So much more than lines in a contract...
A huge number of outside IR35 contracts contain within them a right of substitution. Many clients and other contracting parties still heavily rely upon this element to ensure they are compliant and to avoid the risk of a HMRC dispute. That's a myth. A mirage even. False hope. Lines in a contract on their own can actually weaken your position in the event of a dispute. If there is no concrete evidence of a contractor capability and intent to execute a substitution should the need arise, in a manner that complies with HMRC stipulations, then it renders those lines in a contract a sham. This can further weaken the credibility of the rest of the contract and claimed working arrangements. Those stipulations include that it must be the contractor limited company that engages the substitute directly.
34square provides member contractors with a robust, legally-binding substitution capability, backed by process-automated, generated contracts that deliver a legally-binding arrangement and contract security and integrity for the client. In a nutshell, the right of substitution is transformed from a throwaway line in contracts, to a tangible, robust and compliant capability to be called upon in the event parties decide it is needed.
Client attitudes to Right of Substitution
Let's first address client reluctance to embrace right of substitution. Many clients may see this as a 'fright' of substitution, perhaps due to a misguided expectation that they will encounter strangers in place of their chosen resources and have no power to intervene. In reality:
- It’s a benefit for clients, providing an assurance that contractual obligations can still be met, even if the main resource is unavoidably unavailable at a critical time. There's more information in our FAQs about the Right of Substitution Declaration we can facilitate, to help client understanding and adoption.
- 34square enables contractor limited companies to punch above their weight should they need to.
- Essentially they become part of a much larger virtual consulting company.
- If they abuse it and/or compromise delivery, terminate the contract. Just as you would for any other shortcoming.
Our vision is that our right of substitution and substitution execution, with the associated process automation and workflow, becomes the industry standard.
- Your 34square membership alone, in conjunction with right of substitution lines in contracts, can substantially bolster your clients' compliance and help to protect and preserve outside IR35 for the medium-to-long term.
- Even if your client hasn’t yet embraced our full model, our innovative substitution capability, complete with legal contracts, workflow and electronic signature, helps to protect them in the event HMRC raises a dispute, even reduces the probability a dispute will be raised in the first place.
- This elevates your own outside IR35 credentials for your client, by rendering right of substitution lines in contracts credible and real.
- It won’t take many HMRC dispute victories to fuel the early trend of clients throwing in the towel. So it makes sense to take any easy steps you can to ensure your clients can be compliant.
How our innovative substitution execution process protects and preserves outside IR35
Robustly establishing the legal RIGHT of Substitution.
- One of the most common vulnerabilities in a right of substitution is the lack of a genuine, evidenceable acceptance of that right by your client.
- This can be especially troublesome with agents involved and with the resulting back to back contracts.
- Contractors and your clients can opt to electronically sign a robust Right of Substitution Declaration, inherent in which are the wider contractor substitution capabilities in 34square.
- The full strength process begins with contractor and client signing the Right of Substitution Declaration, triggered by an agreement to do so in the assessment questionnaire.
- If and when a requirement to substitute arises, connect with potential substitutes and select candidate(s).
- Lodge and share the existing client contract (redacted as necessary beforehand).
- Negotiate duration, rates, payment terms etc.
End to End Process
Substituting a contractor resource.
- Complete the details negotiated in the web form.
- Generate the contract between you and the substitute company.
- Both parties electronically sign on this platform.
- Service delivery and payment for same are protected and obligated by a legally binding contract.
- During / following substitution, it is your responsibility to pay the substitute company within agreed terms. This is a specific HMRC stipulation for a legitimate right of substitution.
- Your main contract is appended to your contract with the substitute.
- You have robustly and legally passed the responsibility for delivery of services on your behalf, to the substitute.
- Your client can rest assured that the continuity of their own legal position is protected and retained.