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The Employment Status Service Tool – Substitution Is The Key

Written by Jon Cooper

The latest update from HMRC is that the public beta version of the is the Employment Status Service Tool will be launched tomorrow.

As we outlined in our last newsletter, the concept is that by answering a number of questions around the relationship between the contractor and their Public Sector client, the tool will provide an assessment of whether IR35 rules should apply. HMRC has reiterated that it intends to abide by the outcome.

We have had the opportunity to review the private beta version of the software and, whilst no single answer will lead to a determination, the simplest way to achieve an outcome that the contractor is outside IR35 revolves around substitution.

As it stands, if there is a ‘Contractual Obligation For a Substitute’, the obligation is demonstrable and the contractor is liable for the payment to the substitute, the Employment Status Service tool will show that the contractor is outside the scope of IR35.

For those contractors looking to continue an engagement with a Public Sector client, our two key recommendations are to ensure that a new, appropriately worded contract is in place to come into effect from April and to make arrangements to support your ability to provide a substitute.

In our view, an addendum to your current contract is not sufficient and those engaged via an intermediary need to be in active dialogue with them on this.

Transport For London were at the vanguard of the Public Sector in banning their contractors from using a Personal Service Company from April and giving them an ultimatum to either be paid under PAYE, work through an umbrella arrangement or leave.

Friday 17th February was the deadline for a decision and the rumour is that the groundswell to leave has been so overwhelming that the wholesale ban on Personal Service Companies is now under review.

There is no doubt that the new rules put an extra burden on the engager. However, Public Sector bodies are slowly awakening to the impact on their services should the latest surveys indicating that around 80% of contractors would move to the private sector rather than accept the PAYE deductions be accurate.

As a result, engagers are putting proper procedures in place to enable the contractor provide a substitute and, thereby, remain outside IR35.

To validate this, the contractor can aid their cause by making mutual arrangements with another contractor with similar skills and experience to provide substitution services. In this context, a substitute is not expected to be ‘on the bench’ waiting to be introduced.

For those working in an area that requires security clearance, it will be the responsibility of your Personal Service Company to ensure that the substitute has the appropriate level of security clearance.

At CooperFaure, we are working with a portfolio of contractor clients working in the Public Sector. If you would like any further information or to discuss your concerns, please contact us at tax@cooperfaure.co.uk.

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