Contractors don’t yet know much about the Agency Worker’s Regulations (AWR). In fact, according to the latest ContractorCalculator survey, over half of contractors have never even heard of it. So, is promoting self-assessment of AWR inclusion a wise move on the part of clients and agencies?
Umbrella company contractors more or less know where they stand under AWR. All but possibly a miniscule exception will be in the scope of the regulations. And, as our recent white paper on AWR highlights, umbrella solutions providers have provided a range of creative solutions designed to legally minimise costs and the administrative burden for all concerned.
But, contrary to much of the earlier media reporting, the situation for limited company contractors is much less certain, and will remain so until the first AWR cases start appearing in the tribunals and courts. One thing is already clear: the government’s guidance for agencies and hirers specifically states that, “Simply putting earnings through a limited company would not in itself put individuals beyond the possible scope of the Regulations.”
Because IR35 employment status tests for contractors are not relevant for AWR and vice versa, a limited company contractor could potentially be outside IR35 but in the scope of AWR. Although the evidence that might put a contractor inside IR35 may also play a big part in placing the same contractor in the scope of AWR, that’s as close as the two pieces of legislation get. So IR35 is out of the equation when it comes to determining a limited company contractor’s AWR status.
That’s leaves AWR’s definition of a contractor out of scope as “carrying on a profession or business undertaking”. But what does that mean? There’s currently no test of what constitutes a “business undertaking”, or even what qualifies as a profession.
Nonetheless, many agencies and clients are requesting that their limited company contractors sign a piece of paper confirming that they are a “business undertaking”. Given that no-one yet knows what a business undertaking might be in the eyes of the law and the courts, it might be considered to be a high risk strategy to rely on the self-assessment by the contractor of their AWR status.
There is also the added risk that a court might subsequently decide a contractor was forced to self-assess in terrorem, which means the contractor was intimidated into signing the self-assessment under the threat of losing, or not being offered, new contracts. And this is counter to the general principles of contract law.
Unlike IR35, which is policed by HMRC, AWR requires the contractor to take action to activate the legislation. Clients and agencies may therefore argue that the risk of limited company contractors claiming rights is low, and largely mitigated by the process of self-assessment that contractors consider themselves to be out of scope.
But with an estimated 300,000 limited company contractors in the UK, which inevitably includes some ‘permtractors’ and likely ‘disguised employees’, it is probable that there will be some claims under AWR by limited company contractors. Self-assessment may, after all, turn out to be a dangerous tactic for clients and agencies.