As a business that delivers change projects and consultancy, the changes in the application of IR35 legislation has a big impact on us and our clients. Whether it is making sure we are managing the legislation effectively, or helping our clients ensure they are handling it effectively, it has an impact on what we do.
I’ve purposely used the phrase “managing it effectively” there, not “managing it correctly”. Managing it correctly is a legal must, managing it effectively is an operational must. And, over the past two years, I have had several conversations with senior stakeholders in large companies who have said “IR35 shouldn’t be a problem for us” (or versions of it). And it’s a real concern.
One of the myths that has appeared amidst the changes is that a Statement of Works or "SoW" is the solution. It isn't, but it can help in the right situation. A SoW is a contract structure commonly used when outsourcing areas of project work. It will detail things like scope of work to be done, the timescales for completion, deliverables, the acceptance criteria, and commercial structure.
You can see from the above that a SoW does have the facility to document, and form the basis to manage, a true service engagement far more effectively than say a job description, as its structure is designed to be used on pieces of work.
However, just because an engagement is managed via a statement of work, it doesn't mean that there isn't the possibility for personal service and it doesn't mean that the engagement is not deemed as ‘inside’ of IR35, where an employment relationship exists for the purposes of tax.
Take a crude but obvious example using the example headings I have given above, your SoW reads as follows:
Bodge-it and scarper consulting: digital transformation project
Scope of work
Support the delivery of our digital transformation projects
Expected start / end date
Start: November 2020
Will be flexible to suit the overall direction of the programme and outlined to the contractor as part of the sprint schedule
This will be a time and materials engagement
Paid an hourly rate
The example above did actually come from a SoW that I came across recently.
Just because the engagement is detailed in a SoW, it doesn't mean that there isn't the potential for personal service. And therefore, a requirement for the client to undertake IR35 determination to ensure that they’ve taken reasonable care.
However, I’m not saying that SoW isn’t an effective tool to help manage engagements that are ‘outside’ of IR35 - note the distinction that it doesn't 'take the engagement outside’ - as it helps to manage organisational risk when working with contractors and consultancies within a services relationship.
There are lots of good operational benefits of not engaging in an employment relationship - more flexible working, higher levels of risk sharing, access to different talent pools, and reduced cost of physical space to name but a few. But there are also risks attached to relinquishing some control over the skills you are engaging to deliver sometimes critical projects.
Therefore, a SoW can help manage these organisational risks by laying out exactly what is required from the different parties and what the piece of work being outsourced is.
At Reed Consultancy+, we’ve worked successfully with a number of clients to achieve this, helping them scope packages of work and using our dedicated team to track and manage success, helping to provide the governance and controls required to be comfortable in this way of working.
A core benefit is that this way of working helps to shift organisational culture away from one that encourages consultants to drag their heels (as they get paid more for time and materials) and towards one that rewards delivery of good outcomes on time.
In summary, a SoW done well can be a very good way to share risk and create a positive organisational culture. Done badly, it can open an organisation to operational, commercial and legal risk.
So, beware of the person that tells you 'SoW' is the answer, as while it's the answer to some questions, it's not the answer to this one. IR35 needs to be manage...
For more information on how we can help your organisation manage IR35, get in touch with one of our experts.