Can the limited company opt out and the forthcoming change to IR35 co-exist?
More than 10 years ago, the European Union introduced new legislation with the aim of protecting agency workers from exploitation.
The legislation they created, known as the ‘Agency Conduct Regulations’, aimed to give workers additional rights, but it was met with criticism from contractors who believed the regulations would make them less attractive to clients.
As a result of this, contractors were given the option to opt out of the regulations. This leniency has played a key role in the increased use of contractors and consultants, as well as the agencies that employ them.
By opting out, agencies have been able to use contracts that contain provisions that would have been prohibited by the regulations, such as withholding pay where work has not been done properly, and charging transfer fees beyond the regulatory limits.
Agencies have been able to ensure the regulations protecting vulnerable agency workers are enforced properly without having an effect on contractors who chose not to have that protection.
Despite seeming to be a bad deal for contractors, evidence indicates that many continue to benefit from what the opt out offers.
In fact, the DTI and BEIS have regularly reviewed the regulations and at no stage has there been any suggestion of repealing them.
So, how do the forthcoming changes to IR35 in the private sector affect the opt out?
Where a person is paid via PAYE, they cannot opt out. This means that contractors deemed by the fee payer to be inside IR35, will have to be provided with the protection of the Agency Conduct Regulations.
Agencies may still want contractors to opt out, however they will not be able to do so if they are deemed to be inside IR35.