As the Agency Workers Regulations (AWR) take effect from 1 October 2011, online contractor accountants will have a key role to play in helping contractors choose the trading vehicles that best suit their needs, and not the needs of recruiters. That’s according to Darren Fell, Managing Director of Crunch, in this article for ContractorCalculator.
Unless there is a drastic change in perception by contractor recruiters and clients as to precisely how the AWR will impact on the UK’s contracting workforce, we are likely to experience a huge swing towards limited company trading solutions by new contractors and those trading via umbrella companies, partnerships and as sole traders.
Our concern is that, in their rush to avoid being ‘in scope’ of the AWR, many contractors will find themselves forced into inappropriate limited company trading solutions that do not fit their personal needs, or the needs of their businesses.
As online contractor accountants, we at Crunch.co.uk have a duty of care towards our contractor clients, to ensure that they choose a trading model that suits their needs, and not the needs of recruiters and clients wishing to avoid the potential additional administration and costs that the AWR could bring.
A serious risk of adopting inappropriate trading models
As there is the potential for tens, if not hundreds, of thousands of contractors to incorporate before and after 1 October 2011, there is a very real risk that many contractors will be pressured to quickly sign up to inappropriate service providers.
Non-specialist contracting service providers, such as high street accountants who don’t understand the contracting business model or IR35, or even new breeds of managed service company or offshore solution, could cause serious harm to their contractor clients. Many contractors fared badly when their trading.
To illustrate the risk, and the threat to the financial wellbeing of contractors that mass incorporation may bring, is the fact that we have been approached by several umbrella solutions providers wishing to simply license the unique technology we have developed for Crunch.co.uk to use for their existing umbrella company clients.
Offering an online accountancy service without the requisite accountancy expertise and services delivered by qualified accountants would be highly inappropriate. Yet it could become a very real scenario should less scrupulous contracting sector suppliers manage to obtain the rights to use turn-key contractor accounting solutions.
This is why the online contractor accounting sector will have a duty to ensure that contractors are only trading as limited companies if the nature of their business demands this model. It will also be important to ensure that from the outset contractors understand the trading options available to them, are not pressured to adopt one model over another, and can make informed choices of their own.
Agency/client ignorance and low cost barriers will drive contractors ‘ltd’
There are two main reasons for this potential flight away from umbrella companies, partnerships and sole traderships towards limited companies:
- Firstly, despite the final guidance for recruiters and hirers published in May 2011 by the Department for Business, Innovation and Skills (BIS), there are mixed perceptions by agencies and clients of whether, by default, limited company contractors will be out of scope of the AWR or not; and
- Secondly, widespread adoption of online accountancy services has removed the cost barriers to running a limited company; indeed, it is now possible to run a limited company via an online accountant for less than the cost of some umbrella companies.
Despite what some hirers and recruiters may be telling contractors, the guidance published by BIS appears to be, on the surface at least, clear when it says that “simply putting earnings through a limited company would not in itself put individuals beyond the possible scope of the regulations”.
And it is worth noting that all the established tests of IR35 may not be relevant to AWR and there are no official links between the two pieces of legislation.
Under AWR, an individual who meets the definition of being an agency worker and has worked for the qualifying period of 12 weeks is considered ‘in scope’ by default. The challenge is therefore to prove that a limited company contractor is engaged in a “profession or business undertaking” on their own. In turn, that presents additional challenges to online contractor accountants.
Online accountants must develop new competencies
As the role of recruiters has expanded beyond the initial brokerage of work seeker and employer to include areas such as compliance, so the traditional accountant’s role has expanded to offer expertise to contractor clients in areas such as IR35 and the Managed Service Company legislation.
It is likely that, once the AWR comes into force, online contractor accountants will be required to add another string to their bow: advising on the most suitable trading vehicles for contractors. That’s not to say that accountants should be setting up shop as employment law experts, but, as with IR35, we should know enough about these new regulations to understand where the line is and who to call when it is crossed.
At Crunch, we’ve already taken a step in that direction by building an online AWR resource for our contractor clients. We have also acquired the online employment matters and employment law resource Workline UK and incorporated its services into our community site Freelance Advisor, to support our freelancer and contractor clients. We’ve also hired the expert team behind the website to ensure that we continue to provide expert advice on employment issues, particularly as many of our contractor and freelancer clients are becoming employers themselves, using our Crunch.co.uk payroll solutions.
There is no doubt that, as with the arrival of any new legislation, AWR will present service providers and contractors alike with fresh challenges. And our challenge as online contractor accountants is to ensure that, in a new AWR world, our contractor clients emerge stronger and better able to tackle the commercial challenges that really matter.