IR35 and the Upper Contract

The majority of contractors will source their contracts via a recruitment agency. After finding a contract, the majority of these contractors will continue by having their contract review assessed for compliance with the IR35 legislation and then usually commence the contract and assess their working practices as well to ensure all taxes and national insurance contributions are paid correctly.

What many of these contractors do not realise is that they are only reviewing half of the agreement. Your contract is (or at least should be) between your limited company or partnership and the recruitment agency. The end client’s business may be listed on the contract as the ‘client’ and you may be listed on the contract as the ‘worker’, or something of the like, but the contract is between your company and the agency only.

The recruitment agency will then have a separate contract between itself and the end user. This contract plays a real part in your IR35 status as in cases such as UseTech, Dragonfly and Primary Path where the importance of correlation between the lower-tier contract (that between your company and agency) and the upper-tier or secondary contract (that between the agency and end user) was clearly demonstrated.
However, the nasty little catch is that you have no right to see the upper contract in order to check its correlation, despite its relative importance to you.

The upper tier contract, unfairly out of reach to you, is also quite likely to have some discrepancies. This is due to the fact that the agency has differing interests to satisfy at both ends. You will be looking to secure an IR35 compliant contract which allows such freedoms as the right to substitute and autonomy over your method of work, whereas the client may not be satisfied with these aspects, particularly if they are not used to dealing with independent contractors and feel uncomfortable with such allowances which make them feel out of control. The agency may therefore look to satisfy all needs by offering contracts with different terms.
As you are solely responsible for ensuring your tax and NICs are paid correctly, being held against terms which you may not have agreed to is very unfair indeed. But evaluating the upper-tier contract is one of the ways for HMRC to look behind the scenes and try and get a picture of the real deal.

Lacking the ability to check that the two contracts correlate, there is regrettably little that you can do to ensure compliance for the upper tier contract. It is recommended to ensure compliance of your lower-tier contract and working practices as usual, as well as paying yourself a market rate salary. Essentially, do not give HMRC a reason to delve into the upper tier contract and find potential discrepancies that you have no control over. You can also politely request to see the upper tier contract although it is unlikely that your request will be accepted and as you have no right to it, you should avoid burning bridges for its sake.

Qdos is currently working with recruitment agencies to encourage the compliance and correlation of upper tier contracts as well as providing assistance with IR35 services. If you have any further queries about IR35 please feel free to contact us on 0116 2690999.


By:Jane Hailstone

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