This week a prominent contractor and member of the PCG, Alan Watts, has kindly written a piece on AWR from a limited company contractors point of view.

When the Agency Workers Directive was first announced, its authors were challenged to explain how it would affect the freelance contractors who worked through their own limited companies. The intent of the AWD is to protect the rights of vulnerable agency workers, something which most limited company contractors neither want nor need.

This question was put during the consultation process and the answer that came back was that limited company contractors were out of the scope of the regulations: in scope are anyone employed directly by the agency and, of course, that includes those who work through umbrella companies since they are de facto employees of the umbrella.

So far so good.

Sadly, when the final form of the regulations were published, that clear exemption appeared to have been watered down. The phrase now being used was “contractors genuinely in business”. This is a phrase originally used to limit the applicability of IR35 itself, so naturally caused some disquiet among previously “safe” contractors.

However, later discussions on this subject, including the material being considered by the Office of Tax Simplification in its wider review of taxation, seems to indicate that this is a safety net. My reading is that BIS are concerned about unscrupulous employers moving their staff into freelance engagements so as to step around the intent of the Directive. Hence, the caveat that you must not only own a Limited Company, it must be a genuine trading vehicle. How that is to be determined has not been spelled out, of course; no doubt it will require a trip to the courts form some unfortunate soul to gain the necessary clarity.

However, also referring to the OTS’s recent report, it is clear that there is an appetite for establishing whether or not a business is “genuine”: the third option they presented is for a set of binary tests concerning your business. Pass them and IR35 won’t apply and nor, by inference, will the AWD.

So while the phrase looks to be ambiguous, I believe the intent of the BIS is the same as it always been, and genuine Limited Company contractors will not be considered to be in scope.

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