available now, at the dates you require them to be?
  5. What if you fall ill? How are you possibly going to have the time or inclination to find a substitute at short notice?

Will your substitute provide value?

If you’re in the middle of a large transformation project and want to substitute yourself out for two weeks, as you are unable to personally provide the service, ask yourself and your client this question: is this going to provide value?

Firstly, you must overcome the challenges that onboarding, introductory meetings, logistics, handovers and security clearance will all provide, not only for your client but for the substitute you plan on using too.

The substitute will be dropped in at the deep end, plunged into the middle of a significant inflight project where the core team have been working together for some time. 

The substitute has no idea of the internal politics of the company, nor the decisions that have already been made or rejected, not the culture of the client either. They won’t know what the best way to approach a decision is or how to best present a message. If the substitute is lucky, there will be a plethora of documentation to read, likely taking up their first week. 

If they are unlucky they will stumble from meeting to meeting trying to make sense of what’s going on and attempt to not make a mistake. All of this for the same rate that you charge your client. It’s little wonder that this rarely takes place in reality. It’s simply not sustainable, realistic or valuable to any of the parties involved.  

Like for like substitution can work

Like for like substitution can work, but only in certain circumstances where the expertise to complete the tasks required and the background knowledge of the client required is minimal. 

The perfect example of this would be a minicab driver. As long as you have a driving licence and the ability to use a sat nav there’s no reason why you can’t be an adequate like for like substitution. However, this is no comparison to the example above. The difference in the complexity of the problem is enormous.

I’m sure you’ve started to get the picture. Having a substitute on standby to take over from you is like becoming England football manager – a near-impossible dream.

It was this realisation and understanding of how difficult – if not impossible – it is to make a like for like substitution a reality, where The Sub Bench was born. But if the substitution clause is so important, how does substitution become a reality? In other words, how do contractors include and exercise this right to demonstrate their outside IR35 status?

I’ll explain. Think about the work that you do for a minute or two and you’ll realise that it most likely falls under the 80/20 rule. 80% (perhaps even 90%) of what you do is unique and can’t be easily substituted to someone else. 

However, there are elements of the work that you complete that can be substituted out. For example, internal corporate communications you produce for a client – whether documents, presentations or packs. While these are likely to include information that only you can pull together, that’s not to say the design element cannot be substituted – something that The Sub Bench facilitates. 

As HMRC guidelines state, substitution does not have to be like for like – nor does it need to be a full substitution, as Simon Gilmour of Harper James Solicitors explains:

“Most people assume substitution is one person taking on the role of another, there is in fact no reason why in the consultancy context there can’t be partial substitution, akin to sub-contracting or outsourcing of some of the tasks required. The solution now being offered by The Sub Bench fits with this and clearly does give a genuine solution to the issue of personal service within the consultancy arrangement with its partial substitution model. This in turn definitely will help the case against IR35.”

By using The Sub Bench, you can remove the notion of personal service to stay outside of IR35, while effectively landing your message with the business through impactful design and visual communications. It’s a no brainer and could hold the key to proving your right of substitution and therefore your outside IR35 status. 

This article was written by Ben Clark, CEO of The Sub Bench, which is a new concept that helps contractors legitimately promote their outside IR35 status. To learn more about how this service helps remove the notion of personal service, please click here.

By Ben Clark

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10 thoughts on “Contractors, your view of substitution is wrong”

  1. XYXY

    The main problems here are:

    1. Work is now being offered by clients as inside or outside IR35. The status of the contractor is pre-determined and the risk, if the contract is outside, is with the client.

    2. Substituting of small aspects of the work may not be viable either – the client has to agree and will want to know who is being used for security and other reasons.

    3. All that adds to the admin involved.

    4. This “solution” ignores the personal relationships involved in the work.

    5. Saying that “a design” is a small aspect of IT work is saying that having a car is a small part of being a taxi driver. Often the design is the entire object of the work, it is certainly not small.

    I’m afraid this solution doesn’t work. If you want a solution, operate as a consultancy of freelancers / associates.

    • Ben Clark

      In response to the above comment:

      (1) That is true, to a point but does not take into consideration the thousands of contractors currently in contracts who will be interviewed and assessed over the coming months. If they can legitimately prove substitution it will put them outside of IR35.

      (2) The client would have to agree to any substitution. As much as contractors would like to believe that they have the unfettered right of substitution, they do not.

      (3) The security element can be overcome in a variety of different ways but is certainly not an admin burden. Onboarding a like for like substitute for two weeks to achieve next to nothing creates an admin burden.

      (4) This does not ignore the personal relationships. Like for like substitution does that. This enables solution enables work to be done as a cohesive unit while maintaining the primary relationship

      (5) You have confused design with visual communication. Most contractors in IT produce “design” that answers the question but frankly look appalling and fails to land with senior stakeholders. There is unlikely to be many people on here who have anything positive to say about the Big Four, but one thing they do so much better than contractors is the visual communication of their output.

      Contractors have been talking about operating as a consultancy of associates for years but very few have been able to make it happen and turn a PSC into a legitimate business. What do think is different now that will change that?

      • XY

        Ben, you’re not really addressing the points:

        1. I tis not true “to an extent”, it is true full stop. If a contract is inside IR35, offered and accepted on that basis then… it is. That’s the end of it.

        Are you really suggesting that an inside IR35 contractor should try to persuade the client to accept a sub? And then what? Next you say that you’re now outside IR35 and they just accept that?

        You have to bear in mind that you would be asking the client to shoulder a risk which they have already assessed and determined that they are not liable for that risk.

        That simply doesn’t fly.

        2. Yes, the client would have to agree – so, back to point 1… why on Earth would they do that after the fact of work being offered and accepted on an “inside” basis?

        3. Of course it’s an admin burden – all of this needs people doing things. I didn’t mention security.

        4. You are completely out of touch with how IT people work if you think that, say, an enterprise architect or business analyst doesn’t need to foster relationships with people in roles, to understand their needs, desires, foibles, to persuade them in certain areas – over time they build some trust that gets things done. You can’t parachute someone in to do a tiny piece of work without them having an understanding of the politics around it.

        5. You have confused “design” with… God knows what. When, say, a solution architect produces a design, it is often a large document such as High Level Solution Design or a Solution Options Report – these are true designs, not some bit of UI design. They need real understanding, they are the culmination of weeks of discussion and meetings which you cannot pull in some random off the street and get anywhere near the same result.

        Overall, the client may feel that they are paying an “inside rate” already, covering at least some of the taxes, so it’s not as simple as just change status, keep more money.

        I’m sorry Ben, but this idea doesn’t seem to hold water.

        • Ben Clark

          I would say the three corporate clients who have authorised the use of The Sub Bench on mass across their architecture functions would disagree with you

  2. Graham

    Rather patronising to tell contractors they don’t understand how to work substitution.
    As XYXY implied, this article doesn’t consider the client in any way, shape or form. To suggest that the client is going to accept a random substitute just because they happen to be available is fantasy land, and that’s if they will consider it at all.
    In previous roles I have actually provided substitutes that have benefited both myself and my client, but that doesn’t get me past a client that wants a contractor working either inside IR35 or through and umbrella.
    I’m sure this was all tried before with Contractor Buddy and that wasn’t a great success either.

    • Ben Clark

      Hi Graham,

      The article and our solution does consider the client, as without the approval the ideal does not work. The idea behind it is to move away from a like for like substitution to one that can compliment your skills therefore given them a better overall service.

      Surely, any substitute is random to the client at first? The whole premise of substitution is wrong. It has made the contractor community feel that it is almost impossible to implement. I would say that 99% of contractors, probably more have never done it.

  3. Iftikhar

    Ben thanks for a very informative article.

    I will have to call The Sub Bench team and understand what they offer so that the client can accept a substitute.

    Most companies which take on IT contractors are usually big companies and depend on recruitment agencies to provide contractors. But most of the time they do the vetting themselves i.e. establishing technical ability, interviewing etc.

    My gut feeling is companies in most cases would like to vet the substitute just like they vetted the initial contractor.

    The Sub Bench solution will help contractors and going forward clients to meet their legal position regarding being outside IR35.

  4. Paul

    The work i do in the electricity industry makes substitution very difficult
    other people have the skills, but they dont have the site inductions, the safety certs, the National Grid approval, the COSH certs, etc. the list of approvals gets longer very day !
    let alone the DBS clearance.

  5. Someone

    Ben,

    I wish you all the best with The Sub Bench but I am afraid this is not what most contractors want or need.

    At the beginning of your article you say no one has solved this problem in the last 20 years, well I think that should tell you either its very difficult to solve or a solution hasnt been necessary for the bulk of the market.

    Then you set out some of the challenges of substitution very well in the first half of your article then you dismiss it all by suggesting a simple subcontracting model for some non-core activities.

    Lastly as others have said, when the new IR35 rules are implemented, the client will assess you either in or out. If you are inside then they are very unlikely to change the amount of risk they are willing to take on just because you can have someone produce a comms deck for you. If you are outside they have already accepted the risk so why consider substitution, subcontracting may still be a viable option if you choose to do it but very few do.

    So all the best with your venture but I am afraid I dont see this as a game changer for contractors or clients nor a big money spinner for you unless there are very many ill informed contractors out there.

    • Ben Clark

      We probably miscommunicated our message at the start. We can’t do this for everyone, sadly but we can do it for architects and transformation consultants. People who need to create emotive communication in order to generate action from their stakeholders. In this aspect, it has been a game-changer as we are the only company to offer such a specialist service and already have a significant number of contractors using the service. So much so we have been given the unofficial (as it has to be due to IR35) approval from three FTSE 250 companies to use The Sub Bench across their whole architecture functions. So thank you for your business advice, but on this ocassion I shall ignore it!

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