The guidance the government has promised on the Agency Workers Regulations 2010 (AWR) is eagerly awaited by employment agencies and their customers – many of whom, sensibly, want to see it before finalising their plans for 1 October. The latest news on timing is that the guidance will be issued in draft by the Department of Business Innovation and Skills either this week or in early April. There is then expected to be a period of about two weeks consultation before the final guidance is issued in May.
One area where guidance is expected – perhaps wrongly – is in relation to contractors who work through their own limited companies or through umbrella companies. There has been much debate about whether they will be caught by the Regulations.
This issue is obviously closely bound up with the tax status of the individuals concerned and their status under employment law.
The government set up the Office of Tax Simplification (“OTS”) not long after it came to power to look at, among other things, small business taxation, which overlaps with the status of independent contractors. The OTS submitted its interim report just before the budget. It concluded that simplification of issues such as the status of the self-employed is badly needed but genuine reform can only be achieved by making major structural changes to the way in which personal tax operates. This will take some time. One step towards it, which the OTC recommended, was the integration of income tax and NIC. As we have just seen in the budget on 24 March, the Chancellor has adopted that recommendation. In relation to IR35 the Chancellor stated in the budget that he will ask HMRC to draw up fresh guidance.
It is clear that the Chancellor took a very hard look at reforming the tax law in this area, and even at abolishing IR35. It seems that he has concluded that this would be a step too far – for the moment at least. That is enough to tell those who waiting for guidance on the status of contractors under AWR that nothing is going to change in the short term.
The fact is that the previous government made it clear a year or so ago that contractors who work through umbrella companies or through their own limited companies are potentially within the scope of AWR. If they agree to perform work personally for the agency – an important point – they will be caught by AWR unless they are genuinely in business on their own account.
It follows that even after the guidance has been finalised in May, agencies and their customers are unlikely to find out any more than their lawyers can tell them already about the tests for deciding whether contractors are genuinely in business on their own account, and so whether AWR applies.
If you allow for summer holidays, Easter, the Royal Wedding, May Day etc, there really is not all that much time left to get ready for 1 October. So if you are going to wait for the final government guidance in May before finally deciding how to respond to AWR, you should be thinking of arranging meetings now, in June or July at the latest, to agree how to work together with your agency or hirer to meet the requirements of the Regulations.