Contracting is starting to resemble quantum physics, where all things at the subatomic level are considered to be in two different states at once. Take contracting’s latest discovery, the new ‘elementary particle’ called AWR. With the Agency Workers Regulations (to give it is more formal designation), we appear to have a classic quantum physics example, in which a contractor can seemingly be, at one and the same time, both a successful businessperson with a reasonable net worth and a vulnerable worker needing protection.
And if that sounds familiar, it’s because contracting has an existing ‘elementary particle’ in the form of IR35. Our old friend IR35 presents a similar two-state conundrum in which many contractors can appear simultaneously to be disguised employees running a legitimate business.
Just as with quantum physics, the point at which you think you really understand IR35 is also the point where everything falls apart and you’re back to first principals.
After all, ‘students’ of IR35 will all now be familiar with the classic tests of employment used to determine IR35 status, such as control, substitution and mutuality, closely followed by factors such as ‘in business’, the written contract and the rest. So far, so good.
But then, as if from nowhere, comes a new piece of information that sends old certainties spinning into the winds. And here we introduce AWR. We’ve been told by legal experts that IR35 and the Agency Workers Regulations are not linked in any way and that the tests used to determine whether an individual is a worker or engaged in a "profession or business undertaking" are different.
Under IR35, the objective is largely to use the tests of employment set by UK courts to prove whether or not a contractor is a disguised employee. But under AWR, the objective is the opposite – the default position is that the individual is a ‘worker’, and thus subject to AWR. So the objective is to prove that the worker is in a “profession or business undertaking carried on by the individual”.
IR35 is part of tax law and AWR comes under employment law. The tests used to determine a contractor’s employment and “profession or business undertaking” status under each piece of legislation are, we’ve been told by legal experts, mutually exclusive. That leaves us with two key issues:
- What are the tests under AWR to determine if a contractor is in a “profession or business undertaking” – answers on a postcard please; and
- A contractor’s status under each set of rules may be at odds, as we pointed out recently.
It is therefore theoretically possible for a contractor to be in two states of being: the status tests for the AWR can confirm a contractor to be in a “profession or business undertaking”, while simultaneously the taxman will insist the same contractor is actually a “disguised employee”.
So, until 1 October 2011 when the AWR kicks in and the courts are asked to decide whether workers are in a “profession or business undertaking”, it remains difficult to predict with any certainty the outcome for contractors. Or, as quantum physicist Richard Feynman might have put it: “I think I can safely say that nobody understands the Agency Workers Regulations.”