Mandatory directorship/shareholding of company

[NFH]

We are a small consultancy which supplies consultants to investment banks. Our consultants comprise two directors/employees as well as sub-contractor limited companies; we charge a small margin on supplying the latter. We supply our services to investment banks both directly and via recruitment agents. A number of recruitment agents have recently started insisting that any consultants whom we supply are directors and/or shareholders of our company. They cite this as a requirement following new rules regarding "Onshore Employment Intermediaries". The relevant legislation arising from these rules appears to be the Social Security (Contributions) (Amendment No. 2) Regulations 2014.

This causes two problems for us:

1. It almost completely negates the right of substitution, given that we would be prevented from supplying an alternative consultant who is not a director and/or shareholder, thereby causing the contract to fall inappropriately within IR35.
2. It prevents us from supplying sub-contractors as consultants, a significant part of our business.

I don't see how the "Onshore Employment Intermediaries" rules or the enacted Social Security (Contributions) (Amendment No. 2) Regulations 2014 could apply to us, for the following reasons:

1. If the rules or legislation did apply to us, they would apply equally to larger consultancies such as Accenture who likewise supply consultants to investment banks. I somehow doubt that Accenture will be enlisting all of its consultants as directors or shareholders.
2. We are not in the employment business, and therefore not an employment intermediary, but we are a company supplying consultancy services to other companies in a business-to-business relationship.

The recruitment agencies we deal with are unable to explain why they believe that the rules or legislation apply to us or in what way they require our consultants to be directors and/or shareholders. Some simply say that the investment banks are requiring this, and that we have to take it or leave it. Can anyone shed any light on this?

[malvolio]

Have a word with these guys on Monday, who may be able to shed some light. However, I've a nasty idea you may be in scope in HMRC's twisted view of the world and the agencies' inability to understand their own market, since you are supplying independent workers under your Direction & Control.

As it stands, Ltd Co contractors are out of scope of the proposed regulations. Your model is a bit of an edge case; however, if your supplier workers are themselves Ltd Co contractors to whom you are subbing work, I can't see the rules apply.

But as for making them directors of YourCo, that's typical agency horsefeathers. Their contract is with YourCo, how you deliver it is not really their concern.

[NFH]

However, I've a nasty idea you may be in scope in HMRC's twisted view of the world and the agencies' inability to understand their own market, since you are supplying independent workers under your Direction & Control.

As it stands, Ltd Co contractors are out of scope of the proposed regulations. Your model is a bit of an edge case; however, if your supplier workers are themselves Ltd Co contractors to whom you are subbing work, I can't see the rules apply.

The sub-contractors are not under our or our client's direction and control. Both their contract with us and their relationship with other parties already cause them to fall outside IR35. That's why the approach by the agencies is so absurd.

[sal]

It's all about the Agencies not understanding the new regulations and playing it safe.

A number of recruitment agents have recently started insisting that any consultants whom we supply are directors and/or shareholders of our company.

1. If the rules or legislation did apply to us, they would apply equally to larger consultancies such as Accenture who likewise supply consultants to investment banks. I somehow doubt that Accenture will be enlisting all of its consultants as directors or shareholders.

Large consultancies like Accenture don't use agencies so naturally the agencies can't make them bend head over heals.

[Langobard]

It's all about the Agencies not understanding the new regulations and playing it safe.

Large consultancies like Accenture don't use agencies so naturally the agencies can't make them bend head over heals.

That much is clear. But the question is: is there a genuine point of legislaiton that requires *banks* rather than the *agencies* to require directorship? From what you wrote, it has nothing (or almost nothing) to do with the end-client (banks). Rather you are saying it is wholly the agencies' own initiative. Is there any proof of this? (I agree this sounds quite likely but wonder if you know something more, as you may).