The importance of substitution in determining employment status was again confirmed in the recent Supreme court case, Autoclenz v Belcher.  The case arose from an employment law perspective rather than taxation, however the principles will apply across the board.

Autoclenz provide car cleaning services and the case involved a number of valeters who had been engaged as self-employed workers, although it was Autoclenz that drew up the contracts.

The contracts explicitly stated that the valeters were self-employed and provided a right of substitution.  The court found that if a genuine right of substitution exists this “negates an obligation to perform work personally and is inconsistent with employee status”.  A genuine right of substitution would therefore mean the valeters had to be self-employed.

The court found however, that it is possible for the written contract to be seen
through, in cases where the way in which the parties practice is so persuasive that they show the true obligations of the parties.

In this case, the court found that there was no right of substitution in practice;
the valeters had to do the work personally and were not in fact in business on
their own account.  They were therefore found to be employees regardless of the contract.

 At Eaves and Co, Specialist Tax Advisors, we have always advised that it is best practice to ensure that the written contracts are consistent with the actual
facts and practices.  It is now more important than ever to ensure that this advice is followed.