HMRC: Statements of Work are not a free pass from IR35

We were interested to see that HMRC’s Employer Bulletin, published 11th August, included guidance on contracted out services and Statements of Work. 

In it, HMRC calls out the increasing practice of engaging workers under a Statement of Work or contracted out service, in order to “get around” IR35. And where such arrangements aren’t genuine, they are clamping down. 

Beware IR35 “Solutions”

If a contracted out service is put on the table as a “solution” to IR35, the bulletin implores clients to consider the true nature of the relationship. It states: 

“ You must make sure that you understand what constitutes a fully contracted out service if you believe you may not be the client responsible for considering the off-payroll working rules, or if you are being asked  to agree to these arrangements.”

“As a first step we recommend looking critically at the services you require, and if it is a supply of labour then it is highly unlikely that the contract represents a fully contracted out service…..If the true nature of the service being provided is a supply of labour, then any written terms will not change this fact.”  

In other words, beware of arrangements where a source of labour has been disingenuously labelled as a service to deliberately circumvent IR35.

Julia Kermode, founder and CEO of IWORK, an organisation which champions independent workers, said:

“I’m aware of many incidents where Statements of Work are wrongly seen as a magic bullet to disapply off-payroll legislation and there has been a sharp increase in supposed ‘IR35 solutions’ which are simply a change in contractual wording in how someone is engaged.  My advice is simple – be very wary of these models. 

“If a service is genuinely contracted out then a Statement of Work is perfectly acceptable, however simply amending the contractual wording in isolation does not achieve this and it is likely that you will need to consider the off-payroll working rules.  There is no work around or solution to off-payroll, and the sooner everyone realises that the better.” 

Joe Taffurelli, Liquid Friday’s Head of Group Operations, took a similar line:

“We’ve come across instances of Statements of Work being waved around as a free pass to get out of IR35. In this bulletin, HMRC make it very clear that they know this is happening and will be taking action to target it. 

An SoW is designed to manage a contracted out service and shouldn’t be used to create the impression of one. Where such an arrangement is being offered, it is a good idea for all parties in the supply chain to make sure this is genuinely the case and they are applying the rules correctly, or they could risk finding themselves at the wrong end of an HMRC IR35 investigation.”

Ongoing IR35 support

In a recent survey by Liquid Friday, recruitment consultants said IR35 was still their biggest challenge after candidate generation. 

At Liquid Friday we helped hundreds of recruitment agencies and thousands of contractors navigate the difficult IR35 transition. We remain fully committed to providing the dedicated support and services our clients need to manage the ongoing challenges of IR35 compliance.

If you have any questions or concerns around IR35, get in touch with the team, or speak to your Liquid Friday Account Manager.