Tax & Accounting News
Tribunal highlights substitution clause clincher in determining employment status
13/12/2011
A recent tribunal case over the right to send in a substitute has shown that having a substitute is not key to employment status.
In HMRC v Talentcore Ltd, the tribunal ruled in favour of the taxpayer in an employment v self employed ruling.
HMRC argued that the right to send in a substitute wasn’t the key factor in deciding a worker’s employment status.
In this case HMRC claimed that a clause in Talentcore’s contract didn’t give free reign for a substitute worker.
In practice the “employer” preferred and expected this to happen only in an emergency.
The judges ruled that even where an “employer” tells a worker that they prefer them to personally do the job rather than a substitute, and insists any replacement is suitably qualified, then this doesn’t restrict the worker’s right to send in a substitute.
The case highlights two deciding factors when working out employment status.
For contract to be one of service (i.e employment) as opposed to one for service (self-employment) the services under the contract must be personal, that is, provided by a named worker and not someone else (a substitute).
The vital message is, if a worker has a right to send in a substitute, then the arrangement can’t be one of employment, because the services aren’t personal to the individual who signed the contract.
Therefore even if the “employer” controls the worker they won’t be an employee.
To avoid trouble with HMRC over the status of freelance workers, businesses should include a substitution clause in the contracts, even where it is obvious they are self-employed.
