Contractors face yet another layer of added complexity, and potentially even absurdity, to the day-to-day running of their contracting businesses. If coping with the intricacies of IR35 wasn’t enough, from 1 October 2011 contractors will have a new set of ‘rights’ to contend with. These come in the form of the Agency Workers Regulations (AWR), which for the vast majority of contractors will only add costs and complexity to their businesses, with no benefits in return.
There is also the absurdity of how the AWR is to be implemented. In its ‘final guidance’ to recruiters and clients, the Department for Business, Innovation and Skills (BIS) states that, “the definition of an agency worker excludes those who are in a ‘profession or business undertaking carried out by the individual’ where the hirer is a client or customer of the individual (ie a genuine business to business relationship).” This suggests that genuine contractors in business on their own account will be excluded.
However, the guidance goes on to say that when a contractor’s status under AWR is in doubt, the courts have tests that can determine a worker’s employment status and it will be for the courts to decide if a contractor is in or out. It doesn’t bode well for AWR that these are the same set of employment tests used to determine a contractor’s IR35 status, and which have led to over ten years of confusion, cost, stress and uncertainty for the contracting sector.
The upshot of this is that, just when we thought that changes to the administration of IR35 might mean it is getting safe to dip our toes back into the contracting waters, a new and hungry predator in the form of the AWR looks set to take over just where IR35 left off. In fact, it could get worse – imagine just one possible scenario:
After the obligatory five-year investigation and long drawn out tribunal and court hearings, a contractor is found by HMRC to be inside IR35. She is charged a huge sum of money in back taxes, interest and penalties. So the contractor thinks that, if HMRC and the IR35 court decided they were an employee, then surely the Agency Workers Regulations must apply. Perfectly reasonably, she might feel entitled to take her client to a tribunal claiming for years of employment rights, equal pay, access to facilities, holiday, the works. Naturally, the client would defend their corner legally, and it seems likely that they could win their case. The result? It would leave the contractor inside IR35, outside AWR, and most certainly out of pocket.
You might assume that the same evidence that points to the contractor being a disguised employee and therefore inside IR35 would also prove that the contractor should qualify for employment rights under AWR. But because each piece of legislation must be considered in isolation, it is conceivable – perhaps even likely – that a contractor inside IR35 could be found to be out of AWR’s scope.
It will be interesting to see how the government, which has placed such great emphasis on simplifying the tax system, will deal with the IR35/AWR absurdities to come.