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Does IR35 apply to a Statement of Work?

Q. Is there a legally recognised way I can deliver a ‘Statement of Work’ to escape IR35 reform?

A. This is a question that keeps cropping up, as IR35 reform approaches. To answer it, yes, in providing a ‘Statement of Work’, which is, in other words, a genuinely contracted out service, the IR35 rules do not and will not apply. 

To help us explain, it’s important we first outline what a Statement of Work is. In short, it’s a type of contract between a client and a supplier which covers a specific project or task. In a Statement of Work, the supplier will be wholly responsible for the successful completion of the project and is required to provide and maintain the resourcing themselves, which could be contract workers and or permanent employees. Consultancies, for example, often provide this ‘managed service’ (as it’s also known) to clients.

You can draw up a Statement of Work for your client to agree upon, but this service must be genuinely outsourced and not a provision of labour simply masked as a consultancy agreement. If HMRC senses a contractor has put one in place while the reality of the engagement reflects a contractor and client agreement, there’s a strong chance the IR35 rules will apply. 

While working under a Statement of Work you would technically not need to worry about IR35. It doesn’t come into the equation. However, for most contractors, switching to a Statement of Work could prove difficult and it’s likely you would need to completely renegotiate terms with your client, given the service a genuine consultancy delivers is quite different to the one a contractor will provide.

In conclusion, a Statement of Work is compliant, but simply putting one in place to ‘escape IR35 reform’ is a big risk, particularly if the service your company provides and how it is delivered remains the same. 

Some questions you’ll need to ask yourself when providing a Statement of Work include:

  • Are the services entirely lead and managed by the third-party supplier?
  • Is the supplier responsible for managing the resources required?
  • How is work is actually provided? For example, to what extent do any workers interact with client staff?
  • How is payment for the project structured?
  • Who do the workers report to or liaise with?
  • Can the client request the services of a specific individual?
  • Who would be notified if there were any defects or problems with the services?
  • Is there any requirement for a specific individual(s)?

This answer was provided by IR35 specialist, Qdos Contractor.

By Contractor Doctor

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