New right-to-work rules taking effect on 1 October 2026 could affect some contractor substitution arrangements.
While they do not alter IR35 or the off-payroll working rules, the changes could have implications for how substitution rights operate in some engagements. Genuine direct client-to-PSC arrangements generally remain outside the new right-to-work checking regime.
Substitution is a long-established factor when determining IR35 status.
The new right-to-work regime also contains specific provisions covering substitution in certain working arrangements.
Michael Shaw, Samir Abugideri and Jessica Jim of Macfarlanes have highlighted that overlap, noting that substitution clauses are common in consultancy and contractor agreements.
The Home Office’s draft employer guidance, republished on 11 September, is due to take effect on 1 October.
What changes from 1 October?
The rules now catch some working arrangements that previously sat outside the normal right-to-work regime, including certain worker contracts, individual subcontractors and online matching services.
It also extends liability across some supply chains, so agencies, consultancies and other businesses passing work down the line are most likely to need to be aware of the changes.
The new rules apply to relevant contracts entered into on or after 1 October 2026. For worker contracts, individual subcontractors and online matching services, the guidance says penalties can apply where the engagement starts on or after that date.
Civil penalties can reach £60,000 per illegal worker, according to Macfarlanes.
What about PSC contractors?
In its document, the Home Office makes clear that the new rules will not apply to every contractor arrangement.
Genuine business-to-business arrangements are outside the regime where someone is running their own business, including through a company, and contracts directly with clients.
And, as is key to IR35 and employment status, the terms of a contract are not sufficient on their own – the working practices of workers are important too.
Why substitution matters
The Home Office provides the example of a self-employed food-delivery rider who sends someone else to do the work. In those circumstances, the platform may be treated as the employer of the substitute for illegal-working penalty purposes.
Where the substitution provisions apply, an organisation seeking a statutory excuse must carry out the required right-to-work check before the substitute starts work.
The original worker cannot simply be left responsible for making sure this check has been carried out.
The Home Office does not specifically address every situation where a direct PSC-to-client contract contains a substitution clause, which may leave some uncertainty in edge cases.
As for IR35 itself, nothing changes on 1 October. A genuine right of substitution remains a relevant factor in the overall employment-status picture, and the Home Office is not seeking to redefine it.
Instead, the change is focused on immigration compliance.
For now, this looks more like an issue for agencies and consultancies than for most IT contractors. The only real contractor angle is whether concerns about right-to-work checks make businesses less willing to accommodate substitutions in practice.