Statement of Works (SoWs) appear to be getting popular, especially when it comes to the implications and use under the new Off Payroll rules. But a few words of caution...
... using a SoW on its own and as the basis of contractual documentation for a Clients and PSC's Contract appears to be misunderstood. Without having a separate Terms of Business and Agreement between the parties in the supply chain (that includes clients agencies and PSC's) there will undoubtedly be implications.
There is a common mistaken belief that engaging contractors with a Statement of Work label or moving to such an arrangement between an agency supplier and client will automatically avoid the new Off-Payroll (IR35)rules. This is simply not the case.
It is of paramount importance to always use clearly defined contracts and make a clearly defined Status Determination when engaging contractors from 5th April 2021.
Here at Clearly Defined, we ensure IR35 and supply chain compliance by getting the right contracts in place at the outset. We provide clients with specialist and overarching Client Terms, which cover all relevant issues related to engaging workers that we supply. This includes "inside IR35" and "outside IR35" arrangements. It also covers "small companies" that are outside the scope of the new "off-payroll" rules.
Our Client Terms govern the overall relationship of the parties involved and include high level topics and clauses such as confidentiality, indemnification, obligations, definitions and meanings; all significant and relevant to the Off Payroll Rules and Agency Worker Regulations. These are not shown in a SoW, since a SoW is without doubt far more detailed than your standard terms or schedule which accompanies a contract for services. A SoW will also include exactly what is included within the project such as key milestones and specifics around how the project will be completed.
Once the Client terms are agreed, the next step for clients is to think about and recognise what you need the contractor for. We ask a few easy questions that helps clients in this respect. This guidance will help in making the right Status Determination Statement (SDS)
It will also help determine the nature of the work and decisions you make in determining any tax risk you may potentially have, from 5th April 2021 when the new ‘Off-Payroll’ rules apply. This is extremely important if you take on Contractors directly or via an agency without the correct terms between you and the Contractor they supply. This is because tax liability can pass up the chain if you (or the agency) have not approached the engagement correctly.
If you have provided a Status Determination showing an unequivocal project, then we will issue the correct Project Agreement's to you and to the Contractor, each one will correctly capture a project outside of IR35. The two Project Agreements work back-to-back and seamlessly, ensuring there isn’t any conflict between the two which could result in liability. In this situation we will the pay the Contractors’ PSC Gross (without deduction of tax).
If you have indicated a SDS that's not a project, we are able to supply a Contractor for you and we will pay the individual net of deductions.
In this situation (which is inside of IR35) we issue the individual contract worker with a ‘Temporary Candidate Agreement’ which covers the engagement of the candidate on a contract for services to carry out the assignment. This also meets the requirements of the Conduct of Employment Agencies and Employment Business Regulations 2003 (often referred to as “Conduct Regulations”).
Another word of caution is that care should also be taken to ensure that a labour supply contract has not simply been re-labelled as a ‘managed service.’ For example, window dressing a contract as a contracted out service or a ‘statement of work’ will not prevent the off-payroll working rules from applying, and the reality of the arrangements should be considered. This is why the contract, the SDS and working practices must always truly align.
'Are your Ducks all in line'....
When we supply Contractors for you using our specialist terms, alongside a suitable Status Determination, we will always take full responsibility in paying the contractor correctly. This is made with any relevant tax deducted so that you do not have any tax liability when using Contractors supplied by us.
Our experience stems from a thorough understanding of the Off-Payroll legislation and our widely used IR35 friendly contracts, which accurately record arrangements where there is no deemed employment.
To discuss your interim or contract hiring needs or have any issues relating to IR35 off-payroll legislation please contact us.