By Tom Forrest, Managing Director, SH Consulting
To say IR35 has been the subject of much debate within the Interim and Consulting community over the past two years is something of an understatement. Regardless of opinion on the rights and wrongs of these legislative changes the fact is they are happening and they will have a big impact on the dynamics of the market, especially for those operating in the financial services sector.
The key change to be aware of is that the responsibility for determining the IR35 status of an assignment or project will now fall to the end user, which is the organisation for which the work is being delivered i.e., the Client.
Where work is delivered through a Statement of Work (SoW) scenario it is possible that the consulting firm can be considered to be the end user or client. In which case the consulting firm shall be responsible for the Status Determination.
It is important to make it clear that a SoW is not a silver bullet for IR35 and HMRC would look dimly on any scheme that is set up to ‘avoid’ IR35.
Again, if you are operating in the financial services sector you will probably be aware that some firms have introduced blanket rules requiring any Off Payroll delivery to be taxed at source. In some cases this also applies where work is delivered as a consulting service through a SoW.
So what does all of this mean for the community of Interims and Consultants who are working with Sheffield Haworth and SH Consulting?
The first thing to say is that as an intermediary we must balance the views of our clients and our community of interims and consultants.
We will respect the policies implemented by our clients and have a duty to follow their Status Determination Statement where they are the end user.
We will also actively encourage our clients to assess each piece of Off Payroll work on a case-by-case basis and provide tools to help them carry out an accurate assessment. If this assessment places the work genuinely “Outside” IR35 then we will happily make gross payments to a Personal Service Company.
Where we operate via a SoW with our clients we will always recommend that we be considered the end user and will therefore retain the ability to make Status Determinations ourselves.
We have made a commitment to our clients that where we are paying Interims or associate Consultants on a gross basis to a Personal Service Company we will indemnify our clients against any claims by HMRC in relation to IR35.
We will do this by insisting the Personal Service Company has a relevant insurance policy which indemnifies all parties in the supply chain. This requirement will form part of our Terms & Conditions.
For work that is determined as “Inside” IR35 we have a number of options:
- PAYE Daily Rate payroll: we have set up a payroll which will classify Interims or associate Consultants as “workers”. This means you will be an employee of Sheffield Haworth for tax purposes only and will also have rights to holiday pay and a workplace pension. You will not be a full employee of Sheffield Haworth. This payroll solution does not mean you will incur any additional charge to operate this way. You will continue to complete timesheets using our online system and we will pay you net of Tax and Employees National Insurance (NI) on a monthly basis. This is our default option for assignments “inside” IR35.
- Umbrella Schemes: should an individual wish to use an Umbrella Scheme we will make payment to it on the basis that it meets the requirements of our Client. You should be aware that some client firms have a list of approved Umbrella Schemes and some have banned the use of Umbrella Schemes completely.
- Payment to a Personal Service Company: where our clients deems it an acceptable method of being “taxed at source” we are able to make payments to a Personal Service Company net of an amount equivalent to the appropriate Tax and NI. We will make payment to HMRC of this amount on your behalf. If this is your preferred method of engagement, then please make us aware as soon as is possible as this option will not always be viable for our clients.
- Fixed Term Contracts: you will be aware of the increased use of Fixed Term Contracts in the last 12 months. On a Fixed Term Contract you will have the full rights of an employee for the term of the contract and will be paid a salary and benefits. Typically this means being employed directly by our Client although in very specific circumstances Sheffield Haworth will employ you on a Fixed Term Contract and ‘place’ you into the end client. Again, this will not always be an option and we will inform you if it is possible for a particular assignment or project.
SH Consulting: delivery through a Statement of Work:
The SH Consulting practice at Sheffield Haworth is our vehicle for undertaking projects via a Statement of Work. SH Consulting is the trading name of a separate legal entity within our group and is the S&H Consulting business that Sheffield Haworth acquired in 2019.
For those of you who have worked with SH Consulting you will know that our model utilises associate consultants alongside permanent staff members and is focused on delivering change and transformation in the financial services market. This is primarily for Tier One banks and asset managers which often have policies in place restricting any use of PSCs whether direct or within a SoW.
We work with clients on both Fixed Cost and Time & Materials projects and always have clear objectives and deliverables within our SoW.
It is our view that where we are operating in this manner we will most likely be considered to be the end user and therefore will assume responsibility for Status Determinations of any Off Payroll workers.
However this will need to be agreed with our clients on a case by case basis so please do not assume that the existence of a SoW relationship means we will always be the end user.
Please also be aware that when we are classified as the end user we will assess all delivery within our SoW and this will not automatically mean that any associate Consultants we engage will be “outside” IR35.
It is important to remember that the use of flexible, external resources to deliver critical projects or provide interim cover for leadership positions is not going to stop. The market will no doubt take some time to absorb the new reality of PAYE delivery and its associated costs; however historic data suggests that regulatory events such as this typically only cause short term dislocation.
As the world begins to emerge from the Covid-19 pandemic through the remainder of 2021 we anticipate increased demand for skills in transformation across technology, digital, customer experience, automation, regulatory, risk, cyber, resiliency and finance programmes. We also anticipate that an improving market for hiring of senior leaders will create further requirements on an Executive Interim basis.
The method of engagement for Interims and Consultants may end up being different but the prospect of helping firms to drive critical transformation is exciting. We hope we can find a way to work together with you on these projects.
If you would like to find out more about our solutions, please get in touch. Find out more