Contractors' Questions: Do April's off-payroll rules catch partnerships?

Contractor’s Question: We only moved to a partnership to try and avoid the many compliance duties PSCs have, but now wonder if we -- like limited companies -- are going to be caught by the new IR35 rules on April 6th?

The issue is that we provide services to schools but, as stated, only via a LLP. There are more than three schools we service, so we’re certainly in business of our own account. They are two of us providing these services. Is status something that we do -- or don’t -- have to worry about from this time next month?

Expert’s Answer: The new legislation (found at Chapter 10 Income Tax [Earnings and Pensions] Act 2003) applies equally to limited companies and partnerships.

A partnership model would only help in respect of IR35 where there is no obligation for a member of the partnership to personally perform the services, i.e. there is a clear and unfettered right to substitute. The working practices must also support an interpretation of self-employment so the contractor (whether a limited company or partnership) must not be subject to a right of supervision, direction or control by the school and there must be no ongoing mutuality of obligations.

The IR35 legislation does not apply to an engagement when (all other factors being equal) the status of the client is that of a customer of a business carried on by the individual and not a temporary employer. While the fact that the partnership provides services to three other schools is helpful, this factor is absolutely not decisive in isolation. Therefore, it is vital to consider the nature of the services provided by the partnership to the schools.

If the services involve the provision of project-based services, such as IT or management consultancy, where it is clear that the school's capacity is that of a customer of the partnership for the purposes of the particular engagement then it would be appropriate to consider personal service, control and other factors. In these circumstances, the fact that the partnership provides services to three other schools would be of greater relevance for assessing employment status.

However, if the nature of the services involves the supply of teachers, for example, on fixed term assignments to work a specific minimum number of hours (e.g. teaching a number of lessons) then the Court of Appeal judgment in Cornwall County Council v Prater [2006] EWCA Civ 102 confirms that such an arrangement creates sufficient minimum 'mutuality of obligation to render the contract a contract of employment' (per Longmore LJ).

A further issue is that a supply teacher is presumed to be under the supervision, direction or control of the school and it would not be a realistic proposition for a teacher to be genuinely independent in undertaking such an assignment. Taken as a whole, it is likely that the new Chapter 10 would apply to an engagement for the supply of teachers whether the intermediary is a limited company or partnership.

The expert was Martyn Valentine, founder of The Law Place Limited, a legal advisory specialising in IR35 and employment status.