New Contractor Agency Model Now Needed – Will This Work?

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New Contractor Agency Model
New Contractor Agency Model

New Contractor Agency Model

With the Government’s recent changes, is it time for a new contractor agency model?

In the public sector, the Governemnt are going to make their recruitment agencies decide if contractors are inside IR35 or not.

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Instead of the contractor paying the financial penalty if it is not the correct decision, it will be the agency.

Which, effectively means that the agencies will force contractors to pay IR35.

Why should they take the chance when they don’t have to?

So, if we had a new contractor agency model woudl this mean that contractors get around this?

Contractors, especially those in IPSE (ex-PCG) have always talked about their clients. Tey don’t want to call them their bosses or employers.

Contract of Service

They see that as implying a contract of service rather than a contract for services.

The former would imply they were inside IR35 and the latter outside IR35.

However, recruitment agencis have shot this down.

They say, how can you have a client when you don’t even have a contract with your supposed client?

So, they say that it is their client as they have a contract with them.

They say that they provided the contractor to the end client, so the contractor is a commodity.

Contractor and Client Contract

However, what if the contractor and the client did have a contract?

That would make the customer the contractor’s client as well as the agency’s client.

There’s two ways that this could be done.

Firstly the client could pay both the contractor and the agency separately.

Say the company pay £500 a day for the contractor and £100 goes to the agency and £400 to the contractor. The client could pay both of those directly.

The different contracts with each could specify different services provided.

Contractor Paid All the Contract Money

The other way it would work would be if the client company paid the contractor all the money and the contractor paid the agency their cut.

Agencies might not be very keen on either model.

In the first model, it would expose to the client hwo much they actually make.

Once clients knew that, they might decide that they would prefer to pay less than that to the agency.

Contractors Pay the Agencies

In the latter model, agencies would have to rely on contractors to pay them.

However, putting that aside would these models work?

I’m not an expert on contract law.

However, if the agency is no longer an intermediary, surely they would not fall under the Government’s new rules.

Why would they be involved in any decision making as to the contractor’s IR35 status and have the financial penalties when they don’t even have a contract with the contractor.

The contractor has the relationship and legal agreement with the client.

HMRC And Contractors

As the agency and the contractor were paid separately, HMRC would have no great visibility in this process..

As far as HMRC are concerned the contractor has the relationship and contract with the client, in this case a Government department, and should be able to make his, or her, own decision as to their IR35 status.

Of course, there is still the online IR35 test that HMRC are cooking up to get past. But that’s another problem.

Would This New Contractor Agency Model Work?

So, what do contractors, or other readers think?

Would this model work?

It might work well when a contractor has a good relationship with an agency over several contracts and they both trust each other.

The agency might then be happy for the contractor to receive all of the money and pay them.

Are there any weaknesses?

Can you think of other models that would work?

Or is the current model the very best we can have?

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1 COMMENT

  1. Don’t worry. It works, alright. I just finished a two-year stretch with a major household name. They paid my contractor company good as gold. The agent took a lump sum with each commission. Contractors need to join forces with ex-recruitment types to set-up a fair-deal agency that does this all the time and drives the scummy agencies out of business. It COULD do that if, as suggested here, the clients realised they were getting better contractors AND avoiding HMRC risk. We must unite and set up our own operation to implement this model across the entire contractor market.

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