Does working via an agency help my IR35 position?
The simple answer here is no. In fact, contracting via an agency can sometimes cause problems in the event of an IR35 investigation.
When dealing with an agency, there will be what’s called a lower and an upper level contract. The agreement between the contractor’s limited company and the agency is the lower level contract, and the agreement between the agency and the end user is the upper level contract.
Upper level contracts
The issue arises when the upper level contract does not mirror the terms set out in the contractor’s agreement with the agency, particularly relating to key IR35 factors like substitution and control.
Lower level contracts will have been adapted over time to ensure IR35 compliance, but the agency’s contract with the end user may have stayed the same. Sometimes these upper level agreements resemble ‘temp’ contracts, for the supply of individuals rather than limited companies. HMRC will very quickly home in on this, arguing that the upper level contract is a better reflection of the true facts of the arrangement.
The difficulty for contractors is that it’s highly unlikely that they will ever see a copy of the upper level agreement. It will contain the commercial terms between agency and end user and therefore an agency will be hesitant to release it.
It may be possible to ask the agency for written confirmation that the upper level terms mirror the lower level agreement, but this will provide little security should HMRC discover otherwise.
Working directly with a client, on the other hand, means the contractor has full sight of all agreements in place. There is no risk of HMRC getting their hands on a contract that you have never seen and have no control over.
Unfortunately the vast majority of engagers use agencies as a matter of course and direct work is relatively rare. The fact is that, whilst an agency faces no liability or penalty if someone is caught by IR35, they can have a significant impact on the outcome.
Ultimately, ensuring the lower level agreement and – importantly – your actual working practices are compliant should trump any issues with the upper level terms in an investigation. However, it is worth being mindful of the fact that there could be a gremlin lurking in the contractual chain.
If you have any concerns about your IR35 status, call our experts on 0116 243 7868.