Contracts involving agencies – Changes in IR35 guidance

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Contracts involving agencies HMRC IR35 Guidance

HMRC have changed their IR35 guidance in four areas and one of these is in Contracts involving agencies. It has to be specified that these are only changes in guidance and not in IR35 law. However, it is important for contractors to know how HMRC see different areas. They act as they see.

In HMRC’s own words “The involvement of an agency in obtaining a contract, or in the contractual arrangements for the engagement, does not affect the decision on whether the engagement would have been employment if there had been no service company”.

Contracts Involving Agencies

Contractors will be wondering whether that’s good news or bad news. Most contractors go through an agency when they get contracts. However, it was always thought that if you got a contract directly that would make you more likely to be outside IR35 as you had got your own customer. On the face of it, it would appear good for contractors going through an agency and those going direct as far as this IR35 guidance is concerned.

However, HMRC may not mean it that way. They are saying that it has no bearing at all if you go through an agency than if you go direct. Presumably they mean that the intermediary is unimportant and it is all based on the contract and, even more importantly, the working practices.

Contracts Don’t Matter

Indeed they even appear to be saying that the contract between the agency and the contractor is not important either. Looking at the clause again that appears to apply to the contract between the agency and the customer too.

Stripping out th other bits of the clause it now says “The involvement of an agency in the contractual arrangements for the engagement, does not affect the decision”. That appears to be a major change although they call it a minor one.

This change appears to suggest that it is working practice that is of paramount importance. They appear to be saying that how you operate at a company is the overarching factor.

Only IR35 Factors

Indeed, it could be read to suggest that it is the only factor – at least when an agency is involved, as the contractor doesn’t have a direct contract with the client. It may be different when a contractor DOES have a direct contract with the client.

Now, it seems that the contract between the contractor and the agency and the contract between the agency and the client doesn’t matter a fig when assessing whether it is contract of employment or not. That doesn’t seem a minor change at all. Perhaps contractors should have separate contracts with both the agency and the client in future.

However, as we said at the start, there is no change to the IR35 laws and this is only HMRC’s interpretation of it. However, their interpretation does affect the way they act so contractors should be aware of this, their most up-to-date thinking.

See Which Contractor Accountant for a review of some good contractor accountants.

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