IR35 - Statement Of Work Contract

IR35 is a legislation designed to maximise HMRC income from Contractors and the Fee Payer.

Businesses need flexible workforce so that they can scale projects up and down without worrying about paying employment benefits, pension, sick pay, training, etc. etc.

Having contracts assessed to be inside IR35 would mean that the contractor would be assessed to be an employee and as a result, business would need to pay Employer's NI.

Rather than paying the 13% Employer's NI, many businesses are preferring to not work with Limited Company Contractors and forcing them to go through Umbrella companies who offer PAYE solution.

Contractors don't prefer the Umbrella company route for various reasons. Mainly, because it limits the flexibility on how they can distribute their income between salary and dividends.

So, how can businesses come up with a contract that does not require using an Umbrella Company and at the same time, not pay 13% Employer's NI?

First step is to come up with a contract that is based on a Statement of Work and not for a specific number of months.

What exactly is a Statement of Work based contract?

Well, most businesses hire contractors for a specific business need - a project that needs specific skills.

So, rather than basing the contract on specific skills and for a fixed period of time, if the business replaces the skills with a statement of work - project description, that changes the nature of engagement.

You are now hiring a skilled contractor for a specific project. And congratulations! Your statement of work contract looks much more outside IR35 than a 6 month contract!

Let's take this a step further.

Now that you are looking for a contractor for a specific project, why not ask them to provide a suitable replacement should they be unable to provide their services?

You would do that with a plumber. So why not with an IT Consultant?

In fact, doing that improves the contract and puts it even more outside IR35.

Interested to find out more about how to strengthen a contract to be outside IR35? Why not send me a direct message!

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