Top five things that businesses miss out when looking at IR35
The implications from IR35 are far-reaching not only for independent contractors but for your organisation’s projects as well. Current estimates suggest a massive 75% of contractors will walk out of key projects by the 5th of April, including regulatory ones. This could have a major financial and reputational impact on your company.
As the change is complex and frustratingly ambiguous in certain aspects, we find that while most organisations have solutions in place, some of the key aspects have been misunderstood or overlooked. However, with the right approach and understanding, IR35 may not be quite the disaster that it is being made out to be:
A common misconception is that merely working with an SoW, automatically takes the arrangement outside of IR35. That is simply not the case. There are around 25 key points of consideration and while an SoW is vital, it alone is not enough. The contractual relationship (on all sides) must be consistent on how payments are triggered and the deliverables are tracked. For example, if a service provider has an SoW and is paid only on time, then the determination is that they would be inside of IR35. Payment must be related to the specific items detailed in the SoW with a clear, tracked history of the actual deliverables.
One area that Konvergent feels is often overlooked when it comes to the true assessment of IR35 is with tripartite contractual arrangements.Usually, the only organisation that wouldget to see all sides is the one in the middle. Issues with the contractual side of the relationship that you are not part of couldlead to the determination from HRMC falling back tothe end client.
To be sure of compliance, you must work with organisations that work on a business to business contractual relationship on all sides.While this may sound simple previous contracts may no longer be valid and if, as the client, you cannot see what they are, how can you be sure that they will be compliant. For example, can you be sure that the service provider that you are working with can clearlybe seen as a business in their own right and not an individual delivering a personal service?
Regulatory changes often need a huge amount of heavy lifting to ensure compliance before the deadline. To stay outside of IR35 the compliance needs to be continuous and well documented. When working on key projects, all work must be correctly monitored, logged with any changes acknowledged. For this to happen a well-oiled PMO function is required, whether this is managing a small SoW with limited deliverables or one that has multiple resources.
Despite HRMC’s insistence that a blanket ban is not the right approach to take, there have been numerous cases where this has happened such as Lloyds, HSBC and Tesco Bank, to name a few. With the Financial Time reporting that an entire department could leave Deutsche Bank. A similar law (DBA) was brought into the Netherlands 2 years ago which resulted in disastrous consequences for organisations. Like in the UK, various financial services companies tried to implement blanket bans. What predictably occurred were rows upon rows of empty desks and no projects being delivered. Within a few weeks’ “exceptions” were being made to bring individuals in on a tightly managed SoW based solution. But, the damage had been done as key deadlines were missed and the banks ended up paying 20% – 30% more for the same outcomes.
A blanket ban is not required if the work is clearly project-based, and you follow the right steps mentioned above, then you should ensure compliance. There is also an opportunity if you work with the right suppliers to put previously individual resources into an overarching programme-based SoW which transfers the risk away from your company. Though it does not answer the question ‘What would happen to someone performing a similar role to a permanent employee or filling an interim permanent?’ However, if that is a similar situation, all is not lost, and ongoing compliance is possible!
To help organisations understand, analyse and act to ensure IR35 compliance, Konvergent has created a unique framework that comprises easily executable steps and ways to work. Here are top 5 of the 25 key points:
If you would like a free consultation on how Konvergent can help you navigate these significant regulatory changes then please contact either: