Option 3 Statement of Work (SoW) model
Afraid of losing access to the best SAP people? Project delays keeping you up at night? IR35 is coming to the private sector and it will soon put medium and large-sized businesses under the additional stress of making status determinations for contractors operating under their wings.
Three years after launching in the public sector, the anti-avoidance tax legislation is once again a subject of debate that grows more heated as the new 6 April 2021 deadline approaches. Considering how much SAP-enabled businesses rely on freelance talent, it’s only natural that all parties in SAP supply chains are looking for the best course of action.
To minimise the impact of IR35 on SAP programme delivery, we have created bluewaveCONSULT, a specialist SAP consultancy that offers a true IT service model. Our unique solution mitigates the threat of IR35 by using formal Statement of Work (SoW) agreements that transfer the responsibility of assessing roles from SAP-enabled clients to ourselves.
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 risks for the SAP landscape
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 rollout in 2017 left hiring managers struggling with, among other issues, project delays (52%) and hindered access to experienced contractors (51%).(1)
The initial industry response we had experience before the government delayed the rollout in March provided a number of interesting observations and lessons for the future.
Businesses lacking resources to determine contractors’ IR35 status
For many businesses, assessing the employment status of all SAP contractors on a case-by-case basis proved beyond administrative capacity. Some of the biggest UK employers decided to ban all personal service (PSC) contracts and resign from off-payroll workforce months before the original 6 April 2020 deadline.
Best SAP talent becoming more difficult to find and engage
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 SAP contractors are willing to accept the new landscape under certain conditions, others will likely limit their engagement to a select number of clients.
Cost of SAP programmes increasing
Given the limited access to SAP experts, businesses that are not prepared for the changes and have no resources to make determinations on their own will face a dilemma of paying the best SAP people a premium to offset the additional costs of IR35 or face a disruption that could stall or completely derail projects in progress.
IR35 solution: Statement of Work (Sow) model
A Statement of Work (SoW) 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.
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, the Statement of Work model transfers any risk of non-compliance and potential repercussions from the client to a third party.
4 benefits of SOW for SAP 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 businesses and making sure that they meet status determination compliance. HMRC has the power to launch an investigation into company records and collect due PAYE and National Insurance contributions directly from the end client.
The Statement of Work model puts a ‘firewall’ between the contracted workforce and the end-client effectively mitigating any risk of repercussions for non-compliance.
Access to exclusive SAP talent pools
In a 2019 study ‘IR35: A Ticking Timebomb?’ commissioned by Brookson Legal, 32% of surveyed businesses expressed concerns they may lose skilled workers as a result of the legislation, with 39% expecting shrinking talent pools of contractors.(2)
The months leading to the initial 6 April 2020 deadline proved those predictions were accurate. Many SAP professionals turned to clients and hiring agencies who were able to provide case-by-case determinations rather than a safety-first, blanket approach.
Businesses that built working relationships with IR35-compliant service providers gained access to exclusive talent pools of SAP professionals ‘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 agreement defines client requirements on a per-project basis. This includes expectations regarding SAP contractors’ skill sets and experience. A business that uses this model, with a consultancy or hiring agency as a proxy, can achieve even quality of service in every department that benefits from off-payroll SAP expertise.
Since SoW focuses on the outcome rather than providing SAP talent on a daily basis, it puts the quality of deliverables in focus. As an added benefit, employers can easily monitor the performance of service providers so know they’re getting what they pay for.
Project delivery fully offloaded to service providers
The SoW model makes third-party consultancies an integral part of every project they commit to deliver. That means clients gain access to external resources intended solely for the purpose of 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.
Banish the spectre of IR35 with bluewaveCONSULT
bluewaveCONSULT provides an alternative to freelance contractors through a service delivered under formal Statement of Work agreements.
Our true IT services model will meet all of your project-related needs, including finding, screening and hiring the best SAP experts to deliver the SoW.
Are you an SAP professional or company requiring SAP expertise or advice on IR35?
Let us know at firstname.lastname@example.org or +44 (0) 1423 559 559.