What is substitution in IR35 contracts?
Answered 11 March 2026
Here is a comprehensive answer on substitution in IR35 contracts:
Substitution in IR35 Contracts
What the law says
In IR35 cases, the key legal question is whether the notional (hypothetical) contract between the worker and the client would require personal service. Substitution is relevant because a genuine right to send a substitute in place of the worker undermines the requirement for personal service, which is a hallmark of employment.
The correct legal test for analysing personal service and substitution clauses in IR35 cases is the dominant feature test, as set out by Lord Wilson in Pimlico Plumbers v Smith [2018] ICR 1511. Where a limited right of substitution exists, that does not distract from the dominant feature of the arrangement — if that dominant feature is the personal service of a specific worker, it is consistent with a contract of service.
HMRC Guidance / Practice
1. What is substitution?
Substitution is the right (or, in extreme cases, the obligation) of a worker to send someone else — a "substitute" — to perform the contracted services instead of performing them personally. In IR35 contexts, it is far more common to encounter a right of substitution rather than an obligation, and that right is usually fettered to some extent.
2. Why does it matter?
A genuine right of substitution is a pointer to self-employment, because it suggests the client does not require the personal service of a specific individual. However, it is only one factor to be weighed alongside all others — it is rarely determinative on its own.
As Park J stated in Usetech Ltd v Young (ESM7270), and confirmed in Dragonfly Consultancy Ltd v HMRC (ESM7290): "The presence of a substitution clause is an indicium which points to self-employment, and if the clause is as far-reaching as the one in Tanton it may be determinative by itself."
3. The notional contract — client's views are critical
Because IR35 requires construction of a notional contract between the worker and the client, it is not simply a matter of importing substitution clauses from the written intermediary/agency contract. The client's views are particularly important. Key questions include:
- Would the end-user permit the worker to send a substitute, or would they only accept a substitute from the agency?
- Would the worker pay the substitute?
- Did substitution actually happen in practice?
4. Genuine vs. sham substitution clauses
HMRC notes that many substitution clauses are inserted merely to try to break the requirement for personal service and may not reflect reality. A genuine right of substitution only exists where:
- There is an explicit right for a substitute to be sent; and
- That right has been accepted by the client.
HMRC will not accept a right of substitution simply because the contract is in the name of a service company. A right is only likely to exist where the client does not care from day to day who turns up, provided they are suitably qualified.
5. Fettered vs. unfettered rights
The weight given to a substitution clause depends on how restricted ("fettered") it is:
- An unfettered right (where the client cannot refuse a substitute for any reason) is a strong pointer to self-employment.
- A fettered right (e.g., requiring client approval of the substitute) is a weaker pointer, but a requirement for prior approval is not necessarily an unlimited fetter.
- An unlimited fetter — where the engager can refuse a substitute for any reason — would effectively negate the right.
6. Practical use matters
Where a substitution clause exists but has never been used in practice, it will carry little weight as a pointer to self-employment. As Mr Justice Hart stated in Synaptek Ltd v Young: the Commissioners were entitled to regard it as "simply one fact among others and, in assessing the weight to be given to it, to take into account the extent to which the provision was utilised in practice."
7. Summary of the spectrum
| Substitution clause type | Effect |
|---|---|
| Obligation to substitute (e.g., Tanton) | May be determinative of self-employment |
| Unfettered right to substitute | Strong pointer to self-employment |
| Fettered right (e.g., client approval needed) | Weaker pointer; weighed with other factors |
| Clause never used / impracticable | Little or no weight as a pointer |
| Clause is a sham | Only a minor pointer to employment |
Citation sources
d. There was no obligation on Mr Lee to continue to provide his services once the project was completed even if the end date of the contract had not been reached. Substitution – the FTT erred in concluding that, even though the hypothetical contracts would have contained a substitution clause, the right of substitution “might be seen as almost theoretical” as there was no (or no sufficient) evidence to support this finding. Part and parcel – the FTT failed to provide adequate reasons for its f
But where there is no global contact, it is necessary to consider whether the minimum mutuality of obligation exists for each separate (shorter) engagement.### Right of substitution The substitution clause in the agreement provided that Mr S was the one expected to provide the services but Synaptek “may with the consent of the Client substitute alternative personnel…”. Mr Justice Hart confirmed the Revenue view of such clauses in saying, “The effect of the contract is that, unless and until agre
As stated at ESM8530 above, in an IR35 situation it is necessary to construct a notional contract between the worker and the client. Consequently, the views of the client on the issue of substitution are particularly important. It is not just a matter of importing clauses in written contracts into the notional contract. A clause may be worded in such a way that it quite clearly indicates that no personal service is required - see the case of Express & Echo Publications Ltd v Tanton (ESM7210). Bu
is reduced in any way. Likewise, if there appears to be an unfettered right of substitution you need to consider whether or not any restrictions are placed upon that right. Where your opinion that an engagement is outside IR35 is based upon there being no requirement for personal service, you should make it clear that your opinion has been made on that basis. See also the guidance at ESM0530 onwards
the ABB/NES contract, the hypothetical contract must have contained such a clause. He also said that this argument was reinforced by the self-assessment nature of the tax system. The judge rejected those arguments relying in part on the judgment of Burton J. in R (on the application of the PCG and others) v IRC [2001] STC 629 at p.651. For all those reasons, the judge did not accept that the hypothetical contract would have contained a substitution clause. He then went on to consider previous co
An effective substitution clause will be a pointer to self-employment. The weight of it as a pointer will vary in accordance with the wording. In some cases it may be so unqualified as to actually determine that there is no requirement to give personal service at all. At the other end of the spectrum, the evidence may suggest that the clause is almost ineffective. For example, if the duration of a contract were very short-term, why would it be necessary to include a substitution clause? Between
A genuine right of substitution is a pointer to self-employment. The weight to be given to such a provision will however depend on the particular facts of each case. For example, in the case of Mrs MacFarlane & Mrs Skivington v Glasgow City Council (EAT/1277/99) - see ESM7220, the Employment Tribunal found as fact that: “If for any reason, one of the applicants was unable to take a class, she would contact a replacement from the register of coaches maintained by the respondents, and arrange for