IR35 Acronyms - Explained!

The first of these is Right of Substitution (RoS), this tricky little clause is your ability as a contractor to demonstrate that the end client does not need you personally to deliver the service, and that anyone with relevant skills, qualifications and experience could deliver them. And that if required you would be able to provide a replacement on a project without question from the client.

The difficulty lies in the fact that some clients will misinterpret this as you being able to accept a contract and then bung in someone unsuitable to take your place, but it’s not the case. If you were to do that then they’d be well within their rights to terminate there and then.

What we recommend doing in that situation is explaining that a substitute is the last thing you’d like to do, but if it means you either having to cut the contract short meaning they’d have downtime on the project, and potentially lose critical time they won’t be able to get back OR bring in a suitable (suitable meaning a like-for-like replacement in terms of skills and experience) replacement at no additional cost, then surely that’s what they’d prefer, right? 

The next thing to consider is whether there is any Mutuality of Obligation (MOO) involved in the arrangement. In short MOO comes in to play if the end-client must provide paid work for the contractor, and the contractor must accept and complete that work. This implies you’re working on a ‘contract of services’ basis, similar to an employee whereas if you’re working outside IR35 you should be operating on a ‘contract for service’ basis in a business-to-business relationship.

A genuine ‘contract for service’ relationship should end when the original project agreed upon is over, or a new contract should be written up for any new projects after that point.

The final larger consideration within an IR35 determination is Supervision, Direction and Control (SDC). This as you’d imagine is broken down into three parts:

1. Supervision: For this to apply there must be oversight on the work being completed to ensure that it’s being done correctly and to the right standard.
   
   
2. Direction: Being given a set of instructions, guidance and/or advice as to how a piece of work should be completed. This is typically coupled with oversight on how and when the work is being completed.
   
   
3. Control: This is the client having the power to move a worker from one task to another, or controlling how they complete tasks that they’re working on.

Only one of these needs to be in place for the entire rule to apply, so it’s imperative that none are as part of an outside IR35 determination. It is worth noting that stipulating guidelines and specifications that need to be completed as part of a project does not mean that there is an element of SDC so long as the client leaves the contractor to decide how they will achieve the end goal.

There are of course a litter of smaller considerations that make up the full picture of any determination, but these are by far the biggest hurdles and determiners of any status check, so getting them right will go a long way to understanding where you stand on the IR35 spectrum.

We’ve completed a longer write up with information on how you can explain the importance to clients on each available here.

 

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