We are aware of two options that businesses are currently considering but are there really any work arounds? In reality probably not!
We know what HMRC are looking to achieve, so could these options leave contractors and recruiters at risk?
Consultancy work is where the business acting as the consultancy will take responsibility for the delivery and quality of the services, this may involve taking on a larger project and sourcing expert contractors to deliver the work.
This will require the consultancy to provide increased insurance coverage and a consultancy model is particularly risky if there are no internal expertise on the type of service they are providing – at which point a project manager my need to be hired.
When used appropriately, this type of contract falls out of scope of the public sector off-payroll working rules.
From April 2020, if you are operating as a consultancy providing an outsourced service to your end-clients, for the purposes of the off-payroll working rules, you will be deemed as the client and therefore responsible for making the status determination statement.
Statement of Work (SOW)
The second option is a Statement of Work (SoW) or outcome-based contract.
If appropriately executed, it is likely to be “outside IR35” compared with the traditional time-based contact on a set hourly or day rate.
It may be possible for the client to have a direct contractual right to sue the contractor for poor services or failure to deliver meaning a recruiters risk is reduced (although clients may often prefer the security of pursuing the recruiter).
Furthermore, it is more likely that an assignment will fall “outside IR35” if the performance of the services carries a genuine business risk, e.g. payment is conditional upon acceptance of services or satisfactory performance, and rectification of defects or poor performance are made at the contractor’s cost.
Although this may seem like an easy option to adapt to the new rules, a recruiter will remain at risk if the reality of the contractual performance does not reflect the contractual wording.
In reality any work around for the new IR35 rules is likely to upset HMRC, and could lead to a crack down later on down the line.