All of your post-April 2020 IR35 hiring options in one place:
In our SAP Hub we have talked extensivly about the April 2020 IR35 changes and how they will affect businesses and independent contractors in the SAP world. Here are all of our findings in one comprehensive guide:
If you use contractors to help deliver SAP programmes, after April 2020 you will have to hire them under one of the following three determinations:
- Inside IR35
- Outside IR35
- Via a Statement of Work framework
Below we will explain each option and how they could affect the way you hire independent SAP freelancers.
Facing HMRC’s strict guidelines and potential penalties for non-compliance, some businesses are choosing to blanket all contract positions as ‘inside’ IR35 and plan to convert the contingent workforce to PAYE (pay as you go).
This approach has become the default option for a number of large UK companies, most notably GlaxoSmithKline, Lloyds, Barclays and HSBC. BP has also joined the group with an announcement that all contractors operating via Limited Companies must go PAYE before April.
As is the case with any legislative change, we believe that the devil lurks in the detail. That’s why we’ll assist all our clients and contractors with the transition and make sure business continues as usual for contracts ‘outside’ and ‘inside’ IR35.
IR35 FAQ for businesses
“What happens to my project if contractors chose to walk?”
Losing great people will put any SAP programme deliver at risk. To minimise disruption, bluewaveSELECT has identified a strong pool of SAP contractors who are open to working within IR35 and ready to be introduced to new assignments before the 6th of April 2020.
“Will I still have access to the best SAP talent?”
Yes! bluewaveSELECT will continue to connect clients with SAP contractors in the usual manner through our hidden network of experts. If you’re currently employing SAP people
through Personal Service Companies (PSCs), we’ll get you back on track and fill the gaps with talent inside IR35 to support on-time programme delivery.
“What about the additional costs to contractors?”
A recent Brookson Legal survey found that 50% of contractors expect to negotiate better terms once the legislation hits the private sector. That means businesses converting to
PAYE may need to consider offsetting the additional costs by offering pay increase or additional benefits that will help attract and retain top talent.
If positions in your project team have been deemed ‘inside’ IR35 by either an individual assessment or a blanket approach taken by your organisation, bluewaveSELECT and still introduce great SAP people to you. Two thirds of our SAP contractor network have said that they would be open to working positions within IR35 under the right circumstances. Get in touch today firstname.lastname@example.org
IR35 FAQ for SAP contractors
“What it means to be ‘inside’ IR35”
When the legislation rolls out on April 6, 2020, clients, instead of contractors, will become responsible for making status determinations (on-payroll vs. off-payroll) for the contingent workforce. As a result of the assessment, your contract may be considered either ‘inside’ (employee for tax purposes) or ‘outside’ (independent contractor) IR35. If it falls within, your work will be subject to PAYE terms and similar taxation to that of a regular employee.
As the April deadline approaches, contracts ‘inside’ IR35 will become a norm for many clients and SAP professionals. If approached in the right way, it may be possible to minimize the extra costs and mitigate any risks associated with the legislation.
“Can I still work on contracts ‘outside’ IR35”?
Even if one of your contracts is caught by the legislation and converted to PAYE, you can still engage with ‘outside’ assignments and enjoy the flexibility of working through your PSC. Status determinations are limited to a particular contract and won’t affect anything else.
“Will this affect my take-home pay”?
Unfortunately, HMRC’s push against the private sector is going to impact take-home pay for all contracts deemed ‘inside’ IR35. According to Contractor Calculator, the associated taxes and NI contributions can affect the final pay by around 20%.
It’s important to note that calculations will differ from contract to contract, but even if you’re caught by the legislation, you may not lose out too much financially if the client adjusts the rate to compensate.
Some clients are already demonstrating a willingness to partially offset the extra cost and increase rates to retain the contingent workforce. You can also become eligible for a number of perks and employment benefits which are inaccessible for independent contractors
Once you have deemed a position Outside of IR35 having gone through the qualification process you can engage with a contractor using their Ltd company as you will have done before. However, there is a labour-intensive and contentious process to go through before we get to this point.
Businesses that now have the responsibility for IR35 assessment are concerned they do not have the resources to individually assess all limited company SAP contractors for IR35 status and could be caught out by HMRC for making wrong determinations.
Meanwhile SAP contractors fear they may be automatically forced on to PAYE terms by clients taking a safety first blanket approach and calling an end to all off-payroll contracts, and many have indicated that if this happens they will look elsewhere for work.
As an SAP recruitment specialist bluewaveSELECT has been working on a solution which takes away the threat to our SAP contractors of being forced on to the payroll, while carrying out all IR35 assessments for our clients free of charge.
More on that to follow. But first, a brief overview of the changes and our assessment of the risks companies who do not respond in the right way to IR35 changes face.
IR35 was first introduced back in 2000 as a tax avoidance measure targeting ‘personal service companies’, with contractors responsible for determining their own IR35 status. In 2017 a change saw public sector organisations given responsibility for determining their contractors’ individual IR35 status. From April 2020 medium and large sized private sector firms will also bear the responsibility for determining the IR35 status of all their off-payroll workers. The fee-payer (usually a recruitment agency) will be responsible for deducting the relevant tax and National Insurance contributions at source.
Firms will be required to provide the agency and off-payroll worker with the determination result in each case, as well as the reasoning on request. To say the changes have not gone down well with the estimated 170,000 self employed UK contractors who are set to be affected would be an understatement.
A recently published report by specialist law firm Brookson Legal Avoiding an IR35 Talent Drain featured by online tech publication The Register, includes a survey of more than 500 contractors which found:
- Nearly a quarter said they don’t fully understand the changes
- 83% had still not had a conversation with their current client about IR35
- Only 22% cent believe their client will make a correct decision
- 37% would never consider moving to staff status
- 59% would consider moving to another client if they were assessed as being inside IR35
- More than half thought the changes would discourage people from starting as contractors in future.
In an earlier survey this year of more than 500 firms who hire contractors, also commissioned by Brookson Legal, nearly three in five directors said they would take a blanket approach to managing IR35 as they did not have the resources to assess individual contractors.
The financial services sector certainly seems to be adopting this stance; in recent weeks Barclays, HSBC and Lloyds have all announced they will in future only engage contractors on their payroll on a PAYE basis.
Companies considering a one cap fits all solution, favouring PAYE staff over contractors, arguably run the risk of losing access to the very best SAP professionals. They will favour contracts that are outside of IR35 where they will earn more, not being subject to PAYE and National Insurance.
This risk could prove very costly to companies going through SAP business transformations, which requires the support of the very best SAP experts to ensure partners design and delivery the right solution for the business. Without the ability to engage with independent contractors who are working on the client-side, firms run the risk of failed programmes due to lack of independent governance.
Companies which decide to adopt a blanket ‘inside IR35’ policy could try and attract SAP specialist contractors by increasing day rates to cover the additional tax deductions, although that would mean a significant cost increase to deliver successful SAP programmes.
Another risk to companies scrapping all off-payroll commissions is with existing contractors, who may fear a change of status from outside to inside IR35 will attract the unwanted interest of HMRC. The concern among contractors is that HMRC may decide that they should have self-classified themselves as ‘inside IR35’ with that client and seek retrospective tax.
Given the differing responses companies will make to the IR35 changes, it is probable that the industry will see a split in talent in the market with the most experienced SAP contractors chasing work outside IR35. Firms that do not pay more to mitigate the IR35 impact will likely end up appointing a project team of less talented SAP contractors with ‘inside IR35’ status.
Lessons learned from the public sector
One of the key lessons businesses can learn from the public sector’s experience of implementing IR35 is the risk posed by rushing into a blanket approach such as ending all off-payroll contracts. Short of time to prepare, relevant expertise and resource, many public sector organisations took this route. The result was either a loss of key talent, putting programme delivery at risk, or a significant rise in delivery costs via additional statutory employment payments and day rate increases.
In their report ‘Preparing for IR35 – Lessons learned from the public sector’ Hays found many organisations were forced as a result to reverse their blanket approach and now test individual assignments.
Meanwhile employment law experts Brodies recommend firms formulate an internal IR35 policy which considers risks including losing access to talent, successful HMRC challenges and identifies how determinations on IR35 status will be reached. They recommend companies ensure that for each case the contract and working arrangements reflect a self-employment B2B arrangement to protect against any potential HMRC challenge.
Many clients and contractors are still unclear on how they will deal with the huge issues that the new income tax regime poses, to help with this bluewaveSELECT has partnered with an IR35 specialist to develop a comprehensive and cost neutral solution (above).
To comply with the new rules, bluewaveSELECT will arrange all our contractors’ IR35 assessments on behalf of clients, who will be fully insured for each contract to cover all potential legal costs, tax, interest and penalties. All IR35 determinations will be shared with the client for approval and the full compliance paperwork provided.
We have already assessed that due to the project driven nature of SAP contracting, right for substitution, key deliverables and day-today working practices, around 98% of all our placements will be deemed outside IR35. But if a contractor is deemed inside IR35, we will provide the PAYE model needed.
Another option we will offer is a true IT services model where bluewaveCONSULT, as a boutique third party SAP consultancy, will employ the SAP experts to deliver a formal Statement of Work (SoW). This will take away the responsibility of the SAP end-user organisation to assess roles.
We are contacting all our clients and contractors over the coming weeks to inform them of the new IR35 solutions we are offering to ensure they are geared up for the big change in April 2020.
Statement of Work framework:
Afraid of losing access to the best SAP people? Project delays keeping you up at night? You can navigate around IR35 by engaging independent SAP contractors via a Statement of Work (SoW) framework, the mechanics are the same as working with a Systems Integrator but without the price tag.
To clear up the confusion and help our clients, we created bluewaveCONSULT, a niche SAP consultancy offering a true IT service model. Our unique solution mitigates the threat of IR35 by using formal SoW agreements that effectively take away the responsibility of assessing roles for SAP-enabled clients.
But before we discuss that in detail, let’s have a look at the IR35 landscape and what it has in stock for the private sector.
IR35 recap and potential risks for SAP-enabled businesses
The IR35 legislation already made a name for itself when it was rolled out in the public sector in 2017. Its core premise was to transfer the responsibility of determining individual contractors’ employment status to public authorities who employ them.
Post-April 2020, medium and large-sized businesses are responsible for auditing their contracted workforce in the same fashion. Following HMRC’s guidelines, SAP users will need to exercise ‘reasonable care’ in making determinations and providing reasons for their outcome.
According to a study by Chartered Institute of Personnel and Development (CIPD) and the Association of Independent Professionals and the Self-Employed (IPSE), the public sector IR35 rollout left hiring managers struggling with, among other issues, project delays (52%) and hindered access to experienced contractors (51 %).
Although HMRC’s own post-rollout reports downplay the negative impact of the legislation on the public sector and an estimated 170,000 self-employed contractors, the consequences for the private sector can prove even more severe.
Our assessment combined with insights from SAP experts suggests a number of viable risks, some of which include:
Clients lacking resources to determine contractors’ IR35 status
For many businesses, assessing the employment status of all SAP contractors on a case-by-case basis may prove beyond their administrative capacity. In fact, a 2019 Brookson Legal survey found that three in five directors admitted a lack of resources necessary to meet HMRC’s determination requirements. This situation leaves SAP-enabled businesses at a crossroad, with limited options and time running out.
Best SAP talents becoming more difficult to find and engage
Looking to stay safe and avoid HMRC’s scrutiny, some businesses will no doubt consider taking a blanket approach and resign from the off-payroll workforce altogether, as it was the case in the public sector. That means SAP professionals will face the dilemma of being forced inside IR35 under PAYE terms or looking for employment elsewhere.
The UK job market is already in a state of severe IT skills shortage and the drainage of talent pools will be even higher once the legislation comes into force. While some freelancers will probably accept the new landscape and work inside IR35, the most-skilled SAP people will find themselves in a position to charge premium rates for a select number of clients.
Costs of SAP programmes going up
Given the limited access to top-of-the-line SAP experts, clients that are not prepared for the changes and have no resources to make determinations on their own will face a dilemma of paying best SAP people more to even out the additional costs of IR35 or face a disruption that could stale or completely derail projects in progress.
While there is still some time before the April deadline, we are already observing first signs of these changes affecting clients and contractors. If you’re interested in a more in-depth assessment of potential IR35 risks, you should download our free report here .
bluewaveCONSULT: Statement of Work hiring
Statement of Work is an outcome-based agreement between a client and a service provider (in this case a SAP hiring agency or consultancy), in the course of which the service provider commits to deliver on a specific project for the client.
At a bare minimum, a Statement of Work should specify the nature of the service, expected outcomes and quality requirements as well as timeline and milestones for progress assessment.
This model makes the service provider fully responsible for the outcome of the project and, under IR35 premises, determining the employment status of the contractors provided to the end client. In other words, it minimizes the risk of IR35 repercussions for the client and places it on a third party instead.
The benefits of using a Statement of Work don’t end there.
4 Benefits of SoW for SAP-enabled programmes
Reduced risk of non-compliance
HMRC’s effort to battle non-compliance in the public sector was motivated by potentially substantial gains for the Government, with an estimated £550 million in income tax harvested during the first year following rollout .
Once the April deadline arrives, HMRC is bound to put even more force into controlling private sector clients for adherence to the new regulations and making sure that status determination compliance is met. In case it is not, HMRC has the power to launch an investigation into company records and collect due PAYE and National insurance directly from the client.
A Statement of Work model essentially puts a ‘firewall’ between the contracted workforce and the end-client effectively mitigating any risk of repercussions for non-compliance, including fines and penalties.
Access to exclusive SAP talent pools
In a study “IR35: A Ticking Timebomb ?” commissioned by Brookson Legal, 32% of surveyed businesses expressed concerns they may lose skilled workforce as a result of the legislation, with 39% expecting shrinking talent pools of contractors.
We have already said that the IR35 rollout will force SAP professionals to look for clients who provide case-by-case determinations rather than a safety-first, blanket approach. However, it also means they will turn to consultancies and hiring agencies who can keep them in the loop and handle the regulations with compliant methods such as State of Work arrangements.
Businesses that communicate with and build working relationships with those service providers ahead of IR35 can gain access to exclusive talent pools of SAP people that remain outside IR35. And that’s a substantial competitive edge in the market where IT skills are already in short supply.
Consistent quality of work
A SoW document clearly defines client requirements on a per-project basis. That includes expectations regarding SAP contractors’ skill set and experience. By embracing this model, with a consultancy or hiring agency as a proxy, businesses can achieve even quality of service in every department that benefits from off-payroll SAP expertise.
Since Statement of Work focuses on a genuine outcome rather than just providing SAP talent on a daily basis, it puts the quality of deliverables in focus. As an added benefit, the performance of service providers can be easily monitored on milestones so clients know they get what they pay for from day one.
Project delivery fully offloaded to service providers
Project delivery for SAP-enabled programmes requires ample human resources, both on the IT and administrative front, to run smoothly. With the additional layer of compliance requirements imposed by the new legislation, part of those resources will become strained or not available at all.
The Statement of Work model makes third-party consultancies an integral part of every project they commit to deliver. That means clients gain access to external resources that are fully dedicated to producing key deliverables defined in the document.
With this new approach to launching, managing and finalising projects, clients will be able to focus on developing great products and services instead of burning time on low-level administrative duties or shuffling IR35 paperwork.
Peace of mind world class SAP hiring with bluewaveCONSULT
In a partnership with leading SAP experts, bluewaveCONSULT provides an alternative to freelance contractors through a service delivered under a formal Statement of Work (SoW). Our true IT services model will meet all your project-related needs, including finding, screening and hiring the best SAP people in the game.