There are a number of myths that persist surrounding the Agency Workers Regulations 2010 (“AWR”) and workers who operate through their own personal service company (“PSC”).
The first and most prevalent misinformation concerns the use of IR35 tests to establish that an individual is not an agency worker. This is based on the assumption that a worker using a PSC who is not caught by IR35 will not be working under the supervision and direction of the hirer and as such will not be an agency worker as defined in the regulations. This is a dangerous argument as there is always likely to be some degree of supervision and direction by the hirer no matter how IR35 cautious the contractor is. As such the supplied individual will fit the definition of an agency worker.
However, an individual operating through a PSC could be excluded where the client is a client of the PSC.
The availability of this has lead commentators to argue that there will be an increase in the numbers of workers operating through a PSC, some have even suggested that agencies will be forcing their workers into a PSC in order to benefit from the exception. The very mention of such strategies ought to ring alarm bells with any recruiter as there is the risk that the Managed Services Company legislation will apply. This legislation provides that if a company is considered to be an MSC then PAYE tax and National Insurance contributions have to be paid on all payments to the individual. If the company that is an MSC fails to account to HMRC correctly, HMRC has the power to pursue other parties in the chain for the tax debt, if it is not recovered from the company within a reasonable time period. Other parties in the chain may include an employment business or hirer if actively encouraging or involved in the contractor operating in this way.
We understand that HMRC has recently begun its first large scale claim under the MSC legislation and given the current financial constraints the Treasury is likely to be employing any legislation available to them.
The AWR is a distinct piece of legislation that should be considered in the context of other recruitment and tax law but not interpreted by it. Trying to interpret the AWR using other law will only lead to confusion and a greater risk of a claim.