What has the Agency Legislation done to IR35?

13th September 2017
Written by Nigel Nordone

Confusion results in odd contractual clauses

IR35 has always been ambiguous, which has always been the main bone of contention in that it can be extremely difficult to determine IR35 status without seeking the advice of an independent expert who knows the legislation inside out.

The legislation is not only confusing for contractors themselves, but also agencies and end clients alike, who now, particularly thanks to IR35 changes in the public sector, find themselves having to get to grips with IR35/employment status.

It’s no wonder then that we find some odd clauses within the contractual agreements we review, which are borne out of so many changes in legislation concerning employment status over the last few years.  One of the most common issues is that IR35 often gets confused with the Agency Legislation, which although is concerned with employment status, does not affect incorporated businesses (confirmed in HMRC’s ESM2017).

The Agency Legislation was amended in April 2014, and now states that for agencies engaging self-employed individuals - where they fall under the supervision, direction or control (SDC) of the end client - those workers will need to be treated as employees for tax purposes, and placed on the agency’s payroll.

As a result of this, we’re now seeing strange contractual clauses stating that a limited company contractor may not engage any workers on a self-employed basis, but that they should all be paid on a PAYE basis. For personal service companies (PSCs) this will usually be the case, but it could place a restriction on the right to provide a substitute and engaging helpers, if all such workers are required to be employees.

Additionally, stating that all of the limited company’s workers have to be employees, flies in the face of what a genuine business should be able to do which is to control their own operations and arrange their own remuneration structures in the most tax efficient manner.

If you have a contract with an agency, you might have spotted clauses like this in your own agreements and there’s no need to panic. Such clauses are defendable simply because they are borne out of confusion and because the clauses usually only exist to protect the commercial interests of the agency rather than to restrict your right to provide a substitute.  Clauses like this should always be flagged up in an IR35 review however and if there is any doubt on the true intention of the clause, it’s always advisable to discuss further with your agency.
Nigel Nordone
Written by
Nigel Nordone
Nigel Nordone is the Head of Tax at Qdos, after working for HMRC for over 20 years as a tax inspector. We’ve decided to forgive him for this little transgression as his knowledge of how HMRC handle enquiries and compliance checks is really beneficial for both Qdos and our clients. Nigel specialises in employment status and has personally represented hundreds of clients who have been subject to a HMRC IR35/employment status enquiry.

Have a question?

Ask away! One of our team will get back to you!

Prefer to talk to us in person?

Call our team on 0116 269 0999 or we can call you back at a time that suits you!