Most businesses know that working under a Statement of Work (SOW) is a good way to remain on the right side of IR35.
In fact, along with Substitution and Client Control, a Statement of Work is one of the 3 key working practices that will help you build an impenetrable IR35 defence.
But what is a SOW, and how exactly does it work?
In this blog post, we will give you an overview of a SOW, look at why it isn’t always the best approach, and our solution to this problem.
What is a Statement of Work?
In its simplest form, a SOW contract is a document used to deliver a project – and it is one of the most popular IR35 defence tactics employed by end clients and intermediaries.
If the contractors are part of a SOW, the “scope of services” guides their work. Thus, this arrangement falls on the right side of IR35.
What Statement of Work solutions are available?
Interestingly, many organisations have built and are continuing to build solutions around this. Here at Mindful, we are a big fan of 6prog. 6prog is part technology and part people consultancy platform that enables businesses, managers, consultants, freelancers and recruiters to work together.
Deployed is also an extremely useful tool, and like 6prog, it allows you to sequentially build your SOW. Deployed is a single, unified and digital platform that offers guided scoping for companies and their suppliers. Early consensus means the practical elimination of scope creep, thus reducing the likelihood of disputes further down the line.
These solutions are ideal for businesses and contractors alike and go a long way in defending a relationship between a client and a contractor as one of business-to-business, rather than employer-to-employee.
If the contractors are part of a SoW, the “scope of services” guides their work. Thus, this arrangement falls on the right side of IR35.
Why a SOW isn’t always the best approach?
Despite the benefits of a SOW contract, several roles would struggle to define milestones with this level of granularity. Furthermore, for a client, the administration of managing an evolving SOW is considerable. It’s therefore likely that they would need to renegotiate terms with their contractor.
One such area of work is Commercial & Contracts Management. Their role is less goal-oriented but more preventative. It is far from easy for a client to define in advance and great detail what will keep a consultant providing a Contract Management service. Therefore, a granular SOW approach might be difficult to achieve.
“A Statement of Work is compliant, but simply putting one in place to ‘escape IR35 reform’ is a big risk, particularly if the service your company provides and how it is delivered remains the same.”
A cautionary piece of advice from Kingsbridge Contractor Insurance. HMRC’s IR35 assessment will be based on what happens in reality and a SOW will not protect anyone involved if it is not a true reflection of the actual work carried out.
You can find out more about the Statement of Work and IR35 in our blog: 5 Things You Probably Didn’t Know About IR35 (That You Probably Should).
Solving the Statement of Work conundrum
Does that mean such services are not candidates for an outside-IR35 way of working? We don’t think so.
A SOW does not necessarily have to be granular in detail. It can be broad. When you look to fill the role of a Commercial Manager, the first step we will engage you in is helping you define the service.
Well, look no further than our new G-Cloud Virtual Commercial Management services offering. Here we pre-define services that can be applied to a range of commercial situations that government departments are faced with.
With our Virtual Commercial Manager service, you can now engage highly skilled contractors in a full-time, or part-time capacity. If you have a civil servant with great commercial experience, yet are working in an unfamiliar category, then our sounding board service may work for you.
Alternatively, if you need something more involved, we could step it up with our deep-dive service.
A Statement of Work contract ensures that an agreement between a client and a contractor falls on the right side of IR35. However, some roles, such as Commercial & Contracts Management, aren’t suitable for a SOW.
If you are unsure about using a SOW to onboard a contractor, we can help. With our commercial expertise, we can help you make the right decision.
Check out our Virtual Commercial Services to see how we can help you with your next programme.