The Procurement Guide to:

Solving IR35

A summary of what to do… and what not to do

By Mark Coulson MCIPS

 Introduction
Mark Coulson (MCIPS)
• 27 years Senior Procurement experience
• Specialising in IR35, HR, Marketing and Professional Services
• Clients include: Barclays, Lloyds, RBS, KPMG, Burberry, John Lewis, Serco,
Vodafone, Centrica, Merck and others.
• Also part of the team at IR35 Pro

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Martyn Valentine (LLB Hons)

• The UK’s leading IR35 Legal specialist
• 18 years of subject matter specialism
• 2,100 clients served
• 6,000 contract reviews
• 100 HMRC IR35 inquiry representations (100% success rate)

Martyn Linkedin Profile

 IR35 simplified
Why Procurement must solve IR35

Contents Hidden Savings: the 25%+ uplift of engaging inside IR35

HMRC view

Solving IR35:
• De-risking IR35
• Myths vs Reality: Clearing the confusion
• 5 Steps to IR35 compliance
• Correct contracting

Avoiding the pitfalls:

• The vulnerability of IR35 assessment tools
• The false dawn of Tax Loss insurance
• Contrived ‘SOW solutions’ and their perils

Appendix
IR35 simplified

Inside IR35
Requirement for the supply of an individual to fulfill a role

Outside IR35
Requirement for the supply of a Service
Why Procurement must Solve IR35
The current position of blanket bans or restricted use of self-employed contractors is unsustainable,
impacting heavily on both cost and operational project delivery.

25%+ cost uplift of engaging inside IR35 Contractor demand exceeding supply

Permanent headcount pressures Struggle to attract and retain contractors

Inflationary cost pressures Contingent workforce critical

Consultancy spend skyrocketing Unsustainable MSP commercial deals

 Inside IR35 roles are not attractive for
either Client or Contractor.

‘Inside' IR35
Clients Candidates

Pays additional c.25% uplift for Employers NI, Pays additional

Pays additional c.30% c.20%
uplift in
forPAYE Tax
Employers NI,
apprenticeship Levy, workplace pension apprenticeship Levy, Holiday pay & pension
and day rate inflation Unable to claim expenses or distribute income
Vulnerable to potential Employment liabilities
Vulnerable to potential Employment liabilities Expects day rate uplift to compensate
 Client Costs: Inside vs Outside IR35
For a typical med/large company, working inside IR35 attracts a £multi-million hidden cost
Every contractor would prefer £500/day outside VS £600/day inside IR35. Here’s why…….

In this illustration below, a client has a £600/day budget, inside IR35, via a Recruiter. Moving the assignment outside IR35, they could reduce their
budget by £80/day and the contractor would still receive the same take home. This equates to £22,080 annual savings for the client.

This gap gets even wider when they factor in the tax efficiencies of Ltd companies (e.g. offsetting expenses and distributing income to spouses)
This is why £500/day outside is more attractive than £600 inside, saving the client closer to £30,000 per contractor, per year.
 HMRC view

HMRC expected 2/3rds (66%) of

contractors to remain working
compliantly outside IR35, following the
introduction of the reforms in April 2021.

The current reality is that too many

companies have <10% (sometimes 0%)
of their contractors outside IR35.

This failure to adapt to even meet

HMRC’s expectations is costing
companies, both £££ and also damaging
project delivery.
Solving IR35
Myths vs Reality
IR35 is widely misunderstood. Here’s some simple truths.
Contractors have to work on a fixed price basis
Incorrect. Hourly or daily rate is allowable, T&M, just make sure it’s
all output & deliverable based.
Past employees can’t return as contractors
Incorrect. They can. Just allow a minimum week gap between
permanent employment and contracting.
It’s very difficult to structure engagements outside IR35
Incorrect. In my experience, 75%+ of client requirements can be
structure compliantly outside IR35. Even HMRC expect 66%!
A contractor can’t be outside IR35 if the skills exist internally
Incorrect. It’s not relevant. You are requiring project specific resource
to deliver, irrespective of whether comparable skills exist internally.
Contractors absorb the ‘employer costs’ inside IR35
Incorrect. See earlier side-by-side illustration. They never
absorb the employer costs, they can’t pay these legally,
you’re simply reducing their rate of pay.
I can’t treat a contractor the same as an employee
Correct! In reality you don’t need to in order to ensure
effective delivery. Give them contractual discretion, you have
all the protection you need in the contract.
Substitution is an IR35 ‘silver bullet’
No, if only. Right to substitute is useful, but rarely invoked
so is not as critical as people are led to believe.
Assessment tool + Tax loss insurance = Protection
Unfortunately, the opposite is true, as I’ll explain later in the
deck. There is less than 1% chance insurance would ever pay
out. You never need it anyway.
 De-risking IR35
How to eliminate risk and liability
If you use experienced IR35 resources to manage the process, you will meet HMRC’s requirement for ‘reasonable
care’ enabling you to pass IR35 liability down the supply chain to the fee payer.(Recruiter, MSP or Payroller).

DE-RISK IR35
Client Recruiter or MSP

Compliant

IR35
Specialists
 5 steps to IR35 compliance
HMRC expect the private sector to manage IR35 robustly, and with expertise.
The larger the company, the greater the resources, the less their tolerance.
IR35 management can be broken down into 5 key pillars of focus

SDS ASSESSMENT EDUCATE DRAFT

Initial assessment of Ensure all parties are aware Ensure upper & lower tier
Contractor engagement of agreed working practices contracts correctly reflect
using expertise to support self-employment

STORE MONITOR
Store full Audit trail of the Continually monitor
engagement for inspection engagement for scope creep
& compliance
 Correct contracting
• The contract (lower tier especially) is the single most important element of IR35 compliance
• 75% of skilled assignments can be structured outside IR35 with experienced legal drafting
• In the example below, the following mistakes were made:

• They engaged the individual, not the company • No description of the deliverables were present
• They used a job title • They specified a location AND working hours
• They engaged the individual, not the company • They had a substantial notice period

Inside IR35 Corrected Version Outside IR35

Assignment Schedule Assignment Schedule
Individual John Doe Consultancy John Doe Procurement Ltd
Client Example PLC
Client Example PLC
The Consultancy is required to deliver specialist Marketing Procurement Services as part
Description of Services Marketing Procurement Manager
of a cost-efficiency Project.
Example PLC offices
The Consultancy will be wholly responsible for the following deliverables:
1 Barclay Square
Agreed location Canary Wharf - End-to-end delivery of an RFP to appoint a new PR Agency
London Description of Services
- Renegotiation of the global media buying contract to realise cost efficiencies
EC1 1QA - Creation of an opportunity analysis document to identify and highlight potential cost
Start of assignment 01/01/2023 efficiencies with the Marketing spend area
End of assignment 10/01/2023
9:00am-5:30pm
Working hours Monday to Friday Agreed location At the consultancy's discretion, as required to deliver the Services
Excl bank holidays Start of assignment 01/01/2023
Pay rate £600 per day End of assignment 10/01/2023
Payment terms Monthly Working hours At the consultancy's discretion, as required to deliver the Services
Termination 4 weeks notice Pay rate £600 per 7 hour day or pro rata
Payment terms Invoiced monthly
Termination The contract will terminate automatically upon completion of the Services
Avoiding the pitfalls
IR35: What not to do
The benefits of engaging contractors outside IR35 are huge, both in terms of cost saving and also
attraction & retention. However, there are no short-cuts to IR35, low cost options create exposure.

• Never rely on CEST or other automated tools

• Rubbish in, rubbish out. Outcomes are too easily contrived and HMRC are wise to this.
• Built on assumptions that it matches contract reality, which rarely happens (see illustration on slide 17/18).
• They don’t educate or guide on how to adapt to work compliantly

• Don’t be sold on Tax Loss Insurance

• 51% prospect of success clause in the small print, no cases of it ever paying out! It’s pure vanity.
• The insurance is conditional on the contract matching the assessment answers. If it does, HMRC won’t be able to challenge anyway.
• There is value in HMRC inquiry legal defence insurance, but not Tax loss insurance.

• Don’t be tempted by contrived SOW solutions from MSP’s or Recruiters

• HMRC are wise to these contrived models, HS2 is an example of this. HS2 penalised for using contrived SOW solutions
• It is inconceivable to anyone that an MSP can morph from being a recruiter, to suddenly providing outsourced consultancy
for complex projects.
• They charge a premium for this anyway!
The misuse of IR35 tools : Case Study A
The below is the extract from the IR35 assessment conducted by a company (using an MSP) on the contractor,
showing the basis of the outside IR35 determination.
Case Study A: The contract reality
Unfortunately when we reviewed the contracts, the answers provided to the assessment tool contradict the
contractual reality, as highlighted.
 Case Study A: Revised assessment
• When inputting the corrected answers into the same IR35 tool the MSP used, it now returns an inside IR35
determination
• The tool further estimates the HMRC financial client exposure of an incorrect assessment at £34,283 for this
6 month engagement
 End of main presentation
Email: Mark@ir35pro.com
Phone: 07877 794762
Web: http://www.ir35pro.com
Address: 75-77 Shelton Street, Covent Garden, London, WC2H 9JQ
Appendix slides
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No upfront cost Potential for IR35 risk is

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All-Inclusive Fees
Educate Assess Document Monitor Support

01 Client Set up
The most
comprehensive
• Review and correction of Upper & Lower Tier Contracts
• IR35 Policy review & Working Practice guidance

IR35 service in the

02 Proactive Assessments
market. • Initial Legal assessment to determine if the new Contractor role will
fall inside or outside IR35
• Client education on any adaptive change required

Phase 1: Engagement set 03 Documentation drafting

up
The correct set up and drafting of the
new Contractor engagement is critical
to successful compliance.
• Drafting of the mandatory Status Determination Statement (SDS)
• Drafting of the Assignment Schedules to ensure IR35 legally compliance
• Drafting of IR35 special conditions to apply to the engagement
• Ensure contracts are mirrored & consistent in the supply chain
• Contractor onboarding IR35 questionnaire
• Docusign of documents by all relevant Parties
All-Inclusive Fees
Educate Assess Document Monitor Support

04 Monitor & Revise

Phase 2: Compliance
Monitoring
Compliance monitoring is as critical
as the set up of the engagement.
• Monthly compliance checks with Contractor to determine any scope
or working practice changes
• Status re-assessments if deemed necessary
• Drafting of any additional documentation to maintain compliance, to
include Contract extensions and revised Assignment Schedules
• We monitor the contractor engagement throughout, ensuring
change control is managed and risks are removed.

05 Ongoing Support
• Secure audit trail of the Contractor engagement, retained for 6 years
• IR35 Legal Support Helpdesk
• Legal Defence Insurance
• Loss insurance
Our Service is comprehensive, but
our fees are unique and simple.
We do not charge any costs upfront

We simply charge 2% of the contractor rate for our

all-inclusive service, payable only for assignments we
structure outside IR35

With even guarantee a min 7:1 ROI on our fees, so our Clients
always enjoy a positive return on their investment in us.