IR35 – Using compliance to win bids and tenders

Over the past 18 months, most if not all businesses have had to change to some extent.

The impact of the global pandemic has left its mark everywhere, and for those private-sector businesses associated with the utilisation and supply of temporary labour, there was the additional challenge of the IR35 reforms.

Introduced in April 2021, the IR35 reforms fundamentally changed the responsibility and process for assessing contractor assignments, forcing IR35 to the top of the agenda and further exposing the need for supply chain compliance.

For suppliers in the temporary labour market, the pandemic has all but removed the face to face sales route and challenged how they develop business and manage clients.

So how will the introduction of the IR35 reforms to the private sector and a rapidly changing, more remote sales process affect the future temporary labour market?

The changing sales process

Face-to-face interactions have always driven the traditional sales process. However, advancing technology and digital communications have slowly influenced these traditional views, and the pandemic of 2020 has challenged them further.

Buyers and decision-makers now spend less time meeting with suppliers and salespeople and more time conducting their own independent research. The enforced lockdowns caused by the pandemic have only served to exaggerate this behaviour.

An automated sales process structured around a formal bids and tenders process is now the preferred route for buying decisions for many businesses.

IR35 status determinations and umbrella company due diligence

In the lead up to the IR35 reforms in April 2021, many large scale engagers took an ultra-cautious, although potentially misguided approach. Policy changes or blanket statements determining all contractors as being caught by IR35 have been prominent.

As a result, the Umbrella company solution has been promoted as an alternative by those suppliers and engagers under pressure to retain their temporary labour workforce.

Whilst removing the responsibility of applying the IR35 legislation, these options come with their own responsibilities and risks. If income paid to contractors is taxed incorrectly in the eyes of HMRC, then someone will be held responsible, and this is where the main risk to businesses that engage contractors lies.

Without thorough due diligence of the supply chain or a robust compliance process for IR35 status determinations, engagers and agencies are leaving themselves extremely vulnerable to the risk of HMRC investigation and potential transfer of debt liability.

There are currently numerous stories in the marketplace concerning tax avoidance schemes, and most of these are associated with umbrella company models. For those engagers and agencies that have ushered contractors into umbrella solutions to avoid IR35, complicity is a real risk, and ignorance is no excuse.

Engagers that have made blanket statements or delegated status determinations to suppliers also risk falling foul of HMRC’s reasonable care requirements.

In both cases, the best form of protection is thorough due diligence and robust compliance. 

Effective bids and tenders

The recent introduction of the IR35 reforms will undoubtedly influence the focus of bids and tenders toward compliance and due diligence. The risks to engagers now associated with temporary labour usage should similarly shift the emphasis and weighting of assessment in the same direction.

Therefore, engagers and suppliers must understand the supply chain and implement processes that thoroughly check and vet suppliers and systems.

Engagers who have a thorough understanding of their supply chain should minimise the risk of engaging contractors and maintain a competitive advantage over less-prepared competitors.

Similarly, suppliers who can demonstrate robust compliance processes and thorough due diligence and compliance through their supply chain will undoubtedly see increased successes in bids and tender submissions.

Taking a robust, right-first-time approach to supply chain compliance will give peace of mind and confidence to all stakeholders in the process.

HMRC strongly recommends that engagers seek professional advice and assistance in effectively managing the temporary labour supply chain.

At Workr Group, our specialist team can offer impartial advice and assistance with all aspects of your supply chain, including our Umbrella solution – Workr Umbrella and our leading compliance service Workr Compliance.

For a free, no-obligation audit and assessment of your IR35 compliance process, you can speak directly with Andy Webster, Founder and Director, Workr Compliance, on 07827 810851 or at aw@workrgroup.com.

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