Leading procurement advisers outline how changes to off-payroll taxes could give the public sector an opportunity to deliver better procurement practices all around

MD of Bloom, (Formerly Nepro Ltd) Rob Levene

Reporter: Stuart Littleford

There has been much debate about the serious impact changes to off-payroll tax rules (IR35) will have on the public sector and contractors alike. The MD of Bloom, (Formerly Nepro Ltd) Rob Levene, argues that the changes present the public sector with a real opportunity to procure ‘outcomes’ and not ‘hours’, mitigating some of the risk and delivering better procurement practices all around.

Rob Levene told GPSJ: “The new rule will impact 20,000 contractors working for the public sector. Our clients are telling us that the changes to off-payroll tax rules are causing serious concerns. Without action on the way that interim staff are engaged, public sector buyers are likely to face consequences from the HMRC and to suffer immediate price hikes and reduced choice and access to skilled contractors.”

These fears are far from unfounded. A poll by the Association of Independent Professionals and the Self-Employed (IPSE) which appeared in Contractor UK last year highlighted that the public sector may face a talent drain. The poll showed:

• 54% of PSCs intending to exit the public sector if the ‘paying agent’ is granted responsibility for IR35
• 31% say they will leave behind working for taxpayer-funded bodies regardless of whether they would be required to pay the same tax and NI as employees
• 23% say they will no longer do government work if they have to pay tax like an employee.

“As a business focussed on delivering outcomes for our clients, we believe these changes present public sector buyers with an opportunity to re-evaluate how they procure contractors,” Rob continued. “Best outcomes are achieved when a consultant is engaged to deliver pre-defined outputs, on a fixed fee and timescale basis. So acting on this change could be a blessing that makes organisations think differently about how they engage contractors.

We’ve seen unprecedented demand from clients looking for a solution to the impending tax rule changes. As we’ve explained that it’s not just a solution to the IR35 problem, but also an opportunity to review how contingent labour is used and consider if best value is being achieved. An ever-increasing number of contracting authorities are signing up to our solution.”

4 steps to mitigating the risk of off-payroll tax rule changes

The IR35 solution from Bloom can be broken down into 4 steps:

• Data Gathering – the client identifies which contractors may be in scope of IR35
• Diagnostic – using various methods to investigate whether the contractor is inside scope of IR35 or could be outside if procured via a Statement of Work. This means that:
  • Instead of focussing on hiring an ‘interim’ covering a 9-5 schedule, 5 days a week, buyers need to hire a contractor focussed on delivering the project outcomes
  • Contractors eligible to be procured in this way are identified, helping mitigate some of the risk that is being placed on the public sector.
  • If some contracts are clearly identified as being inside the scope of IR35, the client is immediately alerted and can ensure appropriate tax and NI is deducted
• Supplier Engagement – Bloom works with suppliers in close partnership to make sure that they are comfortable with transferring their contracts to statements of work, and through the process of registration
• Requirement Transfer – Milestone-based and outcome-focused Statements of Work are written, keeping those that are eligible safely and legally outside IR35

To cope with the demand, Bloom has created a dedicated team to guide clients through its diagnostic service and the recommended outputs. They have already signed up clients from across the public sector, and continue to receive new requests every day.

Rob Levene added: “The demand levels aren’t surprising when you consider that there are numerous advantages to procuring professional services through outcome-focused Statements of Work. Existing clients save up to 19% on average when measured against project budget. Our strategies of supporting SMEs, local procurement and social value help clients achieve their procurement goals. Another big benefit is the reduction in scope creep; for one client who used Bloom to fulfil 132 projects in a 12-month period, only 7 projects extended.

Contractors benefit from this new approach too. Whilst many now need to face the tax consequences of the changes, others could take this opportunity to change how they are procured by focusing on the outcomes first. By registering as a supplier with Bloom, they get access projects with over 130 public sector clients. For SMEs in particular (which make up the majority of our supply chain) this is an incredible opportunity to access public sector contracts.

Employing a consultant through Bloom means taking a different approach to employing interims and consultants. By changing the focus from delivery to outcomes, you change the relationship with the person doing the work. There’s no confusion of employment boundaries. Just a clearly defined outcome, delivered for a fixed fee, in a defined time.

And that’s the opportunity. Change to a focus on outcomes and actively manage the risk these tax changes bring. You might even see the change as a blessing one day.”