IR35 – is a Statement of Works the answer?

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.

Blue header circle

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
  • End: ongoing

Deliverables

  • Will be flexible to suit the overall direction of the programme and outlined to the contractor as part of the sprint schedule

Acceptance criteria

  • This will be a time and materials engagement

Commercial model

  • 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 managed…

For more information on the management of IR35 visit the Reed Talent Solutions website.

Published
Author
James-Profile
James Bridgland
Consulting & Solutions Director

James Bridgland leads our consultancy business. James has over 10 years' experience in delivering projects and services to clients across a number of areas including: HR and organisational change, IT transformation, and remediation and compliance.

Across this experience he has worked with clients ranging from UK based SMEs through to global blue chip organisations, in order to support the delivery of outcome based consultancy and work package solutions.

Shutterstock 644694811
Solutions

IR35

IR35 reforms were introduced into private sector organisations in April
2021, which significantly impacted the way organisations engaged contingent
labour.

Presenting legal and non-compliance risks for the private sector, it’s critical that businesses seek guidance from specialists to effectively navigate these changes.

What’s happening

I Stock 840732654
insight

Tim Whitaker is a consultant working on age and employment issues and a Trustee of Wise Age - a specialist employment charity for the over 50s working with employers, policy makers and older workers.

Microsoft Teams image 7
insight

Reed Talent Solutions has been named as a finalist in four categories of the prestigious TIARA Talent Solutions Awards 2022.

Pink circle

Let's get started

Speak with our expert team who can advise you on how our solutions can help your business.
Alternative Reed Talent Solutions logo