As the contracting industry continues to adjust and adapt to IR35 reform, stakeholders are looking for new ways to operate that might provide an advantage. The Statement of Works model often comes up in these conversations, so in this articles we're looking at whether it might be the answer recruitment agencies and their clients are looking for.
What is the Statement of Works Model?
A statement of works is a contract between two companies, for the provision of services. The main difference with a normal agency-client relationship is that under a statement of works you would move from supplying labour to your clients, to managing and delivering projects, deliverables or services.
Under the more familiar “supply of labour” arrangement, you would supply contractors to the client to deliver services for them. Under a “statement of works” arrangement, you would supply services to the client, and hire contractors yourself as required.
Scenario 1 – Your client asks you to hire 3 cleaners to clean their offices. The client will provide cleaning equipment and pay an hourly fee for their services. This is supply of labour.
Scenario 2 – Your client asks you to arrange for their offices to be cleaned. They will pay a fixed fee for cleaning to be carried out. You will be responsible for meeting the required standards and service levels, and you will supply appropriate equipment and staff to ensure these are met. This is a completely outsourced service and would usually constitute a Statement of Works.
How does this affect the application of the IR35 rules?
It’s important to note that using this model does not mean IR35 ceases to be an issue – responsibility simply shifts from the end client to the agency.
As the IR35 reform came into force in April 2021, the hirer is now responsible for assessing the IR35 status of any contractors they engage. Where you are supplying labour, “the hirer” is the end client and they are responsible for IR35 status determinations. Where a project or service is completely outsourced to you this isn’t the case, and instead you are classed as the hirer.
This means that under the statement of works model you would be responsible for determining the contractor’s IR35 status.
Why you might want to offer this model
It’s easy to see why the Statement of Works model might be attractive to the client. They get to pay a fixed fee for their project or service, and the agency takes responsibility for all the details. While the client gives up some control over how the project or service is carried out, they also make the cost more predictable and outsource a lot of work and risk.
This attractiveness to the client in turn could make this model attractive to recruiters, particularly in competitive sectors where end clients are worried about IR35 reform.
Why the Statement of Works model is not an easy answer for recruiters
While this model may be extremely attractive to some of your clients, there is good reason to exercise caution before leaping down the Statement of Works route.
It means taking on extra work and responsibility
In order to fit into this model, the arrangement has to involve the complete outsourcing of a service or project from the client’s hands into yours. Anything less and the arrangement will not qualify, and the client will still be responsible for assessing IR35 status. This means you will be taking on a whole host of new responsibilities, and managing work in a way that most recruiters are not used to.
Assuming responsibility for delivering a project or service increases your liability, should the agreed deliverables or standards not be met.
It can be difficult and complex to structure the Statement of Works correctly
One important hurdle is to ensure the Statement of Works is structured correctly so there is no doubt that it classes as a fully contracted out service, and not a supply of labour in disguise. This can be a complex issue, and there are potentially serious consequences for you and your clients if you get it wrong.
You now have to complete IR35 status determinations
Assuming the arrangement is set up correctly, and you have the necessary resources and expertise to fully manage the outsourced project or service, you are now also responsible for determining the IR35 status of any contractors you hire. All the reasons why your client was reluctant to take this on is now applying to you.
It’s vitally important to assess IR35 status correctly, as failing to do so either leaves you liable for unpaid tax and NICs, or makes recruitment more difficult while increasing your costs. Most hirers will need help from specialist compliance experts.