Letter covering substitution and other practical arrangements for a freelancer or contractor
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What’s a letter covering substitution and other practical arrangements for a freelancer or contractor and when do you need it?
Freelancers, consultants and contractors often offer their services to customers via their own limited company. Where they sign a contract for services with their customers (which they should), it is their limited company who contracts with the customer, not the individual freelancer/contractor/consultant.
Importantly for tax purposes, freelancers, consultants and contractors organising their working arrangements in this way must be free to appoint a substitute to stand in for them in performing their contractual duties.
A well-written contract for services will include the right of substitution in its drafting. Our template contract for services: services provided by a consultancy company does so.
However, it is widely recommended, including by our expert partners, but also by organisations representing the interests of freelancers and contractors, that this contract for services is also accompanied by a side letter (or alternatively, that the contract includes an annex to the contract for services itself), that covers the logistical and pragmatic arrangements that the parties will put in place to ensure that if the right of substitution is exercised by the freelancer/contractor, the contracted work continues without any avoidable disruption and the parties can evidence that the relationship is genuinely one at arms-length and not a disguised/inadvertent employment relationship.
This letter is often called a ‘real arrangements letter’ and it usually won’t just cover the right of substitution and what happens in reality when it is exercised. There will be other practical arrangements that it’s also advisable to cover in this side letter, such as clarifying attendance by the freelancer/contractor at meetings, specifying what facilities they can make use of, and clarifying how they get set-up with what they need to start performing the services.