IR35: Agencies shy to say ‘small company’ in contractor job adverts

Clients will say if it covers them and so their agencies should know, but the ‘small company’ exemption to stop April 2020’s IR35 reform applying won’t necessarily make it into all contractor job adverts.

This consensus from three contractor agencies who spoke to ContractorUK means PSCs indeed face being ‘left in limbo’ due to no legal duty to declare ‘small’ status, but not because it is clients who will keep quiet.

On the contrary, clients are bound to declare if their size puts them out-of-scope because their ‘outside IR35’ assignments will be snapped up, as “every PSC will want a role where they decide if they are in or out,” one agent says.

'A response ratio of 5:1'

A ‘small’ engager’s agency will be glad too, given that in the public sector (where the forerunner to the 2020 rules are in force), ‘outside’ IR35 roles receive five applications for every one application that ‘inside’ roles receive, said the agent, Les Berridge.

But armed with the detail that the end-client is ‘small,’ none of the contractor agencies said it was a dead-cert that the engager’s ‘IR35 exempt’ status would then be flagged up in their adverts to contractors.

That’s even though all three of the agents believe it’s the logical next step.

'Sense'

“For a small company, and from now on, it would make sense for any agency to advertise a small company’s contract role as such,” says Berridge, who works with Networkers, and is the REC’s deputy IT sector chair, but was speaking in a personal capacity.

“It would make perfect sense for this to happen,” agrees Dean Durrant, managing consultant HRC Recruitment.

And Kevin McLaughlin, a director at First Point Group (FPG) echoed: “There is a commercial advantage to be gained on the part of the exempt company and its supplier agencies. Candidate attraction will increase in response to such ‘IR35 exempt’ adverts.”

'Still waiting for clearer HMRC guidance'

However, the end-user company can only be exempt  -- ‘small,’ if it meets two of three criteria; annual turnover of +£10.2m; assets of +£5.1m and 50+ employees.

So agencies may face problems if an increase in staff, assets or sales at the engager company which they advertised as ‘small/IR35 exempt,’ makes it no longer small or IR35 exempt.

“We are still waiting for clearer guidelines [from HMRC] on what proof is required that the contract role is for a small company,” says Berridge, sounding aware of the concern.

“I would reasonably expect [engagers] to make that [- small company ‘exempt’ status] known to us, in relation to any contract requirements they were trying to fill,” said First Point’s Mr McLaughlin.

“[But then advertising the roles as exempt from IR35]….will create a great deal of candidate clutter.”  

'Wishful thinking'

Potentially sharing this logistical, practical concern, but sounding more mindful of the legislative concerns, HRC’s Mr Durrant summed it up best.  

“I think [it] is somewhat wishful thinking for the time being, [to suggest agencies will put key IR35 information into their clients’ adverts or job postings],” he said.

“It would make perfect sense for this to happen [but] there are question marks around the exemptions – including what happens if a company expands, mid-assignment.”

'Whether the rate's been increased'

Out of the all agents though, Durrant was the most receptive to the inside/outside IR35 status label featuring in job ads -- at least “in the future”, and probably due to demand.

“Absolutely [an inside IR35 label] puts people off,” he added, referring to his experience in the public sector. “Usually the first question from potential candidates is whether the rate has been increased to cover the additional [tax] costs.”

And calls from contractors for adverts for temporary contracts straddling April 6th 2020 to carry IR35 status warnings are likely to be louder than they were on the eve of April 2017.

'No safe haven'

“The reality is there is no safe haven under the new legislation, unlike the public sector IR35 rules where contractors [could] move to the private sector,” said FPG’s Mr McLaughlin.

“So under the new legislation, all PSCs are in the same boat. The end-client must make the status determination and must be able to support why that particular determination was made.

“So it could be argued that [inserting the status decision into the advert would] save a great deal of time for all involved. However, that being said, it is vital that agencies ensure that their clients are not merely making blanket determinations in relation to the roles being advertised.”

The subtext seems to be that end-users might feel more predisposed towards making blanket ‘outside IR35’ decisions, or even the frowned upon but HMRC-approved role-based decisions, if they know such status determinations will be immediately embedded into all their contract postings.

'CEST designed to make as many as possible inside IR35'

But Berridge suggests engagers already have a quick-fire way if they want to be risk-averse and remove themselves from potential liability under the 2020 legislation.

“Most clients are using the CEST tool to make determinations of their current roles because…[it] often throws you straight out with an inside ruling, [even] before all the circumstances are known,” he said.

“[The tool] is clearly designed to see as many people as possible to be inside, rather than establish all the facts and make a considered judgement.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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