IR35 for Agencies

How will IR35 affect my agency?

From April 2020, following changes to the public sector in 2017, the government will be extending the off payroll working rules (“IR35”) to companies in the private sector, although small companies will be exempt. This will significantly impact the way some clients and agencies engage temporary workers. The key change is that the responsibility of defining the IR35 status will transfer from contractors operating their own personal service companies (“PSCs”) to the hirer.

Hirers will now be required to individually assess each role as being “inside IR35” or “outside IR35” by issuing a Status Determination Statement (“SDS”) and cascading it down the supply chain to the fee payer (generally the recruitment agency) and the contractor. If they fail to make this assessment they risk being in breach of “reasonable care” imposed by the new rules.

Agencies will bear the brunt of the liability in the supply chain for an incorrect determination, even for an “outside IR35” assessment by the hirer which HMRC subsequently decides to be incorrect. However, liability can transfer back to the client if it does not comply with the SDS process, if it doesn’t notify the supply chain of a change in its status to a small entity or if HMRC are unable to collect tax from the fee payer or “Agency 1” (often an RPO or MSP).

Turning the threat of IR35 into an opportunity

Hirers, most of whom do not have an adequate understanding of the new rules to meet the “reasonable care” threshold set by HMRC, are looking to their agencies for help.  In many instances, agencies will have a contractual obligation to ensure that the workers they are providing are “compliant” and do not expose the client to risk.

However, IR35 is a niche area of law and many agencies do not have the necessary understanding of IR35 and the employment tests behind it, to give good advice to their clients.  This is where WTT Legal can help by offering solutions that will put your agency streets ahead of your competitors.

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Impact Assessment

If you haven’t already, agencies will need to urgently look at how the new legislation is best integrated into the procurement of their contingent staff to limit the risk of non-compliance. Agencies will need to understand their exposure to the changes by conducting an audit of the types of contractors you currently supply and the types of roles you fill across your sectors. Once you’ve broken down your workforce into categories, you will then to start conducting status determinations to ensure that contractors are working compliantly. WTT Legal can assist you with this determination by looking at both the contractors’ working practices and their contracts.

You will then need to engage with your clients to understand their approach and to evaluate their needs, risk and response. You will need to educate and consult with your clients on their approach and whether you can assist them with the Status Determination Statements. Finally, you will need to review your compliance processes and the status of your contractors should be reviewed regularly. WTT Legal can assist you with these processes.

Contract Template Packages

We can provide template contracts for the following engagements:

  1. Inside  IR35 (contractor-agency)
  2. Outside  IR35 (contractor- agency)
  3. SOW (contractor – agency)
  4. Consultancy (agency- client)
  5. Terms of Business (agency- client)
  6. Inside IR35 (agency- umbrella)

These contacts can be amended as required.

Status Determination Statements

We can assess each contractor and role, utilising our online Working Practices Questionnaire. The answers provided by the contractor are then considered together with the contractual provisions and a Status Determination Statement (“SDS”) is produced, together with a Confirmation of Working Practices to be completed by the end user.

For new assignments, an indicative SDS can be produced, based upon the job specification and contract. This needs to be followed up shortly by a Working Practices Review completed by the contractor to ensure that the working practices reflect the contractual provisions.

Umbrella

For those contractors who are assessed as inside IR35 and are not appropriate for permanent or fixed term engagement, we can refer those contractors to a fully-compliant umbrella employment solution. For further information, please contact chris.mattingly@contractor.coop

Statement of Work and Consultancy

For those clients who are not willing to engage contractors through their PSC on an outside IR35 basis, you will need to understand the criticality of certain contractors and what other models can be used to engage them to prevent a loss of talent. Criticality of the roles will influence the client’s decision-making, such as whether to change the contract model to an out-put based consultancy contract or whether the client is willing to pay more for the contractor.

If some of your assignments are project-based and can easily be structured as a deliverable, outcome-based piece of work, why not manage them under a Statement of Work? SOWs, however, are clearly only appropriate for certain types of projects, commonly found in the IT or tech sectors.

In a SOW you define the specific services that the contractor is expected to perform by detailing the work activities and deliverables. You detail the quality and level of service that you expect and outline a time schedule. Pricing and standard governance and regulatory terms and conditions are usually included as well. In some cases, you would outline the exact requirements of the job.

SoWs offer an alternative to conventional recruitment models. Instead of supplying resources on an hourly basis, SoWs provides fixed costs for achieving set milestones or deliverables. They offer an alternative for businesses whose requirements mean they may not get the same value in terms of cost and efficiency from traditional talent models.

We can assist with reviewing consultancy-style arrangements either between you the agency

  • and the end user where you are providing consultancy services or
  • and a consultancy company.

In both instances, the provision of these services is outside the scope of the IR35 off payroll legislation and the consultancy is responsible for assessing the status of the contractors working for them.

WTT Legal can assist you with drafting SOWs and consultancy agreements to ensure that it is genuinely the provision of a service. We can also assist with change control documents.

Contract Reviews and Amendments

The contracts with both your contractors and your clients will need to be reviewed and re-negotiated to ensure compliance with the legislation. WTT Legal has extensive experience in contractual reviews, amendments and negotiations and we are happy to draft robust and enforceable contracts which mitigates risk to your agency.

IR35 Helpline

Agencies working with WTT Legal are able to position themselves as IR35 compliant, bringing to them a commercial and pragmatic approach to the legislation and often winning new business from less proactive competing agencies. As part of our IR35 services, we offer all of our agencies access to an IR35 helpline which enables them to speak to our lawyers about any IR35 related issue, ensuring that you continue to navigate this significant legislative change. For further information and to arrange a free initial consultation, please contact info@WTTLegal.co.uk.

70 % of recruiters surveyed by APSCo showed a reduction in public sector placements following IR35 reforms.

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Just want to add my thanks to Graham, Rhys and the team for the glimmer of hope they’ve given us. I can’t tell you how glad I am that I found WTT.

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