Does Using a PSC Give Protection From AWR?

With the AWR legislation now live we're already seeing a shift in behaviour amongst both contract workers and the clients that are taking them on. This post comes from our Umbrella Company partner, Bar 2, who have kindly shared their knowledge with us so that the contractors and employers we work with can operate in the most informed and effective manner possible.

It has been reported that there has been an increased take up of registrations with Personal Service Companies in recent weeks. Some agencies, and end-client “hirers”, are now saying they prefer – and in some cases insist, that contractors use their own limited companies rather than using umbrellas. The rationale behind this is that umbrellas are most definitely caught by AWR legislation but the perception is that PSCs are generally outside of scope – but is that an accurate summary of the situation? Quite simply the guidance is not 100% clear on whether using a PSC takes you out of scope of AWR and the picture will inevitably become clearer in the New Year as the first challenges under the legislation and tribunals start to materialise.

In order to genuinely be outside of the scope of AWR, a PSC worker has to pass the self-employment tests contained in Regulation 3 of the AWR. There will be a large number of PSCs that probably won’t pass this test, however most of these workers are unlikely to bring any claim for breach of AWR as they will claim they are outside of IR35, and bringing a claim under AWR may risk this status. It is likely that any claim brought under AWR would cost them more in tax than they would stand to gain from a successful AWR claim.

In the professional services sector where there is often a genuine choice for contractors between PSCs and umbrellas, and where agency workers generally earn more than PAYE equivalents in any case, AWR compliance will be relatively straightforward and use of the umbrella solution remains a perfectly viable and practical option for contractors.