CEST and Right of Substitution: Ask Andy Answers
Do you have a burning question around the upcoming private sector IR35 reforms? Has CEST got you baffled? Don’t know…
Unfettered. Freely exercisable. Without limiters. Anything less in a sub clause just won’t do (to keep personal service from biting).
An employment tribunal finding an invigilator to be a “worker” underscores the importance for contractors of having an unfettered right to substitute.
If ‘outside IR35’ is the goal, a sub clause must not be like the invigilator’s was – actionable only when services cannot be performed, such as due to illness.
And if ‘outside IR35’ contractors still have doubts due to right-of-substitution curbs like illness, iron out the clause, or exercise it – even just for a short time.
Kingsbridge yesterday issued this three-fold guidance (‘don’t use an illness-only sub clause; revise it, or action it’), in light of the ruling for the invigilator, Mrs J Shanks.
‘Shanks v SQA is primarily a holiday pay case’
She has won her case, Mrs J Shanks V Scottish Qualifications Authority (SQA), which was “primarily a claim for holiday pay,” states the ruling, released on Thursday (22nd May 2025).
The case heard many aspects of Shanks’ contract and “day-to-day” working practices at SQA, because to be entitled to holiday pay, she had to prove “worker” status.
One of the three elements in the statutory definition of a “worker”, which dominated the hearing, is whether the person is required to do the work personally.
‘An unpoliced Right of Substitution, because we’re not bothered by a no-show’
In trying to prove it didn’t owe Shanks holiday pay for invigilating in 2024, SQA all but said she “had a Right of Substitution (RoS) which they didn’t police”.
This is how Kingsbridge’s IR35 Consultancy Manager Matt Tyler sums up SQA’s argument against personal service to employment judge Muriel Robison.
Indeed, SQA said “they are not bothered by someone who does not turn up”; that invigilators could “swap shifts,” and if they swap, it needn’t be notified.
‘Overly fettered, with limiters’
“But actually, Shanks could only invoke her RoS in limited circumstances or with an overly fettered pool of replacements to choose from,” said Mr Tyler, citing the ruling.
“Invigilators could not undertake work if they didn’t have a SQA contract. They needed allocation to a centre, prior training, and know-how of the ‘set-up.’
“Fettering the right to substitute so it’s only usable in certain circumstances, such as due to illness which Judge Robison found was the case for Shanks, is, in effect, putting limiters on the [RoS].
“Fettering the RoS also limits the contracting parties’ ability to utilise whatever resource they deem appropriate to undertake the work.
“And collectively, these limiters go some way to suggesting a personal service requirement, even if the engager is just trying to ensure continuity of services.”
Frances Lewis, of law firm Osborne Clark, agrees, but points out that ‘Shanks’ is an employment tribunal case, making it not legally binding on future cases.
‘RoS must be unfettered to negate personal service’
The law firm’s Head of Contingent Workforce, Ms Lewis told Kingsbridge: “In terms of contractor tax status, the [Shanks] case serves to reiterate the point that for a Right of Substitution to negate personal service, it must be unfettered and freely exercisable by the individual.
“Having a right to use a substitute who has been pre-vetted by the client, or a right which is exercisable only where the contractor cannot perform the services, will not be enough to remove personal service.”
John Chaplin, of professional services firm BDO, issued a large caveat of his own, despite also signalling that fettering equates to trouble if ‘outside IR35’.
‘Interesting from the potential impact on IR35’
“[Shanks] is an employment law [case] rather than a tax case. While it might be interesting from the impact it may have on IR35, it is not automatic as there is no direct map across,” he began.
“For example, in the ‘Pimlico Plumbers case’ [which was relied on heavily by SQA], plumbers were held to be workers for employment law but not employees for tax. So ‘Shanks’ should be taken in that light by Personal Service Company contractors.
“[That said]…. [Judge Robison’s] findings regarding substitution…reinforce the need for any substitution to be ‘unfettered’.”
‘Restrictions fatally damage the argument that substitution exists’
BDO’s Employment Tax Partner, Mr Chaplin continued to Kingsbridge: “Any restrictions to substitution, put on by the hirer, will weaken if not fatally damage the argument that substitution exists.
“The ‘Shanks’ case reinforces the message that contractors need to ensure that the ability to substitute is real, without restriction, and not just a contractual clause.”
In the ruling, Judge Robison said the “clear” evidence showed “no unfettered right to substitute”, as invigilators would have to inform the chief invigilator, “at the very least”.
‘Deliveroo’
This establishment of an unfettered right to substitute then undermined SQA’s ‘Deliveroo argument’.
The authority claimed that, like the food riders in the 2016 Deliveroo case, there was no policing of a substitute should invigilators choose to use one, and no penalty or adverse consequences where substitution was actioned.
But the judge said: “I do not consider that the position of the Deliveroo rider can be said in general to be analogous to the role of the invigilator, not least because it was apparent that there was clearly an unfettered right to substitute in that case.”
The “evidence” before the tribunal showed Shanks enjoyed a right of substitution “only when the contractor is unable to carry out the work”, which is “indicative of personal service”.
‘Unfettered RoS is crucial, both in the written terms and in reality’
Kingsbridge’s Matt Tyler says the message from the tribunals is therefore clear, particularly (albeit indirectly) to ‘outside IR35’ contractors looking to cement their commercial position.
He advises: “It is crucially important [to keeping ‘inside IR35’ at bay] that there is as unfettered as possible right to provide a substitute enshrined in the engagement, both in the written terms and in the reality of how the contractor is operating.
“‘Outside IR35’ contractors must always remain free and able to supply a substitute at any given point for any reason they deem necessary. This may include illness but should NOT be limited to JUST illness.
“Where there is doubt as to the authenticity of a right of substitution, confirm the position and, if necessary, invoke that right even if it’s for a nominal period.”
Getting support with IR35
Navigating IR35 legislation and ensuring compliance can be challenging for contractors and businesses alike. At Kingsbridge we offer tailored support, including expert guidance on IR35 status assessments, compliance strategies, and risk mitigation. Our team is dedicated to helping contractors and businesses understand and adapt to the evolving tax landscape.
We also offer a range of flexible business insurance options to support contractors, including Professional Indemnity, Public Liability, and Employers’ Liability cover, as well as add-ons like Cyber Insurance and Director and Officer’s Liability.
To find out more, get a quote or contact us to speak to an in-house expert today.
Simon Moore, Managing Director at Moore News Ltd
Simon Moore is a journalist with NCTJ-approved journalism training, who has worked inside the newsrooms of local, consumer and national media titles.
He today writes news and features for trade publications specialising in freelancing, small business and the self-employed. Simon’s articles have been linked to by The Daily Telegraph and the biggest newspaper website in the world, MailOnline. He was appointed to be a judge at IPSE Freelancer’s Awards 2023.
