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Looking at IR 35 compliance : http://www.contracteye.co.uk/ir35_compliance_overview.shtml

Substitution

An important IR35 factor, you should ensure that your contract allows you to provide a substitute in the event that you are unable to work at your client site due to illness or other eventuality. The right to substitution must always be a genuine one, with any costs of providing the substitute met by your own company.

As a contractor to be IR35 compliant your contract must allow the provision of a substitute.

  1. Does this mean if I'm off sick I would need to have someone to go in that day?
  2. Can you have the right to provide a substitute but not follow it through?
  3. Or do you negotiate it into your contract then this is something the agency that hired you deal with

I just don't see how any individual with a Limited company could be compliant with the clause. Can anyone enlighten me?

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Suppose you are a licensed plumber working solo and you have a contract with a builder to do the plumbing on a house that is being built. Your job has to be finished by a given date. If you fall ill or are unable to work for any reason, what happens? Will the builder give you an extension of time? Remember that the builder may have other subcontractors lined up to do other jobs right after your work is completed, and so your contract may specifically say that extensions of time are not permitted, and that penalties will be imposed for failure to complete the work on time. If the contract does not allow you to send in another licensed plumber to do the work (and pay that plumber as a sub-subcontractor out of the money you get from the builder), then what?

Another plumber could, in most instances, replace you and do the necessary work if you are ill. If you are a software developer working on site on contract, it might be harder to get another programmer to go in and start writing code from the point that you left off the previous evening: the learning curve to figure out what is going on might be just too steep.

In the US, the Internal Revenue Service has rules about when someone that a company claims is an independent contractor (and so the company is neither liable for various employment taxes nor required to pay employment benefits) is actually a contract employee because (among other reasons) the work conditions imposed -- come in to our job site, do what we tell you to do using our computers, etc -- more closely resemble employment than independent contracts. It seems from the website that you provide a link to that the UK has similar rules too. If you don't have the right to send in someone else to do your work at the client's site (and also satisfy various other conditions that a truly independent contractor would satisfy), then, in the eyes of the tax authorities, you are effectively an employee of your client regardless of what you or your client or the contract between you and the client says.

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    Sorry I should have said I'm talking from a software dev perspective. That doesn't really answer it as I know some IT contractors are IR35 compliant so there must be something you can do. The use of company computer is a separate IR35 clause that is a separate issue. – Blundell Apr 22 '12 at 19:02
  • See my updated answer. – Dilip Sarwate Apr 22 '12 at 19:07
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    Bah indeed. If you have a contract to supply some piece of software in six weeks' time, can work from home or your office on your own computer(s), set your own hours (work till midnight some day if need be), etc., you are an independent contractor. If you have to go to the client's site, clock in, work eight hours each day on the client's computers, are allowed to have lunch in the employee cafeteria, etc. then you are looking more and more like a contract employee. Seems to me that you want to eat your cake and have it too. – Dilip Sarwate Apr 22 '12 at 20:15
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    In the US, some software developers file complaints with the IRS wanting to be classified as contract employees because it is more beneficial for them, and employers try to resist this. It seems that you are in the opposite mode. Work with the client to get a good deal. – Dilip Sarwate Apr 22 '12 at 21:56
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    Not that way round in the UK mate ;-) – Blundell Apr 23 '12 at 7:09

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