Whither IR35, you ask? By Rebecca Benneyworth

if this were retrospective, financial chaos could break out in the contracting sector

This is why it was called the nuclear option, and discounted from strategy at an early stage within the contracting community.

It was always bound to happen sooner or later though. Fundamentally clients looking for disposable employees should pay the cost.

NeilW

The Finance Act 2000 schedule 12 endeavours to establish the employment status of incorporated workers when operating though intermediaries for tax purposes. This status can be one of self-employment or disguised employment.

Those workers with a shareholding in their companies are able to structure their remuneration for tax efficiency, as they are self-employed. Those without a shareholding must pay full taxes through the PAYE system as disguised employees. When temporary workers are placed with a client through an intermediary, the client or intermediary does not necessarily know the workers employment status, nor do they care. This is about to change!

Abuse of temporary workers led to another statute called the Conduct of Employment Agencies and Employment Businesses Regulations 2003 which endeavours to protect the intermediary’s client and the worker by prescribing what the intermediary must do to safeguard their interests. Failure to observe the regulation is not illegal unless proven in a court of law.

During the drafting of the regulation the DTI consulted with those who had objections to some parts of the regulation. The interested parties were the self-employed and intermediary interest groups. This led to a mechanism that allowed the worker to opt-out of the regulation. The opposite applied as an opt-in.

Something very strange then happened, intermediaries began to successfully persuade most temporary workers that it was in their best interests to opt-out of the regulation making the regulation essentially redundant. The DTI were powerless to do anything about it.

Given this, intermediaries failed to realise that under certain circumstances the worker cannot opt-out of the regulation. Specifically, the actual regulation states:

“(12) Paragraph (9) shall not apply where a person who is or would be supplied to carry out the work by a work-seeker which is a company, is or would be involved in working or attending any person who is under the age of 18, or who, by reason of age, infirmity or any other circumstance, is in need of care or attention.”

Both the Finance Act 2000 schedule 12 and the Conduct Regulations are linked by employment status. Both in their own way have failed to do the job they were designed for. Intermediaries are failing workers by placing them in legal jeopardy as no guarantee can be made that 32(12) will not apply.

i quote from Her Majesty's xxx website today
"IR35 looks at the whole picture and not just the written contract. What is important in determining whether IR35 applies is the effective working relationship between the client and the worker and not just what is written in the contract.
For an 'IR35 proof' contract to work as advertised, the terms and conditions set out in that contract must mean that the working relationship falls outside IR35. Additionally, the effective terms and conditions under which you work for the client must match what is in the contract, so that it reflects the reality of the way in which you are working. If so, then it will fall outside IR35, but not otherwise."

so if the working relationship is that of an independent business not under the daytoday control of the client etc....... is there a defence per their own words? I'd like to see a QC have a go..........

From the IR35 early days I and others have always advocated that
disguised employment equals disguised employee rights.

What IMHO has always been the problem is the "intermediary" (ie
agencies) . They exert a contractual influence that reaches far
beyond their actual essential role, and act as a contractual barrier
between client and supplier (neither possibly knowing of the terms
of the others' contract with the agency) .

The IR have shrewdly acted on the latter point by this notion of
"hypothetical" contract, surmising that the agency-client contract is
not likely to be a contract for services, and/or will contradict any
agency-supplier contract. And then gone after contractors via the FUD
of employment case law.

If precise work items and deliverables are defined, then we can
have the following essential roles :

The agency-client contract is merely about the agency procuring
the services of a supplier to perform the defined work. Agency is
liable to verifying the ability of the supplier to perform the work.
Agency receives a fee for the introduction of the supplier.
Usual payment and restraint clauses etc.

The agency-supplier is about the agency finding the supplier
the defined work. The agency (generally) agrees to act as a debt-
factor for the supplier, in paying the supplier for work done that
the client has not yet paid for. Usual payment and restraint clauses etc.

Everything else the agency has *no involvement in* .
The definition of the work, IPR protection and NDA etc is between
the client and supplier.

If the end client is hit with the costs of tax/benefits , they will have the incentive to tighten up their contracts to avoid IR35 from their and the suppliers side.

If the agency is hit, IMHO they will be forced to accept their essential
role.

Here's hoping ... :-)