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There is a point of some concern regarding the Conduct of Employment Agencies and Employment Businesses Regulations 1976 (the Conduct Regulations) and so called 'one man' limited companies. The point of concern here could affect those who work through a limited company direct with the client. The Conduct Regulations regulate the conduct of employment agencies and employment businesses. Although all recruitment companies are commonly called 'agencies' there should in fact be a distinction made. The basic distinction is made based on who pays the worker. If the employer pays, it is an employment agency; if the 'agency' pays, it is an employment business. In the Conduct Regulations the definition of an 'employment business' contained in s. 13(3) of the Employment Agencies Act 1973 states: "…'employment business' means the business… of supplying persons in the employment* of the person carrying on the business, to act for, and under the control of, other persons in any capacity." *(employment in this context incorporates a professional engagement or otherwise under a contract for services.) According to ESM2014 of the Inland Revenue's Employment Status Manual, reproduced below, "If an 'office' or a contract of employment between the individual and the 'one-man' company cannot be established, the agency legislation will probably apply to the contract between the worker and that company." [The director of a company is in some circumstances an 'office-holder', hence the Revenue's reference to 'office'; in other circumstances, an employee with a contract of employment. Although, caution must be exercised on the point of whether the director of a 'one-man' limited company can also be an employee of the same. An explanation of this discrepancy is discussed in the article "Are you an employee of your own limited company?"] The Revenue appear to be implying that if the indivdual is neither the holder of an office [i.e director] nor has a contract of employment, the agency legislation will apply. How this situation arises is another matter but, it opens up the individual who contracts directly with a client to possible compliance with the Conduct Regulations. ESM 2014 continues: "The terms of the contract [between the worker and the 'one-man' company] will include at least an implied agreement by the worker to provide his or her services to the client through the company. Hence the company becomes an agency for the purposes of the agency legislation; that is, a third party through whom the worker is supplied to the client." The above paragraph is the point in question, it is not clear what type of contract the Revenue are referring to. The contract between the 'one-man' company and the client to provide the services of the worker, is presumably a contract for services. This contract for services would still have to contain clauses to the effect that the worker is 'to act for and under the control of other persons in any capacity' for it to come within the scope of the Regulations. This is not to mention the implications this would have for the 'one-man' limited company and IR35. If the contract was found to be the basis for 'agency' then this would imply that it was not a contract for services. If it was not a contract for services then the worker could also be found to be a 'disguised employee' under IR35. Although, as the Revenue have repeatedly stated, tax and employment law are mutually exclusive. This is yet another piece of tax/employment law that needs clarification. The DTI, who oversee the Conduct Regulations, will undoubtedly be relying on case law to determine the status of such contracts. Sounds familiar… The extract below is from the Employment Status Manual reproduced by kind permission of the Inland Revenue. ESM2014 - Agency workers: contracts between an agency and a company The agency legislation does not apply where the contract for the supply of services is between the agency and a company rather than between the agency and the worker (see ESM2004). A worker may form a 'one-man' service company and offer services via that company. The legislation will not apply to the contract between the agency and the service company in these circumstances provided the contract with the agency for the worker's services is genuinely made by the service company. The legislation is not avoided simply by including the company's name on a contract obviously meant for use by an individual or by arranging for payment to be made to the company. Where work is genuinely undertaken via a service company, the individual worker will normally be chargeable under Schedule E, and and liable for Class 1 NICs, on the remuneration from his or her office as a director or employee of that company. If an office or a contract of employment between the individual and the 'one-man' company cannot be established, the agency legislation will probably apply to the contract between the worker and that company. The terms of this contract will include at least an implied agreement by the worker to provide his or her services to the client through the company. Hence the company becomes an agency for the purposes of the agency legislation; that is, a third party through whom the worker is supplied to the client. |
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