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The Conduct of Employment Agencies and Employment Business Regulations 2003, or more commonly referred to as simply ‘The Conduct Regulations’, were introduced to try and protect work-seekers. They do this by giving recruitment companies a minimum set of standards to adhere to when placing said work-seekers into roles.

When the regulations were created, the intention was for them to apply to individuals or companies supplying their services under the control of a client – meaning, arguably, that most limited company contractors should be opted out by default when looking for work. However, no two contractor circumstances are the same so you may be able to access some of the benefits on offer.

Can the Conduct Regulations Offer Any Benefits to Contractors?

In a true contract for services (between two companies) there should be no, or very little, control from the client over the limited company contractor. This is why the Conduct Regulations, in theory, shouldn’t apply to a genuine contractor.

However, given the nature of IR35 and the usual ambiguity around whether or not a contractor truly does operate without client control, most agencies will cover off the worst-case scenario. They’ll likely provide you with an opt-out form, leaving you to firmly state whether you want the regulations to apply or not yourself.

There is a whole ream of effects that opting in can have on your contract but to summarise, the regulations will:

  • Ensure that the recruitment agency will pay you for your work, even if the client does not pay them for it;
  • Ensure that the recruitment agency does not withhold payment from you for an unreasonable period;
  • Ensure that the recruitment agency cannot charge you for work-finding services (although they can charge you for ancillary services, such as CV writing);
  • Ensures the recruitment agency provides you with a written set of terms detailing key aspects such as length of contract, type of services, nature of engagement (Contract of services / contract for services), rate of pay etc;
  • Ensure that you are paid for holidays.

These all sound great on paper, but they have their downsides. As well as obvious IR35 implications that come with many of the above benefits (which we’ll talk about next), agencies may be less likely to engage with a contractor looking to ‘opt-in’ to the conduct regulations as it will add an administrative burden.

Could Opting in to the Conduct Regulations Affect My IR35 Status?

From a purely IR35 perspective, there is a great deal of debate on what sort of impact opting in or out of the conduct regulations has.

It’s generally advised that opting out of the Conduct Regulations is better from an IR35 position, as it removes aspects of financial protection from your company (thus introducing financial risk – a positive IR35 indicator). It’s also more in-keeping with how a genuine contractor should operate, and also somewhat limits the levels of control the agency can exert over your company’s actions.

That said, it’s unlikely to ever be a major pointer in its own right when dealing with IR35. The main three accepted indicators of employment status (substitution, levels of control, Mutuality of Obligation (MOO)) will generally override any effect of opting in or out of the Conduct Regulations, but it could be a swaying factor in a borderline case. You can read more about how your IR35 status is determined – and thus why opting in could have an impact on it.

If you feel that you’re a genuine contractor and would like to opt in to the Conduct Regulations when seeking work, it’s good practice to discuss the decision with your agency before making any commitments. It’s also advisable to seek professional advice on the legal impact that opting in could have, as well as consider a contract or working practices review to make sure you’re seated safely inside IR35 in the first place.

Additional Advice for Contractors

If you fail an IR35 test, you can expect to pay around 25% more in tax every year, which would amount to a huge chunk of money absent every month. You also still wouldn’t benefit from employment rights or have a contract of employment with your client, so you could face critical financial issues with no real benefits or protections to speak of. It’s important to take the necessary precautions to avoid this situation, so consider your Conduct Regulations decision carefully.

As a genuine contractor, freelancer or consultant who is in business on your own account, you shouldn’t have anything to worry about. However, it would still be worth having a contract review at the very least; whilst you may know that you’re legitimate, IR35 determinations are notoriously subjective.

Should you want some peace of mind, Larsen Howie offers a full contract review amongst other services to help you prepare for IR35. They also offer IR35 investigation representation from their Head of Tax and resident IR35 expert Andy Vessey ATT should it go to tribunal.