Contractors’ Questions: Are limited company contractors outside the AWR?

Contractor’s Question:  Are limited company contractors outside the Agency Workers Regulations?

Expert’s Answer: The AWR does include limited company contractors within its scope, if their working practices put them inside IR35. It’s as a result that I believe the government has used the AWR to strengthen and reinforce their position with regard to IR35. The guidance for the legislation (PDF) is clear, stating that “simply putting earnings through a limited company would not in itself put individuals beyond the scope of the legislation.” Moreover, it goes on further to say “…where the relationship between the individual, worker and hirer remains, in essence, a tripartite relationship and a hirer is not a client or customer of such individuals, they are likely to be in scope” [of the AWR].

The government has also been quite careful to point out that writing a contract to be outside IR35, thereby trying to avoid the legislation; will be completely ineffectual if, in fact, the individuals working practices would put them inside IR35. The guidance says: “If the arrangements do not reflect the reality of the relationship, the actual reality is that the individual is not in business on their own account….then individuals are likely to fall into the scope of the regulations.”

To summarise, unless your working practices as a contractor will be outside IR35, you will fall under the scope of the legislation. It doesn't matter what is stated in the contract - if you are found to be inside IR35, you would fall under the scope by default and any attempt to manipulate a contract to say that you are outside, when you are actually inside, will be viewed as avoidance.

The expert was Lisa Keeble, managing director of Contractor Umbrella.

Friday 17th June 2011