Agency worker law will catch IR35 contractors

I've been asked to clarify the position for limited company contractors under the current draft regulations that will implement the Agency Workers Directive, which will come into force on 1-10-11.

It seems to me that, as the draft regulations stand (and certainly as the government has indicated it intends), limited company contractors are not exempted as such, and the manner in which the worker structures the contractual relationship under which the work is done is transparent, i.e. does not matter.

What does matter is (a) whether or not there is an 'employment business' in the chain; and (b) whether or not the worker is in business on his own account.

As to (a), both agencies and umbrellas may fall into this category.

As to (b), the test appears similar (though not identical) to that for IR35; so contractors who would fall within IR35 (whether working through their own company, or through an umbrella) may well fall within the scope of the Agency Workers Regulations.

We need to bear in mind that the regulations are still in draft form at present; however, these principles do not appear to fall within the areas which are the subject of the current (and probably final) round of consultation, and so it seems unlikely that the above principles will change.

Comment by Roger Sinclair, legal consultant at Egos.