subcontractor status if has an employee

oh dear, ...
.......
Paul, I read very carefully what everyone said. Even you. It's a pity you are unable to do the same.

(the reference to request for amplification/enlightenment was relating to my first posting, not a second request for clarification).

There is a long standing joke about people who think that saying the same thing, but only louder each time, is effective communication.

It helps
There is no single circumstance that will absolutely establish self-employment, but taking on an employee (or, indeed, sub-contractors of his own) will help demonstrate that he is bearing the financial risk of running his own business.

The more common ploy is for the sub-contractor to provide some materials as well as his labour and preferably, to turn up in his own van with his signwriting on it.

Also, you must avoid the more obvious indicators of employment such as the employer providing a van for the "sub-contractor" to drive and the "subcontractor" being authorised to make purchases on the employer's trade accounts with suppliers.

At the end of the day, it is the contractor's decision and his liability if he gets it wrong. If the contractor will treat your client as a sub-contractor if he has an employee, then get an employee.

Confirm
Don't whether this applies or not, but have heard that having a signed 'confirmation of arrangements' document from the main client establishing lack of MOO etc. is useful for demonstrating the case for being outside IR35. Don't have a link to a specimen doc.

subcontractor status
many thanks for the replies - my client has his own van as he used to do a lot more private work and still does the odd domestic job. My biggest worry is that whilst HMRC may regard him as self employed for those jobs they may regard the engagement with this main contractor as employment . I would find it hard to argue that someone who turns up every day for months on end at the same site to do the same job with guarantee of work is really "self employed" (not saying I wouldn't try mind you) However I am encouraged by your comment that it is really up to the main contractor to worry and if he is prepared to treat him as self employed provided he takes on an employee then that is what I will recommend to my client

Carolyn, I am mightily struck...
... by your emphatic statement that an employer CANNOT be an employee. (my emphasis). You agree 100% with the main contractor in the original question without any other matter being of relevance.

That would be a potentially interesting matter for a number of instances I am aware of (albeit not my clients).
Is there a specific statute clause or specific case you have in mind for this statement?
Or is it simply your more general view? If so, do you have any further basis/reasoning you can share with us?
Be very interested on any specifics, please.

Almost
I think Carolyn is being mislead by references to the court of appeal case of Express & Echo Publications v Tanton a few years ago where they ruled that an employee cannot employer someone else to do their work for them - hence the popularity of substitution clauses to 'protect' against employment status. However this does not prevent an employee employing someone to assist them in the work that they do - and the revenue manual used to accept that people like insurance agents could employ someone to do their paperwork for them and claim a deduction under what is now s336 for the expense. Being an employer does not mean you cannot be an employee. Being able to employ someone else to do your job for you does mean that you cannot be an employee. See this for further details http://www.hmrc.gov.uk/manuals/eimanual/EIM32415.htm

It is the RIGHT to bring in a substitute which is important
Express and Echo was one of a long list of cases in which the judges referred back to the case of Ready Mixed Concrete v Minister of Pensions and National Insurance from 1968, in which MacKenna J first laid out the concept of an irreducible minimum requirement for a contract of service. One of the three requirements is an obligation to carry out duties personally; hence the inclusion of a substitution clause in many contracts which are intended to be for services.

It is difficult for the Revenue to overturn a written agreement for services which gives a worker the right to bring in a substitute or assistance to carry out the duties under the contract. They will often argue that unless a substitute has been used in practice this clause is somehow invalid, but that is not the legal basis. If the worker chooses not to exercise his right under the contract, that is his decision; it does not change the rights.

The Revenue manuals refer to the case of Glasgow City Council v MacFarlane as indicative that a right of substitution does not always outweigh other factors in a case; however, the substitution clause in the MacFarlane csae is not one that I would recognise as a suitable clause for a contract for services. In that case, the workers would contact other workers on a list supplied by the Council and the Council was responsible for paying that substitute.

Ultimately, the Revenue only understand paperwork, so a written contract is critical, but that contract must be properly considered in the light of case law. If there is a proper right of substitution, an agreement that the contract does not establish Mutuality of obligations and if an agreement that the worker is free to perform the duties when, where and how he sees fit can be incorporated, all bases are covered. Whilst the Revenue will then argue that it's what happens in practice that is important, what happens in practice does not change his rights under the contract. The worker has a legal document stating his rights, to which engager has agreed.

well,....
..I agree all Paula's points, including substitution ; it is what I do with all my clients, and I'm comfortable it works under current law.

But I am aware of a couple of non-client situations where there is no written contract and the situation would be grey, but (and the tax years are not concluded) ironically an employee was actually evidenced.

So I was interested in the aspect of whether, as a matter of "clear" fact (accepting there may ultimately be few such things in UK tax !), having an employee meant you CANNOT be an employee of someone else (in the same work etc).
i.e. differentiating quite specifically between (i) a right of substitution and (ii) having an employee (which in theory, and probably in practice, could be different things).

I was not as certain as Carolyn that it was stone-cold "just" by having the employee (as ever, individaul case facts have their complications), hence my request for any amplification/enlightenment.

Martin,
I think it's probably the old "depends on the circumstances" argument. Knowing the MO of compliance officers, they will try to find a way to argue that having an employee did not indicate self employment because there was an R in the month, etc. Chances are, actually employing someone as an assistant or substitute should be sufficient evidence that the worker was not required to carry out work personally, but that doesn't mean the Revenue won't challenge it.

Anybody out there?
Simply being able to employ someone does not insulate you from being an employee - see the link on my earlier posting - however where there is a right of substitution it is correct to say that it does prevent you being an employee. Martin if you're listening its the difference between being ABLE to employ someone, which might not help and HAVING THE GENUINE RIGHT TO SUBSTITUTE (sorry I'm shouting but you don't seem to be listening) and whilst we're at it the clause in Mr Tanton's contract which prevented him being an employee said that if he was "unwilling or unable to act he was to provide a substitute at his own expense entirely". Notice unwilling gave him the choice whether to substitute or not. In the case concerning the Glasgow Gym instructors their clause required them to provide a substitute if the were unable to act - it did not permit a substitute if they simply wanted time off - they had to choose someone from Glasgow's list of approved instructors, and Glasgow paid the substitute. Incidentally the gym instructors didn't actually choose the substitute the council did. Both cases are employment law cases so Tanton lost - although from a tax point of view we're glad he did, and the Gym Instructors won - they were employees and so entitled to redundancy monies when dispensed with.

Martin please read what Paula is actually saying... and Carolyn please don't be quite so certain when there is clear evidence in a wealth of (mainly) employment law cases that you might not be as certain as you think...

Hi Martin
Just reviewed your commentary again and on reflection it can be read in two ways - I read it as persisting with the suggestion made earlier by Carolyn that being able to employ someone meant that you could not be an employee, when I think it is fairly established that the difference is the ability to employ to assist as opposed to employ to perform as I tried to point out; On rereading it it is perhaps more of a rhetorical reflection on her overly positive comment - if so accept my apologies - must be late nightitis- this is, however, too dangerous an area for misinformation, which is why, believing you in danger of being mislead, I was, how shall we put it, overemphatic.

OK Paul
Spat over. My second posting was indeed exactly as you say.

uh oh....
...."Finally" is a VERY dangerous word, Carolyn !!

The base question originally posted is a fundamental one relating to employment/self-employment status.
That vexed question is often intertwined with CIS, IR35/Limited company, and all sorts of other things, but ultimately these are all red herrings in the way of establishing the basic employment/self-employment status query.
(and specifically, substitution is a central plank in that, much wider than any IR35 considerations per se)

So, I think the "point of principle" difference between you and Paul remains.

However, it is a very pertinent point to raise in helping Claire that the risk arising from all this going pear shaped, should her client be operating as a sole trader, is of course primarily on the contractor, not her client.
So her client can sleep relatively comfortably by following the contractor's instruction and hire a labourer (although that would involve the cost of paying employers NI) ; if this satisfies the contractor to treat Claire's client as not an employee, then it is the contractor who would continue to primarily run the risk , if there were to be one.

Thanks to all
I just wanted to say thanks to all who have contributed to the query I posted. One of the great things about posting a query here is the way in which the thread develops and often side issues arise which add to all our knowledge. I have just registered my client for paye as it turns out that he has the opportunity to take on a young apprectice and the status issue has in a way provided the clincher in his decision.
I have advised my client that the ultimate responsibility for determining his status lies with the main contractor and so he should not worry any more about it.
Once again many thanks

Thanks Claire
By the way taking on an appentice must be very persuasive of self-employed status as the purpose of the apprentice is to acquire trade skills which woud be characteristic of those which a crafts-person would possess - enabling substitution. Certainly much better than simple labouring or assisting. It can't be guaranteed but I think it would be brave of the revenue to argue employment in that situation.