Is procurement ready for IR35 in the private sector?

In 2017, HMRC amended its tax legislation - IR35 - which radically altered how public sector bodies engage with self-employed contractors. It is now extending the same rules to the private sector.

What is IR35?

IR35 refers to HMRC's tax test for contractors that work via their own limited company (or partnership), normally referred to as a personal service company or PSC. If an individual is considered 'inside IR35', they must pay income tax and NICs on the entire assignment income, just as an employee would.

Why does this matter to procurement?

Liability for correctly assessing IR35 status lies with the end user of the contractor's services, deducting tax if appropriate – and this covers the entire supply chain. Failure to ensure full compliance will result in some significant fines.

The average £300 per day contract = £40,000 liability per annum 

Dealing with these changes is going to be a major exercise for businesses with contractors and therefore, forward planning is essential for mitigating the resulting costs, risks and disruption.

However, with change comes opportunity. There is a significant opportunity for procurement leaders to ensure supply chain compliance through reducing, and in some cases eliminating, both tax and employment right legislative, financial and reputational risk. Many procurement, supply chain and partner manager stakeholders view the IR35 changes as the chance to reduce their supply chain, simplify their governance responsibilities and improve clarity around their business and audit responsibility, achieved through partnering with robust and compliant supply chain partners. 

How we can help you 

Many organisations face barriers in addressing the issue; not ready due a lack of project ownership and centralisation, insufficient knowledge of IR35, the changes, impact and commercial implications.

Our value proposition and expertise

To help our clients, we offer the following solutions and workshops:

  • IR35 change management and support services
  • Supply chain risk management
  • Management of direct contractors
  • Alternative resourcing solutions:
  • Fixed price assignments
  • Statement of Works
  • Employed models
  • Service outsourcing.
  • A programme of workshops
  • A preparatory overview of the proposed changes, focusing on practical considerations for your business
  • Suggested actions around how your business can understand the considerations and exposure, taking active steps to mitigate and manage risks
  • An overview of the market including options for IR35 status determination, tools and services available
  • the importance of conducting a contingent workforce and supply chain audit to ensure compliance with relevant legislations.

If you’d like to find out more or talk to us about a specific solution, please contact paul.fairclough@arm.co.uk.