Constructing good contractor relationships – using IR35 to harness growth

IR35 – or off-payroll working – almost felt like a dirty phrase when it expanded from public into the private sector in April 2021. On balance, the administrative and organisational headaches pale in comparison to non-compliance, or outright contractor bans.

IR35 legislation should drive improved performance of third party contractors within organisations. The days of hiring a contractor based on a job description are over and there will be more thought process around what outcomes need to be achieved along with commercial arrangements. Defining and agreeing upfront what needs to be delivered will help companies to better manage performance and achieve desired outcomes. Indeed, companies that embrace this way of engagement should also consider using it as a blueprint to better manage the performance of their remote permanent workforce. The contractor agreement often sits alongside a statement of work; laying solid groundwork for a high-performing relationship. Add in the flexibility of contractors, along with their need to deliver to a high standard in order to secure future work, and IR35 compliance suddenly seems less of a bitter pill to swallow.

In or out – what’s the difference?

For companies that engage a flexible workforce, it is vitally important that line managers understand the difference between an inside and outside IR35 engagement, and how the working practices differ.

To avoid potential issues arising in the future, companies should be supporting their staff to ensure they are engaging flexible workers correctly. Status determination tests, contracts and insurances are all key elements of the process, but need to be backed up with a practical IR35 framework, policy and system of engagement.

What does this mean for contractors?

Contractors should now also be taking the time to refresh their understanding of the off-payroll legislation so there can be a level of self-policing. They should also be mindful that outside IR35 working practices are being adhered to. It is important that contractors maintain an IR35 compliance evidence file that includes status determination test results, robust contacts that stipulate clear deliverables, and insurances.

And for businesses?

For businesses recognising the importance of achieving compliance and the economic advantages it brings, annual training, education, and ongoing quality control to manage working practices are the best ways to ensure IR35 compliance. ‘Reasonable care’ is the term HMRC use to ascertain whether an organisation has taken reasonable steps to determine IR35 status of a contractor. However, taking reasonable care doesn’t mean that you are off the hook entirely. As described above, you need to ensure that working practices are maintained and IR35 status is reviewed on an ongoing basis to ensure that you do not fall foul of back dated NICs and PAYE for a contractor you deemed outside of IR35.

Anderson Strathern can support organisations to implement IR35 programmes that provide compliance and introduce new and innovative approaches for engaging and managing the contingent workforce beyond the reforms. Our fixed fee support drives increased performance, improves visibility, introduces legal compliance, and manages cost.

Any organisation which is a member of one of our trade association partners is entitled to our preferential fixed rates. Get in touch with Musab now for a free initial discussion.

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