Talentcore (2011) - a helpful review of substitution

TALENTCORE – Useful guidance from the Tax Tribunal on substitution


The Upper Tax Tribunal has provided some useful guidance on the issue of substitution in the case of HMRC v Talentcore (2011).

The Tax Tribunal was considering whether consultants who were provided to cosmetics companies and duty free stores in airport lounges, were indeed disguised employees, thus rendering their income subject to the PAYE legislation.

In this case, there were no written contracts in place dealing with the issue of substitution and so all of the evidence came from the working practices. Consultants were able to provide a substitute as and when they pleased. The only requirement was that the substitute could work air-side at an airport and complied with the necessary rules in relation to dress-code, punctuality general demeanour whilst at the client’s premises.

The Tax Tribunal found that because the consultants could provide a substitute at their complete discretion and, on some occasions the consultant would take responsibility for paying the substitute for the work undertaken, this was sufficient to demonstrate there was no obligation to provide a personal service and the right of substitution was valid.

Comparing this case against other cases where the right of substitution has failed, it is clear that having complete discretion over who is used and when a substitute is provided is key.

Previous cases where substitutes could only be provided where the consultant was unable to work; where the client had an unreasonably excessive right to veto any proposed substitute; or where the right to provide a substitute was limited to the original consultant being sick or on holiday, would not be sufficient to demonstrate there was no obligation on a specific individual to provide a personal service.

This case reinforces the need to ensure that the right to provide a substitute must be agreed by all of the parties in the chain (consultant, agency and end client); exercising the right of substitution in practice is not essential, but will go a long way to demonstrating the validity of the right; and ensuring the consultant retains complete discretion over who, when and how the right of substitution is exercised will all ensure that the consultant is viewed by HMRC and the Tax Tribunals as being truly self-employed.

As always, you can seek expert advice and guidance on the application of case law to your personal circumstances from our IR35 specialists. It is strongly recommended that you seek advice from us as to the IR35 status of your assignments to ensure you take the appropriate action to protect your business from an HMRC enquiry.


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