IR35 & Procurement: handling your contingent workforce

When the new IR35 rules came in, procurement leaders had to learn how to correctly assess contractors' employment status and change well-established procurement practices. All during a time when hiring costs soared and contractors refused inside IR35 roles. Discover how, with our help, you can to cut costs, enjoy continued access to the very external talent and ensure compliance.

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What are the biggest issues procurement teams have had with the IR35 legislation?

Procurement professionals working for our clients tell us that their particular pain points have been:

• You've had limited or no IR35 guidance.

• Line managers are not sure of the legal difference between an independent contractor and a disguised employee. It's far from clear on many occasions if what you want a contractor to do is similar to that of an employee.

• The business is not sure about what working conditions a genuine contractor should expect. Contractors are independent and should receive very limited oversight. If they need training, this complicates matters further.

• You have no way of supervising whether a contractor's working conditions are consistent with their IR35 status. Even if you do get working conditions right in the contract, how can you be sure they're being observed? How contractors work is just as relevant to IR35 as what's in their contracts.

• You don't trust online assessment tools. You're right not to - the government CEST tool is completely unreliable and private sector static tools give mixed results.

• You can't easily identify personal service company (PSC) contracts going back to April 2021 (or 2017 for public sector clients). Is it one person alone providing services or a team of people?

• No one is telling you if what you're doing is right or wrong. You try your best to follow the rules as you understand them but you get no feedback, other than from employment solicitors who are expensive and take time to get back to you.

• The IR35 implementation team lacks direction and the ability to change things. Multiple stakeholders tend to be involved with IR35 but their knowledge of Off-Payroll is not complete which can lead to indecisiveness.

• Your C-suite/board members are indifferent. No one at board level sees the threat and you (or your IR35 team) can't estimate liability to put a figure on the threat.

How procurement teams have dealt with IR35 since the new legislation came in

Many organisations stopped working with contractors trading through their own limited company.

Many other public sector bodies and private sector businesses made small changes to internal procedures. But how they dealt with self-employed contractors now wasn't much different from before.

There are major issues with both approaches.

Stopping personal service company contractor use altogether

Procurement teams working for any hiring organisation that banned contractors trading through their own companies faced the following problems:

• Some contractors demanded special treatment. Especially business-critical ones. This creates admin difficulties and poses a threat if the existence of a sweetheart deal gets out.

• Many existing contractors left. Contractors view their employment status as being independent entrepreneurs with the specific expertise you need. They don't want to pay the same tax as your employees

• It's harder to find contractors to replace them. Contractor numbers have plummeted since the new rules came in creating real supply issues.

• You have to contend with rising contractor rates. The shrinkage in contractor numbers is pushing day rates much higher than inflation.

• You're losing out on talent. As the new rules don't apply to small businesses, they're pushing up prices more by competing for talent.

• Running contractors' invoices through payroll. Payroll is complicated and creates additional internal workflows.

• It's a struggle to keep projects within initial budgets. "Inside IR35" contractors and contractors sent via umbrella agencies cost more. HR may not have the budget to add a desired contractor as an employee.

Moderate changes to previous internal procedures

If most of your company's processes are similar to pre-April 2021/2017 as survey statistics suggest, you face the following challenges:

• At some point, HMRC will want further information. HMRC will contact each company to check how they comply with the new rules. They WILL investigate if they're not happy with your answers. Investigations can take years to finish.

• You'll owe all associated taxes on non-compliant work. For every non-compliant invoice, you'll pay income tax, National Insurance and, if applicable, the Apprenticeship Levy based on invoice value.

• Costs may go up to 100% higher than owed taxes. Fines range from 30% for not taking reasonable care to 100% for what HMRC deems deliberate non-compliance.

• You lose off-payroll workers' confidence. If companies don't pay their fines, HMRC can chase the contractor under Regulation 72. If you were a contractor, would you take the risk of working with a company that did not get IR35 right?

CoComply and the benefits we deliver to procurement teams

CoComply takes care of all IR35 requirements for procurement teams. We even help many clients who operate agile environments across their businesses and/or on projects.

Here's a list of procurement-specific services we provide to clients:

• Always available to answer questions. Call or email us with any IR35 question you want help with. Quick, accurate answer normally immediately or within 4 hours.

• We can liaise with other departments. You can ask HR, line/project managers, board members and so on to get in touch with us so we can answer questions they're asking you.

• We can liaise with your supply chain. If you use recruiters or MSPs to hire off-payroll workers and need help on an IR35 issue, let us take part in the discussion.

• Your IR35 team. We're the glue that binds all parts of your business making sure that IR35 compliance is baked in at every level.

• Your data in a single source of truth. Send us your supplier data going back to April 2021/2017 and we'll examine whether or not you were invoiced by a personal service company. We present an action plan on each incidence found.

• An IR35 expert assesses each new assignment. Every assignment is passed by an IR35 expert following full examination.

• Adjust assignment to be "outside IR35". We can recommend how to change an assignment likely to be "inside IR35" to being "outside IR35". Please note that this is not possible every time.

• Guidance to create genuine outside IR35 engagements. We can help you create genuine"outside IR35" engagements for contractors you wish to bring in to provide services.

• Be clear on IR35 status before start looking for a contractor. Before you advertise for a contractor or approach your recruiters/MSPs, we can tell you whether it's "inside IR35" or "outside IR35".

• New contractor IR35 onboarding. We call each contractor during onboarding to explain and answer questions they have about the employment status we've determined for them.

• IR35 system alerts. Create alerts in your ERP software to factor in IR35 compliance. Each alert contains instructions on what they need to do.

• Monthly contractor compliance call. We check in with each contractor on an agreed cadence to check ongoing compliance.

• Reassessment every six months. A joint compliance check and review. Use this as an opportunity to review existing arrangements and make any changes needed, for example on milestones.

• IR35 action plans for emerging issues. We alert you immediately if we think a non-compliance is developing with a contractor after our monthly/6-monthly check-ins.

• Status determination appeals. Contractors can appeal their employment status and you have to respond within 45 days. We assist you during all appeals.

• All procurement IR35 documentation stored and indexed. We hold all contracts, statements of work, invoices and check-ins securely online. Essential for HMRC investigations and due diligence situations.

• IR35 training for team members. Access our online library to build your and the procurement's team knowledge and confidence in IR35. Invites to regular webinars.

We provide all services as part of a company-wide solution engaging procurement, HR, project managers, heads of finance and any other parties responsible for hiring.

The benefits of working with CoComply

For you and your procurement colleagues, you benefit from:

• A team of IR35 experts at your call. No more phoning colleagues in HR or legal - they're great at what they do but they're not IR35 experts. We are and we're here to help.

• Compliance baked into procurement processes. Colleagues will know when IR35 applies and what they need to do about it.

• More time to do your work. Spend management doesn't sort itself out!

• Freedom from uncertainty on IR35. IR35 has caused worry and concern to procurement leaders and teams in the public sector and private sector. We put a complete stop to that.

• Evidence for your C-suite team. We can provide board members with all the detail they need about IR35 exposure, including an estimated liability figure.

Your business gets the following advantages:

• Demonstrate compliance to HMRC. HMRC will look to extract the maximum amount of cash from you if you get this wrong. If you have 50 contractors with day rates of £500 each, you'll lose millions of pounds.

• Lower project costs. Save 18.05% by not having to pay Employers' NI and, if applicable, the Apprenticeship Levy because you've built in compliant flexibility to be able to continue to offer outside IR35 positions.

• Hire the top talent you need. Become a destination client by respecting contractors' independence.

• Certainty on whether an external worker is inside or outside IR35. No more time spent looking for reassurance from colleagues equally unsure about IR35. Get a definitive answer each time.

What makes our service different:

• We're leading IR35 experts. This is all we do. We work with clients that want control over IR35 for their organisations.

• We manage change. We've helped dozens of clients build in the processes they need to be confident and compliant with IR35.

• No ongoing commitment. We ask for no more than a 30-day rolling contract.

CoComply: IR35 for procurement teams and the organisations they belong to

The most effective long-term strategy for becoming an IR35 compliant and confident business involves procurement and the other departments within your organisation.

The new rules have completely shifted risk to the end client. IR35 is the most complex part of current UK employment legislation so it's no surprise that many public sector bodies and private sector organisations have taken defensive positions. There are multiple drawbacks to this though, the biggest two of which are added expense and it's harder to get the top talent.

For further guidance on how to cope with the new legislation on IR35 from a procurement perspective, call CoComply on 0203 051 9792, email us at [email protected] or fill in the form on this page.