Reply to: Coming in from the Dark Side....

[Steven@Parasol]

I know where the legislation is but where does it say:



As the vast majority of small limited companies on this board provide consultancy services this means that when their employee(s) are not on assignment they get paid a salary.

Apologies for plugging the website again but I've put a page together that includes all the legislation guidance and consultation responses to date, the agreement struck between the CBI and the TUC and a few other documents you might find useful if you've got the time.

The Three

If there are any specific questions you want me to run past our legal advisors I'm happy to do so.

[Steven@Parasol]

I know where the legislation is but where does it say:



As the vast majority of small limited companies on this board provide consultancy services this means that when their employee(s) are not on assignment they get paid a salary.

The most up to date guidance on the AWR was published in January last year and its section 3 of that document i'm refering to. There have been a lot of lawyers who have made a few quid translating this!

In section 3.9 the Government makes it very clear that limited company contractors are to be included. The paragraph reads:

“If a very general provision were made to exclude, for example, anyone who has a share holding or holds office in a limited company, this could make it easier for unscrupulous parties to set up business models – for instance, minimal share holdings could be used to circumvent the protection of individuals under the directive. Since a properly legally constituted shareholding could be difficult to challenge, and this approach may unwittingly make it harder for employment tribunals to police in ‘sham’ or other avoidance arrangements. Our conclusion therefore is that the disadvantages of expressly excluding LCCs (limited company contractors) would outweigh any perceived benefits.”

The document also makes it clear that the government is happy to let case law shape how the AWR are applied. Section 3.8 of the January 2010 consultation document reads (link):

“On the issue of ‘sham’ self-employment or other similar avoidance we remain of the view that the Courts and Tribunals are capable of determining employment status and identifying such avoidance devices.”

The absence of further guidance on the AWR to date has been unhelpful in some respects but we believe that the Government has made it very clear that limited company contractors do fall within the scope of the AWR and no further guidance or consultation will change this.

The only way a limited company contractor would NOT be caught is when working for an end-client via a limited company but NOT under the supervision or direction of the hirer, then they are NOT caught by the AWR. This is in line with the IR35 legislation however there has not been any official link made between the two pieces of legislation.

[SueEllen]

All the intended legistlation is here:

The Agency Workers Regulations 2010

I know where the legislation is but where does it say:

If a Ltd company is providing a worker to fulfill a role for an end client, then as it stands, that Ltd company, in the eyes of the government, will be considered a temporary work agency under the AWR.

As the vast majority of small limited companies on this board provide consultancy services this means that when their employee(s) are not on assignment they get paid a salary.

[Steven@Parasol]

So now what? After 2 odd years using a dodgy offshore scheme which HMRC has now scuppered, they seem to have scuppered the Ltd company route. After all my Ltd will be providing a worker (me) to the end client. Another example of government clarity and fairness. They want to prevent genuine disguised employees (long term temps) from avoiding tax but as a result will happily mow down the genuine project based contractor. It's almost as if they don't care about friendly fire, oh wait they don't...

As a limited company contractor you will be absolutely fine. You are genuinely in business on your own account and as a director of your Ltd you are unlikely to bring an AWR claim against your own company.

The legislation has been written as it is to prevent uncrupulous providers from using the Ltd company route as a loophole for vulnerable workers (think low paid workers in aggriculture, services such as cleaning and catering etc).

Don't forget, the AWR only comes into effect when a worker activley makes a claim.

This is just my view but typically contractors in our sectors earn more then the comparable permies anyway (both umbrella and limited) so are unlikely to be making claims.

That is not to say the umbrella industry doesn't have to do anything though!

[Steven@Parasol]

Entertain me

How are Parasol (or any Umbrella Company) going to be paying people in between contracts?

As far as I am aware the model for Umbrella's works by taking the invoice value, taking your cut, doing some fancy stuff with expenses taking into account minimum wage and then making the payment to the contractor.

Where is the money going to come from to pay people inbetween contracts when they are effectively not earning Parasol any money?

Also on the subject of assiting contractors to find other work you may find you get quite a bit of push back from Hays (for example) if you try and punt contractors recently out of a Hays contract to Computer Futures (for example).

Morning

Re paying between contracts, as part of the AWR we would have to pay a minimum of 50% of the previous contract value.

I can't go in to too much detail here. We'll be formally announcing our package of solutions next month and I don't want to give any competitors an advantage but it's very much a model based on risk.

We currently have about 8,000 contractors working via our umbrella and very few of them are without a contract for extended periods of time so we are taking a risk that this trend will continue.

There will be a slight increase in the margin we charge to cover the additional admin and costs although this will be nominal. So I guess it’s similar to how an insurance company works, the premiums of the many, cover the claims of the few.

And with that will come a range of additional benefits for contractors. As of 2012 umbrella companies will have to contribute to contractor pensions anyway so we'll be offering this early for example.

Now for many contractors, Ltd company will be the best way to go and I think it’s fair to say that in tax terms, it always has been and always will, but correctly structured umbrella companies offering a true employment model will still have a place and indeed an opportunity to grow post AWR in October.

Re helping contractors find their next contract. We currently work with about 2,500 recruiters and we have no intention of becoming a recruitment business. That is not what we do. But the reality of the AWR is that we have to something to make sure we are compliant and we are currently sitting down with all the recruiters we work with to discuss how best to do this. Sorry to kop out but I can't give you individual examples right now but I will be able to next month and I will post back here as soon as I can.

There is a benefit for recruiters here as well. All of the risk associated with the AWR will be mitigated by the umbrella company. So any tribunals as a result will not be brought against the end-client, or the recruiter, they will be against the umbrella company as the employer of record. It is the umbrella company that carries the can and this is really attractive to recruiters and hirers. This is something that true umbrella companies have been doing for the last few years now anyway and it’s why I say that true umbrella companies are eight tenths of the way to being a compliant solution anyway.

[Vallah]

All the intended legistlation is here:

The Agency Workers Regulations 2010

[SueEllen]

That's where it gets really interesting/confusing (delete as applicable!).

If a Ltd company is providing a worker to fulfill a role for an end client, then as it stands, that Ltd company, in the eyes of the government, will be considered a temporary work agency under the AWR.

Where is the link to this information?

[andyc2000]

If a Ltd company is providing a worker to fulfill a role for an end client, then as it stands, that Ltd company, in the eyes of the government, will be considered a temporary work agency under the AWR.

So now what? After 2 odd years using a dodgy offshore scheme which HMRC has now scuppered, they seem to have scuppered the Ltd company route. After all my Ltd will be providing a worker (me) to the end client. Another example of government clarity and fairness. They want to prevent genuine disguised employees (long term temps) from avoiding tax but as a result will happily mow down the genuine project based contractor. It's almost as if they don't care about friendly fire, oh wait they don't...

[original PM]

Entertain me

How are Parasol (or any Umbrella Company) going to be paying people in between contracts?

As far as I am aware the model for Umbrella's works by taking the invoice value, taking your cut, doing some fancy stuff with expenses taking into account minimum wage and then making the payment to the contractor.

Where is the money going to come from to pay people inbetween contracts when they are effectively not earning Parasol any money?

Also on the subject of assiting contractors to find other work you may find you get quite a bit of push back from Hays (for example) if you try and punt contractors recently out of a Hays contract to Computer Futures (for example).

[Steven@Parasol]

Looks like self employed is the way to go then. I wouldn't want to be somebody in an umbrella scheme trying to get a contract extension after the 12 weeks are up.

Why?

[Vallah]

Looks like self employed is the way to go then. I wouldn't want to be somebody in an umbrella scheme trying to get a contract extension after the 12 weeks are up.

[Steven@Parasol]

Not necessarily - without guidance obviously all of this is supposition - but the claim could be brought against the agency

That's where it gets really interesting/confusing (delete as applicable!).

If a Ltd company is providing a worker to fulfill a role for an end client, then as it stands, that Ltd company, in the eyes of the government, will be considered a temporary work agency under the AWR.

[Steven@Parasol]

So anyone working through an agency who is inside IR35 (or what HMR&C perceive to be inside IR35)? That will still apply to some contractor limited companies surely?

The feeback we have been getting from BIS is that they have specifically avoided explicitly stating Ltd company contractors are exempt as they are worried that this could open up more loopholes to be exploited by unscrupulous service providers.

[LisaContractorUmbrella]

For the AWR to be enacted upon then the agency worker has to raise a complaint.

The bottom line for me is (and this is just my view) but effectively a Ltd Company contractor would be bringing the case against their own company,or suing them themself! I'm not so sure this is likely to happen.

Not necessarily - without guidance obviously all of this is supposition - but the claim could be brought against the agency

[LisaContractorUmbrella]

I have, albeit nothing I can publish. But the officials drafting the rules have made it clear they intend any genuine in business contractors are to be outside the scope of the regs, which are aimed firmly at anyone in what can be construed as an agency temp or agency employee position. They are concerned about the possibility of tax-avoidance (whatever that is) and how they can identify it and act agsint it, but then again so is IR35.

So anyone working through an agency who is inside IR35 (or what HMR&C perceive to be inside IR35)? That will still apply to some contractor limited companies surely?