Spring Budget Review: Navigating IR35 with Outcome-Based Working

As reported in Contractor UK, Jeremy Hunt missed the chance to repeal IR35 reform in the Spring budget. The landscape of contingent hiring in the UK has been significantly shaped by IR35 reform which went live in April 2021. Despite the hopes and discussions among professionals and businesses alike, the repeal of IR35 is now further away than ever. This sentiment is shared widely, with predictions indicating that a potential future Labour government may opt to maintain the status quo regarding IR35. So, where does this leave large enterprises and the growing army of talented freelancers in the UK?

The Reality of IR35

IR35, aimed at tackling tax avoidance by individuals working in a manner similar to employees but through intermediaries like personal service companies, remains a hot topic. It introduces significant compliance challenges, making it imperative for businesses and contractors to navigate these waters carefully to avoid penalties and ensure tax compliance.

Embracing Outcome-Based Working

In this context, shifting towards an outcome-based working model presents a viable pathway for staying compliant while maintaining flexibility and efficiency. Here are four strategies to implement outcome-based working in an IR35 world:

1. Ditch the Day Rates

Traditionally, contractors have been remunerated based on day rates, which IR35 scrutinises closely for signs of disguised employment. A total project cost, for instance, £30,000, aligns better with the ethos of independent contracting by focusing on the value delivered rather than the time spent.

2. Focus on Outcomes, Not Hours

Breaking a project into outcome-based milestones, such as three £10,000 segments, emphasises the deliverable over the duration of work. This approach fits neatly into IR35’s guidelines by illustrating a clear contractor-client relationship that is project-focused rather than time-bound.

3. Embrace Risk on Both Sides

One hallmark of a genuine contractor-client relationship is the sharing of project risks. By establishing clear milestones and deliverables, the risk is contained to individual milestones rather than the entire project. This mutual acceptance of risk further distances the working arrangement from traditional employment.

4. Protect Both Parties with a Clear SOW

A comprehensive Statement of Work (SOW) is crucial. It delineates the scope, milestones, deliverables, and payment terms, protecting both parties and ensuring clarity. This document serves as a cornerstone of the outcome-based approach, reinforcing the contractor’s autonomy and the project-specific nature of the engagement.

Conclusion

While IR35 presents challenges, adapting to an outcome-based working model offers a robust solution if managed correctly through platforms like Gigged.AI. By focusing on deliverables, embracing risk, and ensuring clear agreements, businesses and contractors can navigate IR35 effectively. This not only complies with the legislation but also fosters a more dynamic, flexible, and productive contingent workforce. Let’s embrace this shift and see how it can lead to innovative working arrangements and strengthened partnerships between contractors and businesses.