Contractors’ Questions: Will the recruiter replacing my EU agency just deem all PSCs inside IR35?

Contractor’s Question: I've largely successfully contracted via a non-UK / EU recruitment agency, doing work for an EU client.

I invoice the agency, they invoice another ‘local’ agency that the client deals with normally for EU contractors and time-saving purposes, then they invoice the client, so the client can pay the 'local' agency, in turn paying my agency and then finally my agency pays me.

I was extended in April but I didn’t invoice last month as the ‘local’ agency system didn't show the correct details for my extension. It has emerged that someone at the client company decided the agency setup is overcomplicated and decided to ditch my agency without telling them; bring in a UK agency for all UK-based contractors going forward and me and other affected contractors weren’t informed.

The first issue is that my agency isn’t happy at being bypassed and will lose money, but second, I'm worried the new UK agency will just deem everyone they have for this client as inside IR35 and effectively make all UK based contractors their "workers" to avoid any issues in the future.

I'm planning to leave the UK in the next six months and use BADR to dissolve the company, anyway. How risky would it be to take whatever contract the UK agency offers just to avoid the hassle of being out of contract or jumping inside IR35 to outside IR35?

Expert’s Answer: Your usual contracting situation is quite complex, with potential risks and complications. And it sounds like your client agreed! The new set-up has risks too.

It's important to carefully evaluate any new contracts from the same client before acceptance.

Check the small print

Your current agency may not be pleased about the potential revenue loss, and contractual restrictions might prevent you from working directly with the same client.

It's crucial to review your contract thoroughly.

In general, it's recommended that you approach your agency and request clearance to contract with the same client, and it's essential to get this confirmation in writing.

The IR35 decision

Regarding the issue of IR35, if your client is not based in the UK and doesn't have an associated company, under the Off-Payroll Working Rules, it is your responsibility as the contractor to determine your status under IR35, not the client or your agency.

A blanket ban would be against legal requirements (“reasonable care”), and I recommend you should let the UK agency know that you are aware of this. Alternatively, your limited company can think of contracting directly with your client's local agency, given they are willing to accept this arrangement since there is no benefit in using a UK recruitment business in this scenario.

BADR and eligibility

Finally, if you're considering liquidating your company under the Business Assets Disposal Relief Scheme, reviewing the eligibility criteria carefully is essential.

You can find this information on HMRC's website here. Hopefully you’ll be eligible. In short, if you have held your company for at least two years, it is a trading company, and you dispose of its assets within three years, you may qualify for relief that reduces the payable rate of Capital Gains Tax from the current 20% to 10%. Good luck!

The expert was Kevin Austin, managing director of Access Financial.