Statement of Work hero image

Could Statement of Work be the solution to IR35?

IR35 is a big talking point in businesses right now and with the private sector roll-out coming to medium and large businesses in April 2020, many businesses are looking for answer to the complexities this will bring.

Due to its complexity, there is no one-size-fits-all. However, by changing our thinking around how we manage contract workforces, this can be an opportunity to not just mitigate tax risks, but to actually improve the efficiencies of our workforce.

Statement of Work

Statement of Work is how we structure outcome-based work solutions. Many projects are currently run on a time and material (T&M) basis.

For example, if you needed to upgrade a piece of software across your business, you would likely need to advertise, interview and hire a team of engineers and induct them into your business, ready to deliver the upgrade. This team would likely be paid on expensive day rates, require day-to-day instruction and management, and be required to attend company meetings. All of these factors (among many others) would bring them inside IR35, as well as being time consuming to manage and having no guarantee of delivery.

However, under an outcome-based Statement of Work, you can mitigate some of the risk factors of this scenario. Run as a fixed-price project, you wouldn't need to manage each individual contractor to turn up each day and complete task X by Monday, for example. Instead, you would focus on them delivering the software upgrade by the agreed date. You wouldn't need to hire the team or worry about authorising time sheets, but instead sign off work completed, saving a considerable amount of time and administration, as well as mitigating many of the risks of IR35 compliance.

Shift away from man-management and drive efficiencies

If you change to this way of thinking you ensure your workforce is IR35 compliant, and this outcome-based way of working improves efficiency and productivity too.

Effectively, contractors who are paid a day rate really benefit when work runs late, and the reality is you are unlikely to have the technical capability to effectively manage them. But by switching to an outcome-based model you can incentivise individuals based on delivering high-quality work on time.

Ultimately it's about shifting our thinking from this man-management to working with a service provider and measuring deliverables, even if it is a one-man band limited company. This service provider can then bill the business at agreed milestones and/or on project completion.

What about IR35?

With IR35 coming into place, the traditional T&M resource model also comes with the administration of working out which roles fall in or outside of IR35 and, if they do come within, the additional costs of PAYE and NIC on top.

With the lack of clarity, the risk would be that the individual contractors will receive reduced day rates as well, resulting in a loss of talent for your business, further impacting on productivity.

If you can focus instead on "what outcomes do I want?" and enlist a service provider to work backwards from there, you mitigate these risks as well as driving more productivity into these projects.

IR35, in our opinion, doesn't need to be something to be scared of. It can actually be a catalyst for changing the way we think about workforce management to a more Statement of Work-based way of thinking. Smart business leaders will realise the benefits of this far outstrip IR35 compliance.

Find out more

Want to know more about how Statement of Work could work for your business?

Contact us on enquiries@carbon60global.com or call 01582 958140.

 

*This pages provides information on legal issues and development of interest to our colleagues, clients and candidates. The material is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed on this page.

How useful did you find this article?
Thank you for your feedback!
2.0 / 5.0