Does Off Payroll’21 + AWR = Litigation Mess?

It is now 10 years since the UK’s Agency Workers Regulations came into being. This law confers employment (protection) rights on agency workers after a 12 week period, unless a specific exclusion or ‘opt out’ clause is agreed to as part of the original contracting arrangement between agency (say an umbrella company) and the end client, and particularly the agency and the freelancer.

Since the introduction of the latest 2021 changes to the Off Payroll (IR35) Regulations, the use of umbrella companies has become much more widespread. Once it was a methodology used in lower paid work only, where government felt workers could easily be taken advantage of. This included seasonal workers such as used in agriculture. In fact anywhere where work was often physical, repetitive and quite often undertaken by immigrant labour. I am sure people will remember the Morecombe Bay cockle pickers, gang masters and tragic drownings which helped precipitate legislator conscience.

Today, with the change of IR35 regulations across all working sectors, companies are looking for ways of dealing with the additional complexity of handling the associated bureaucracy and, from their perspective, de-risking the process to avoid potential retrospective tax bills from HMRC.

Companies have adopted various approaches including banning on all freelancer engagements, blanket assessments as ‘inside IR35’ across all freelance work (illegal) and using umbrella companies to act as an administrative barrier between it and the freelancer(s).

The use of the umbrella approach has spread along the freelancer work spectrum to include various forms of contractor work and has also been used in interim contracts. We have reports that members have been ‘encouraged’ to use this process as well as the broader interim community, including feedback from the IIM’s annual survey. This trend has been reinforced in the more recent IPSE survey results where 34% of respondents indicated they had been required to adopt the umbrella approach.

A Lawspeed article published towards the end of 2021 makes the link between the umbrella use trend and the impact of the AWR as the way that current contracting appears to be occurring, freelancers are regularly being required to carry the cost of the end client employer’s National Insurance payments and apprenticeship levy. The IPSE survey (October ’21) found 80% of contractors working ‘inside IR35’, had seen an average 30% reduction in ‘take-home’ pay.

The current IR35 regulations are often seen to be promoting ‘zero benefits’ employment. Yet, poor contracting, confusion over who pays employer taxes and the appropriate application of the Agency Workers Regulations may well lead to a rather large rash of claims that end clients may not have anticipated in their drive to ‘control costs’.

Professional interims have never welcomed this increasing confusion of employment and commercial law and this remains the case. People in business on their own account should be allowed to continue to practice without such dreadful confusion being inflicted upon its market place.

We continue to look to government to untangle this mess as it appears there is insufficient (or any) will within the Treasury and HMRC to undo the bureaucratic damage that continues to be done in the name of alleged ‘fair’ tax collection. The current condition is anything but fair.

Risk taking interims are now being asked to pay more money for accountants, lawyers and insurances to guide them through the tricky regulations (members can find helpful documentation to support them on the website), whilst HMRC have various hands in interim pockets for IT, NI, ENI, App Levy, VAT and CT.