Limited company contractors who try to have their cake and eat it by insisting on enjoying the rights granted by the Agency Workers Regulations (AWR) are asking for trouble with their IR35 status. By saying they are outside IR35, contractors are declaring that they are a genuine business. This gains them the tax efficiencies that come with that trading vehicle, but loses them employment rights, including those granted under AWR.
But there are still some grey areas of AWR, such as what exactly constitutes a ‘business undertaking’. That’s significant because, in theory, this status puts a contractor out of the scope of AWR. So, based on what we know at this time, it is technically possible for a limited company contractor to be directed and supervised by their client, and therefore in the scope of AWR, but not actually controlled by the client, and therefore outside of IR35.
This potential ambiguity is prompting recruiters and clients to protect themselves from potential claims by contractors under AWR; although there is currently no way to officially opt out of AWR.
However, recruiters and clients are beginning to ask contractors to declare that they are a ‘genuine business undertaking’, and therefore out of the scope of AWR. Assuming this declaration was not forced on the contractor, any subsequent attempts by a contractor to claim rights under AWR are likely to be viewed with suspicion by an employment tribunal judge.
But what has any of this to do with IR35, particularly as the two sets of legislation are completely separate? Well, not everything in life can be reduced to rules and laws. Contractors keen to demonstrate that they are outside IR35, and continue to enjoy the tax advantages that brings, will require the cooperation of their agency and client.
Quite often, contractors and their advisers negotiate out nasty clauses in their agency contracts; reaching a compromise with their agency or client is part of the process. Or a contractor might require their client to sign a confirmation of arrangements that clearly sets out the exact nature of the working relationship that confirms to HMRC that they fail all the tests of employment.
But how willing to compromise over IR35 issues do are agencies and clients likely to be if contractors have tried to stiff them for equal rights under AWR? And is that going to help a contractor’s case to confirm they are outside of IR35? Clearly not!
So limited company contractors thinking of adding a extra few pounds an hour to their rates, or who fancy free use of their client’s on-site gym by making a claim through AWR, should perhaps think again.
You can be a genuine contractor, which means being genuinely in business with everything that comes with it: no employment rights, no AWR, no access to staff facilities and so on, but much greater tax efficiency and control over your destiny.
Or you can go for a few extra quid and free workouts and expect to be treated like an employee, inside IR35. That way you’ll get the employment rights and equal treatment under AWR you’ve asked for, but you’ll also enjoy the high rates of taxation and reduced income that comes with employment and IR35.