On Thursday 13th February 2020, Sonovate held a webinar with legal experts Osborne Clark to discuss how to navigate IR35 and retain access to your contractors.

Topics covered included:

– What the changes mean for your business
– How to prepare for April 6th
– How Sonovate’s range of IR35 solutions will support your business growth


Richard Prime…

Good morning, everyone. Thanks for joining today’s discussion on how to navigate IR35 and retain access to your contractors. 

If I move on to the presenters today. I think most of you are most interested in hearing from Kevin Barrow, who is a partner at Osborne Clarke. 

And equally Kirsty Brice, who heads up IR35 implementation at Sonovate. So, without further adieu, just to clarify what we’re covering today:

  • IR35 overview
  • What is changing in April
  • Tips on how to prepare
  • Sonovate’s IR35 solutions
  • Q&A

We’ve had an awful lot of questions come in, of which we’ve tried to pull out some key ones for Kevin and for Kirsty to cover.

Kevin Barrow…

Thanks for that Richard and welcome everyone, as Richard says I’m Kevin Barrow and i’m a partner at Osborne Clarke.

What I’m going to do in my bit is tell you a little bit about Osborne Clarke, so you have some faith, I hope, in what we say.

I want to put IR35 reforms into some context. Because to understand how they work and how major clients are thinking about them, you need to understand the full context and all of the other things happening in relation to contingent workers at the moment. 

Then we’ll get into some of the details of IR35. I’ll try to make it as entertaining as possible. But unless we can clarify some of the key parts of IR35 some of the solutions and recommendations that will make and and no doubt Sonovate will help you with won’t make sense, and you’ll be wondering why we need to do that. 

So, we need to look at the details ad there’s a lot of misinformation out there at the moment. So I want to clarify some things which are bad information about IR35.

Then we’ll look at how the market is responding. Some of the things that are out there and give you an idea of what people are doing and then finish with three slides with about 20 or 30 bullets of actual things you need to do.

So, first of all about Osborne Clark. We’re an international law firm of about 2,000 people in 24 offices around the world. One of the things we specialise in is helping staffing companies in the UK and US, but elsewhere as well. 

We have advised 220 companies now on IR35 from large staff and companies large end users through to specialists staffing consultancy. Our company’s been involved in all of the major consultations about IR35 going way, way, way back. I was just talking to Richard, we first encountered each other in relation to this in the 1990s, which you believe, neither of us look old enough, I would suggest, luckily, you can’t see pictures of us right now.


So, where does IR35 generally fit in? 

There’s been growing government action against contracting, not just in the UK elsewhere.

So, there’s a lot of news, every week if you follow the US staffing industry press, you’ll see action by US States against staffing companies named users for worker misclassification.

Which is the same as you know someone being treated as inside, outside IR35, and they should be inside. It’s called 1099 in America.

There’s a lot of stuff happening in Germany as well in this whole area. There are more and more people working on a self employed basis and the German authorities are taking a close look at that. The same is happening in Holland and Australia.

We’re not alone. Don’t feel you are being picked on. In fact, to be honest with you. The UK is an outlier, we are the last probably to really take major legislative steps against the growth in the use of self employment models.

And it’s a very topical issue, the press have picked up on it. HMRC are beginning to enforce more and more things against staffing companies.

Obviously, the 2017 experiments, if you like in the public sector with the IR35 reforms there, were the government’s toe in the water for this and now we’ve got the proposals for change in April 2020.


So, what’s the current position relating to liability?

Well, obviously, and you probably all know this, at the moment in the private sector, in relation to suppliers into the private sector, the risk profile of the use of personal service company contractors is relatively low because it’s the personal service company that’s liable for any tax if they’re inside IR35, but have been paid outside IR35.

HMRC has rarely taken action. There’s always a bit of publicity about the BBC cases, but there are very few cases really. They’ve pretty much given up because it costs them more to bring a claim than they are ever actually likely to recover from individual contractors.

But obviously, that has upset HMRC. They received guidance as long ago as 2016 saying to end users and staffing companies, “you’ve got to be checking out your suppliers, a bit more.” Now, this isn’t supported by any actual legislative measures or penalties on people who don’t check out whether or not people are complying with tax legislation. It’s just a recommendation, but they’ve been pretty firm for three years. They expect people to be checking their supply chain now.

And then there’s a whole raft of other things that HMRC is using already in relation to end users and intermediaries supplying contract workers. A lot of major staffing companies have had regulation 80 assessments. There hasn’t been much publicity, but it’s been a big issue for a lot of staffing companies. The loan charge arrangements affected some users and suppliers of contract staff. We’re dealing with two claims by HMRC under what’s called the MSC legislation which is effectively legislation against umbrellas and accounting services providers, who help people set up as personal service companies.

HMRC announced last week that they’re investigating a major label supplier under the criminal finances act. Because they’ve been turning a bit of a blind eye to the use of dodgy umbrella arrangements in the supply chain. That’s what we understand and there are other things going on. So there’s a lot of stuff going on.

Independently of IR35 and you need to know that because major end users in particular are aware of this and that’s why they’re a little bit concerned about all of these tax changes and that’s why some of them are being a particular bit overcautious arguably in relation to their reaction to IR35.


So what actually does IR35 involve?

Well, it was flagged in 2017 that the IR35 reforms trialed in the public sector would be moved into the private sector. There was a consultation in 2019 based on research the government did which said that of the private sector personal service companies that were out there, one third were inside IR35, but only 10% of those one third were actually paying the right amount of tax. And this was leaving, leading to a 1.2 or sometimes you hear 1.3 billion tax shortfall for the UK Treasury.

HMRC thinks the public sector reforms worked so they think, “well, why not, let’s roll that out to the private sector.” They may not be right that they work, but that’s what we think. And of course, we have got a government who are making a few spending promises at the moment so tax has to be raised.

So it does look like something’s coming and there doesn’t seem to be huge protests. There was a demonstration outside Parliament last night, but a hundred or 200 people were there, so it’s not exactly the Brexit marches.

I don’t want to diminish how upsetting these reforms are for contractors. But, there really isn’t significant opposition so far, from the wider community or the political establishment we’re seeing. HMRC, pressing on draft legislation issued in July last year 22nd of January this year draft regulations.


So, what is coming?

Well, I’ll try to talk about in the next few slides is how the regime has worked in the public sector and how it’s likely to work in the private and public sector from 2020.  How the market seems to respond to this, what HMRC seems to think, and to give you some practical tips.


So, how does it work?

If you want to understand how IR35 works, the first rule is don’t look at the legislation because it is incredibly complicated and difficult to understand.

The best way to think about it is if these four steps are effectively satisfied. 

  1. There has to be a supply of labor, to the public sector or to any non small private company, involving a contractor who’s a personal service company, who fails IR35.


What is the supply of labour?

Well, what the legislation says is, is something that involves someone personally performing or who is under an obligation personally to perform services for an end user.

If the end user has no interest who turns up and the supply arrangement is genuinely output based, such that the end user says “I don’t really care who does it, as long as the bloody things done”, then, broadly speaking, IR35 doesn’t apply.

What does it mean to say to the public sector or any non small private company? 

Well,  the public sector definition is the one in the Freedom of Information Act. Which does, just to be clear, include Transport for London, Network Rail, BBC, Channel four and most universities as well as all of the of the public sector and sees that you can think of such as the NHS and government departments.

And what does small mean?

Well, the end user is small if it satisfies two out of the three conditions set on your slides. 

But, basically what that means it has to be pretty small. And a lot of questions are asked about, well, you know, what if it’s just a subsidiary of a larger company and the subsidiaries small, no you look at the whole group. If it’s an international group, you have to look at the International Group. If there’s some sort of artificial separation out of a small company, but it’s really controlled by someone else who’s part of a larger organisation, again, that won’t satisfy the small company definition, it has to be a very small company.

The next step that has to be satisfied to trigger IR35, is there has to be a supply of a personal service company. It means effectively someone operating through their own corporate entity.

It doesn’t include people who are engaged by a staffing company on a PAYE worker basis, because the normal PAYE, and NIC rule sets in sections 43 to 47 of the income tax earnings and pensions act apply to that. So you don’t need to worry about IR35 for them.

It doesn’t apply to an umbrella company employee’s because the umbrella is liable under PAYE for that and the expenses legislation deals with how our umbrellas can pay expenses which is obviously not as generous as they used to, before 2016.

And legislation doesn’t apply to sole traders. Instead, if you’re engaging people are sole traders, there is arguably a more scary regime – The 2014 onshore intermediaries legislation which makes the staffing company liable unless it can prove there’s no supervision, direction or control on the worker. Because it’s such a tough test that there’s been a reduction in the use of sole traders in many areas of the staffing supply chain, but not all, and HMRC do accept the use of sole traders is okay in some circumstances.

The fourth thing that has to be satisfied is there has to be a failure of the IR35 tests and that is basically an employment law test, which isn’t a mathematical exercise of counting up a number of factors and as long as a score is reached and the pass mark is ok. Instead, the way that the courts and tribunals look at it is, they, they look at the overall shape, smell and feel of an arrangement to see if someone really looks like they’re an employee based on in particular control as to how the work is done. And of course, lack of control can be evidenced very easily by a contract being an output basis rather than the time spent basis.

Also, the tribunals look a lot of a degree of integration of the worker into the end users business and the degree to which the world can actually take some risk by has to make good mistakes in their own time.

Other factors which are often quoted by people talking about IR35 is mutuality of obligation, but HMRC, I have to say, although they lose cases based on mutuality from time to time, they don’t seem to think it’s an important test for contractors, especially ones that are working on longer assignments. So I wouldn’t sort of pin all of your hopes on mutuality if you ever have a decision to make about whether someone’s inside or outside IR35. 

Another factor is personal service. Everyone talks about the rights of substitution. Recent cases have tended to suggest that’s not quite as important as has often been thought.

Control and integration are probably the two key factors for most types of assignments.


How do you know whether or not someone is or isn’t going to fail an IR35 test?

Well, HMRC have developed an online tool which some of you may have played with. I think the key thing to remember is, it’s not actually mentioned in the legislation, it has no legal effect.

HMRC have said that they will be bound in practice by people use it properly, but actually the key words from HMRC are they’ll only be bound by decisions that the tool generates if people have answered the questions correctly, and honestly. 

And the problem is that a lot of the questions are highly subjective and can be answered either way, so there’s a big loophole for HMRC to reject saying “you didn’t use it properly, you found someone outside or incorrectly and we’re going to find you liable.” 

Another problem with the CEST tool is that it actually for lots of types of contractors, especially perhaps the higher level contractors doing a lot of IT type stuff or perhaps engineers working independently, the tool will often just say don’t know and that’s obviously not very helpful.

Interestingly, NHS digital relied on the tool to call a lot of their IT contractors outside but HMRC has disagreed with them and has levied a 4.3 million pound claim against them, which we believe NHS digital is going to have to pay out.

So, once someone’s inside who’s primarily liable? 

Well, the legislation refers to the fee payer being primary liable. That means the person who makes a chain payment to the personal service company.

So, it focuses on the payer.

If there’s no chain between the end user and the personal service company, then the end user is the fee payer and liable and under the new legislation that would make BBC liable rather than Jeremy Paxman.

Otherwise, if there’s a chain, it’s the person who pays the personal service company who is primarily liable. 

But, there are exceptions to that.

The first set of exceptions are what we would call the administrative exceptions. So, that means that the end user can be liable if they don’t get the process right. So, if they have a worker who is inside IR35 but actually paid outside and the end user has failed to carry out what’s called a status determination exercise and issues a status determination statement to the staffing company, and to the worker, then the end user is liable. 

Also, the end user is liable and not the fee payer, if it issues an SDS, so well done, they got that bit right. But in doing so, failed to take reasonable care. Then again, they’re liable.

In addition, they’re liable if they issue an SDS and fail on challenge within 45 days to give reasons for the decision.

So, those are the three administrative mistakes by end users that can make the end user liable. And of course, as I’ve already mentioned the end users liable if it directly engages the contractor. Otherwise, generally speaking, the fee payer will be the person liable.

There is another exception to that which is where there is a longer chain and you’re dealing with an MSP. If the end user has issued a status determination statement to the managed service provider and you’re sitting below the managed service provider and the MSP fails to pass that down the line to you, then the MSP, not you, will be liable.

I’m sure those of you who aren’t MSP will be pleased to hear that.

And then the last thing, and this is different to the public sector regime, and this is the thing that has spooked end users. The final piece of the jigsaw as to who is liable, is that the end user will be liable if the worker is inside IR35 but paid outside and HMRC considers there’s no reasonable prospect of recovering the tax from the fee payer within a reasonable time.  

Where that’s the case, HMRC are able to chase after the end user instead, or perhaps the MSP, if there’s an MSP as well. 

So, if a staffing company goes bust, or looks like it’s insolvent, just can’t pay, and HMRC decides not to wind them up, because it’s just not worth it, because there’s no assets there they’re allowed to go after the end user instead.

Now, as a matter of policy, HMRC have said they’ll only go after the end user, where they won’t go off the end user if the business failure of the fee payer, which means they can’t pay, is down to just some sort of normal business insolvency problem which no one could have foreseen. 

But, they will go off to the end user, if the end user failed to check out that the staffing company is complying with tax properly and you know just operating on a sensible basis. If the staffing company is just unlucky and suffers a random problem which makes it go bust, then the end user will be liable, but every other case, it will be, if the fee payer can’t actually pay the tax.

So, what we’re expecting is the end users will take a pretty much closer look at staffing companies and intermediaries than they used to. Because, even if they get all of the administrative bits right, they could still end up having the liability passed to them.

So, a few more little bits of detail before we get into some practical tips.

What if the worker or free pair disagrees with the end users status determination statements? Do they have a right of appeal? 

No, that’s a big misunderstanding. They don’t have a formal right of appeal. They have a right to an explanation. And if the end user doesn’t give an explanation within 45 days, then the end user’s liable.

What about situations where the fee payer, you, the staffing company doesn’t agree with whatever determination has been issued by the end user? 

Well, you could just ignore it. There’s no statutory obligation on you to obey a status determination statement. It’s just that once the SDS has been issued, it’s on the record and if HMRC come after you in a year or two or three years, you’re really on the back foot having to fight that claim, because there’s evidence there that HMRC can rely on that they thought someone was inside.

So, how’s the market responding?

Well, as many will have seen or read, there are some major organisations which have issued blanket assessments of inside IR35 or more commonly recently just a complete blanket prohibition of personal service companies.

We’ve seen some of the major banks; Lloyd’s, Barclays, HSBC, Morgan Stanley and others all say that. And there’s nothing in the draft legislation which actually prohibits them from doing that. That’s a common misunderstanding.

The thing that might hold them back from doing that?

it’s clear that has worked for some end users where they’ve got lots of people doing if you like slightly lower skilled jobs where people don’t have transferable skills and they just have to lump it. And for those types of workers, they might be moved into an employed option or various types of traditional umbrella or PAYE model. And that’s what happened in the public sector.

Or in the public sector, something that happened was a lot of nurses in particular or care workers were moved into some very aggressive new types of umbrella scheme and I’ll talk about those in a second.

Otherwise, and linked to that we’ve seen basically a significant reduction or we’re going to see a significant reduction in the take home pay of some contractors unless the hirers can be convinced to increase the rate for which they might do for the really hard to find, highly skilled workers with transferable skills. You say, “Well, unless you up my pay rate I’m walking”. And in some cases in the public sector, there was an increase in the pay rate.

We have seen organisations in the public sector, which started with a blanket assessment of inside having to back off from that. The NHS did that with some doctors and Transport for London did that with a lot of engineers.

From starting with a blank inside assessment, they’ve now changed their tune, so that a significant proportion of them are outside, because they were facing this threat of people walking off site.

The big question is, will the major banks in the private sector and other private sector organisations that have got these blanket inside policies do the same?

It remains to be seen. We believe that even now, some of them have still got their public policy, but they’re secretly allowing the really hard to find contractors to come in through the back door via consultancies, perhaps on some sorts of statement of work basis or some other you know nuanced basis where they’re prepared to carry out an assessment and find them outside. And usually they’ll be doing that with the ones they see as the most indispensable contractors.

Will there be lots of challenges?

There is a mechanism for challenges from staffing companies and from workers if they don’t agree with the SDSs? Well, it didn’t really happen much in the public sector, so I’m not sure it’ll happen much in the private sector, partly because starting companies won’t want to upset their clients.

Will the contractors raise questions?

They may do. I don’t know.

Some end users probably won’t make a status determination statements, they’ll forget, they won’t realise this applies to them, they’ll just be administratively incompetent.

If you’re a staffing company, and that’s the position you have with an end user should you just sit there quietly thinking “well, they haven’t issued a statement that means they’re liable, I’ll pay the worker gross and you know that will be a problem in due course for the end user.”

Well, broadly speaking, we’re seeing a lot of staffing companies decide not to take that risk because they realise it might upset their relationship with the end user, and they’re trying to sort of persuade, coerce, do everything they can to educate the end users into giving the statements.

And do remember that even if you still don’t get any statement from the end user, probably your contract with most types of end user, if it’s on the end users standard terms will have an indemnity from you to them in relation to any tax they suffer like this.

So, what sort of contracting models are people coming up with?

Well, we’re seeing third party checkers come into the market, perhaps backed with insurance. There’s a lot of talk about that at the moment. I think the three key things to note about that is that a lot of the arrangements that we’re seeing in the market may well solve your IR35 problems but expose you to some other tax liabilities under what’s called the managed service company tax regime which HMRC is getting very active about. 

And that’s a tax regime, which doesn’t tax people based on whether or not someone is genuinely self employed or not. It taxes people based on whether or not they have a business which for the purpose of promoting or facilitating the use of personal service companies. So, anyone who on a volume basis is there to help personal service companies operate outside IR35 might be at risk under the MSC legislation and a lot of these insurance arrangements and the third party status checkers often operated by umbrella companies may fall into that trap and if you’re using them, the liability can transfer to you as well. So you need to check out MSC.

The checkers who do get that bit right, you still need to check that they’re actually doing the right test. Some of the checks we’ve seen don’t quite get it right and take too many risks because they’re trying to be too favourable to the contractors. You need to be on your guard against that and you do need to check that the insurance actually pays out on the types of risk you need it to play out and some of the insurance doesn’t.

The other thing we’re seeing a big growth in is the use of genuine statement of work output based contracts. Now, this happens in other countries to get around their equivalence of IR35. And what it means is that you as the staffing company effectively become a consultancy instead of staffing company. And you’re the one that has to carry out the status determinations statements as a result. It’s not the end user, you’re the end user, your clients is no longer the end user. And that helps you get around the fact that you might be dealing with an end user who’s overcautious.

It might just be the way, if you’re taking responsibility for the output of the worker and since you’re looking bit more like a normal consultancy give you a slightly higher margin as well.

So there’s a commercial reason to do it. But, and I can’t emphasise this enough, it requires a completely different approach. It’s not just a question of issuing your contract with consultancy or statements of work at the top. You actually have to have a totally new type of contract under which you take responsibility for the output of the worker, you need to be insured for that, you need to expect not to be paid if the worker doesn’t deliver. It’s not just the timesheet type of arrangement. And you need to be sure, because you need to back to back that down to the contractor for them to be outside if they need the contractor needs to be happy not to be paid if they don’t deliver.

And all of this requires someone to sit down and scope out projects and define the deliverables at the start of the assignment. And if you haven’t got a relationship with an end user that actually allows you to sit down and design a project and price it, you’re not going to get very far with that model. But, if you have got good relations like that it might be worth looking at.

What are our top tips in the last five minutes of my presentation?

Well, communication is key. You got to talk to line managers at the end users if they’re planning a blanket ban or to assess some or all inside IR35.

Make them take just a bit of time to reflect on whether that’s going to lead to a big cost increase. So, they’re trying to avoid IR35 liability, and instead they’re taking on a risk of perhaps inflation in the cost of their contractors, because the good ones are going to put up their rate, or they’re going to lose them.

So, have a conversation with them about that – don’t expect them to agree immediately but let them reflect on it. And if they’re not prepared to then find them outside, you know, talk to them about finding extra budget.

Talk to them about some of the alternative contract models, maybe statements of work. But I think really, you’re going to have to make sure you also have a PAYE option that’s going to be essential. And actually there are some end users who are actually prohibiting the use of umbrellas, as well as personal service companies. So you’re potentially going to have your own internal PAYE option. That seems to be a big lesson of the last few weeks, looking at the market.

For those who are currently on contract, you’re going to have to come terminate them before the end of March and issue new contracts at new rates. You can’t just carry on the old contract because the old contract rate you have with a contractor, you’ve got to reduce it by the amount of employers National Insurance contributions, so you get a new gross rate and to that gross rate, you have to apply PAYE and employees national insurance. Has to be a new contract, otherwise you’ll get claims from the contractors.

You need to be ready for the disgruntlement amongst contractors and one lesson of a public sector reforms, is that you mustn’t underestimate the extent to which your recruitment consultants will get very upset as well. You need to be ready for that, you need to cuddle them basically.

And if you’ve got clients who got really good contractors from you, and they’re not prepared to gross up. They’re not prepared to find the people outside and these people are genuinely independent, maybe find some other clients and place the contractors there.

If they’re going to find people outside IR35, don’t forget you’re primarily liable if they’ve got that wrong, unless they fail to take reasonable care. But generally speaking, if there’s a mistake, you have to assume it’s going to be your liability.

So, you need to be satisfied that their processes are sound. That they’re going through the right checks, the whole process is reliable. Because if not, you’re going to foot the bill.

And again, you need to be before the 6th of April terminating and re engaging on new terms that support the outside assessment, which really emphasise the independence of the contractor. The fact they have to make mistakes in their own time, you know the extent to which they’re allowed to send a substitute. Stuff like that. The extent to which they’re not involved in line managing anyone that sort of thing.

And I think this is my last substantive slide. The last set of top tips. 

  • Be aware that your contractors will be approached by promoters of very aggressive umbrella schemes. This happened in the public sector and these schemes are continuing. They’re all sorts of things that some, not all umbrellas, of course, not all umbrellas, but some umbrellas are still peddling. And your contractors will be offered them and you need to educate your contractors not to use them. Because if not, if you don’t do that, they’ll probably leave you and go to a staffing company that will use them. These schemes involve things like loan schemes where contractors are paid perhaps offshore.They’re paid the national minimum wage for their basic and then the rest of their income is paid as a loan. Well, it doesn’t work, it’s possibly even tax evasion, leading potentially to some very serious penalties for anyone in the supply chain.
  • Another thing we’ve seen a lot of is mini umbrella or small umbrella company arrangements (SUC) HMRC he has been very clear about that. We believe that they are investing a number of those at the moment.
  • And the liability can bounce up to you if your umbrella is doing this. And that’s one of the reasons why some end users are prohibiting the use of umbrellas and their supply chain because they’re worried about the criminal finances act risk and things like that, that they could inherit from those games.


So, before I hand over just to conclude that there are options.

  • Some contractors will be caught. So you have to be ready with a PAYE option.
  • Others can use output based statements of work type models and there may be other models to look at as well. But you as the fee payer have to be sure you can get it right. It has to be done properly, otherwise you will be liable.
  • Some end users will definitely respond with blanket assessments inside or prohibition of personal service company contractors. But, you should have conversations with them about whether they’re ready to accept that the hard to find contractors may put up their fees.
  • And watch out for peddlers of dodgy umbrella schemes, they will be out there and you don’t want them in your supply chain.

My final word UK has been a relatively benign environment for the use of contingent workers and personal service companies, but that is changing. We’re catching up with the rest of the world now.

Staffing companies will need to adopt new processes and new contract models and new contracts by the end of March.

So that’s me, I’ll be dealing with questions later.

Kirsty Brice

Sonovate started our journey a little while ago. We recognised that these changes are going to hugely affect our customers and as a trusted partner we really wanted to come up with some solutions.

So, just to go through a little bit of the journey that Sonovate has been going on. Initially, the first thing we did is speak to customers of all varying sizes in different industries, to understand what their feelings are on the changes.

And then we started to engage our legal experts. So this is when we came over and spoke to Kevin to understand what the effects from his point of view would be on our customers and again on Sonovate.

And then we started really looking at our solution. What we’re offering at the time, what was going to come more in play and what we needed to feed into our tech strategy to support the growth of the UK contingent workforce market. 

The aim is to grow our solution to support PSCs, time & material market and PAYE, both inside and outside. We also wanted to look at offering a support around permanent your introduction fee based invoices to our customers as well as international.

What we decided to come up with is solutions to support inside –  this includes a full PAYE calculation, deduction management and payment service within Sonovate. Iit also included the PSC inside IR35 deductions that needs to be made. So this was bringing in that calculation of the employers NI, the employees NI, and the employees tax and also still continuing to make any VAT calculations to be able to support those inside IR35 PSCs.

Again, time and materials umbrellas, we expect a shift to people to be using umbrellas as well so we will continue to support those.

Outside IR35, we recognise a lot of our customers would still look to run a genuine statement of work and potentially although smaller needs in time and materials based. So we did decide that we would support both of those. These are going to be down to high monitoring and assistance and assessing before  funding.

Those services come alongside our usual offer rate of 100% advance funding on all temporary assignments – obviously our online timesheets and invoicing for all time & materials based assignments.#

The online invoicing for deliverables based statement of work assignments. Payroll for inside or outside IR35 PSC assignments, including VAT, Employee Tax & NI and Employer’s NI.

Payroll for inside IR35 PAYE temporary workers – supporting our customers through the setup of any PAYE scheme.

What Sonovate really wanted to do is ensure that our customers could continue to operate on a daily basis. To be able to run their businesses and grow their businesses, we feel the solutions that we’re offering can we do that for our customers.



If a UK based contractor works for a non UK based client, will they fall under IR35 legislation?

Yes. And if the intermediaries in the UK, then the intermediary will be liable.

Does a MSA/ Statement of work delivery model solve the problem? 

Yes, we’ve discussed that. 

But it has to be done properly, don’t just play with it. 

HMRCs guidance issued on the 7th of February made it very clear that people who just put a label on a contract aren’t going to get away with it. They’re going to be on the lookout for that.

You have to define the deliverable and have a fixed price for that rather than a time spent basis of charging, or you at least need to have a material element of the fee payable to you and the fee payable on to the worker at risk if the deliverable is not delivered.

And you know, I haven’t been paid to say this, but actually, that might well be quite reassuring to some of your end users if you’re a relatively small company because, of course, Sonovate is quite a large company. And that could give them reassurance that the fee will be paid, the tax will be paid.

As the legislation comes into force on sixth of April, does that mean that all payments to non-compliant IR35 contractors needs to be made before this date? 

Well, that was going to be the case but HMRC issued guidance on the 7th of February again clarifying that the new regime only applies to services performed on or after the 6th of April. So, if you make a payment after the 6th of April, which relates to a previous period then that can be paid on the old regime and you don’t have to worry about the new rules for that.

Will contracts need to be revised and reissued? Yes. If so, to who? 

Yes – to both clients and to contractors.

With clients if someone’s inside IR35 probably, you don’t need to change the contract. But if they’re outside, you need to have some provision that requires them to issue the determination to you and be liable if they make a mistake.

So, with the contractors, if they’re inside you need to change their fee rate and you need to have the right to make the deductions from their salary.

And if they’re outside, you need to make sure the contract with the client and the contract doesn’t have any suggestions or hints that really the worker is under control, or is part of a team or anything like that.

What about employment claims by contractors core inside?

In practice, it seems, it’s possible that contractors, especially ones whose pay rates go down might threaten claims. They might say, “well, look, I’m being treated as if I’m an employee for tax purposes, I might as well have the upside and bring a claim for some holiday pay for the last two years or whatever.”

And they might bring those claims, I would suggest that they’d be a bit foolish too. Because the first response of anyone who receives such a claim might be to say to them.

“Okay, so you’ve got a claim for £1000 worth of holiday pay that should have been paid. Or you’ve got some sort of claim on the agency work as regulations for equal pay to a comparative that you found that the end user, but what you’re really saying is that you will always be an employee in your mind. And that’s even when you are a contractor before the 6th of April responsible for the IR35 yourself. So you bring this claim, you don’t mind if we report you to HMRC because they’ll come after you for the extra tax you should have been paying for the period before 6th April.”

Would their employment claim succeed? 

It depends. The big case on that is Autoclenz V Belcher and broadly speaking employment tribunals only accepts that sort of employment claim by someone operating through a personal service company if it can be shown that they were in some way a vulnerable group or forced to operate through a personal service company, who didn’t really choose to operate through a personal service company.

If they can be shown that they freely chose to operate through a personal service company, usually a tribunal won’t allow employment claims. The exceptions to that will be things like anything based on a protected characteristic i.e. a discrimination type claim, which they have rights to anyway.

How do I get myself ready to run PAYE placements? (Kirsty Brice)

The first thing you need to do is register for the PAYE scheme. Part of our service is to assist with that. If you do need any help, If it is going to be a full pay model that you’re going to offer. What we’d also recommend is that you need to look at your PAYE offering to understand what actual benefits you’re going to give including pension and holiday pay.

What does Sonovate need to run a Statement of Work deliverable placement? (Kirsty Brice)

So this one is obviously an interesting one, for the reasons that Kevin alluded to on this webinar. They are quite tricky to get set up and they need to be set up well and genuinely. So, from Sonovate’s point of view, when you actually submit a placement, we will be asking for your terms to see the SoW, we expect that most outside IR35 placements will come in the form of a SoW deliverable model. Sonovate will assess that. And we will also ask you for a copy of the SDS that has been provided for us to assess that to ensure that we are happy that this is a genuine outside of IR35 contract.

What do you feel will affect the contract market? (Richard Prime)

I think that there’s going to be a period of turbulence and as Kevin mentioned a situation where both workers and end users are going to take their positions. I think there will be a period where there will be disruption. And beyond that, I think people will then start to figure out their positions of what they’re comfortable with. The market will definitely change, its evolving away from the traditional routes, but I think it will find its route forward and they will continue to be opportunities for both private services company contractors sitting outside and clearly workers that need to sit inside of IR35.

How do I calculate my PAYE contributions deductions and fees?(Kirsty Brice)

Speak to a specialist if you’ve not done it before. As mentioned before, Sonovate does offer this solution. If you do need to be able to do some calculations for pricing Sonovate will be offering a calculator to our customers to give you an indication of what you should be setting your margin at and you actually charge to your customer.