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Government Green Paper: Transforming Public Procurement and the new IR35 legislation.  What does it mean for the Care Sector?

Government Green Paper ‘Transforming Public Procurement’.

On 15th December 2020, the Cabinet Office published the Green Paper, titled ‘Transforming Public Procurement’. This 82-page document set out a host of proposed changes, mainly relating to changing public laws rather than processes.

As a consequence of Brexit, the Government’s goal is to take the opportunity to overhaul outdated public regimes and speed up/simplify/consolidate UK public procurement law, focused on ensuring value for money, promoting innovation and providing greater opportunities for UK SME, charities and social enterprises to win business. It will also enable larger corporates to be more flexible in their supplier selection and decision making, rather than often perceived cumbersome public processes.

Organisations had until 10th March 2021 to submit feedback to the proposals. 42 key consultation queries were raised and much legal and procurement debate continues on what it may mean for public procurement in the future.

While we do not know what exactly will be decided, in summary, we can suggest what it may mean for care sector operators

  • The new competitive and flexible procedures will give contracting authorities and members more freedom to engage with their suppliers and drive social value and innovation, rather than a race to the bottom on appointment by cost.
  • Contracting authorities and members alike will welcome the future opportunity for less administration and complexity – but this may take time to be realised as it will initially be unfamiliar and result in familiarisation costs and time to bed in for all.
  • With this it may increase the number of legal challenges as new procedures are tested, challenged and principles established through court judgements.
  • The new greater UK, SME and VCSE focus will have little impact to large corporates who predominantly bid on larger threshold contracts. It will create restrictions for smaller non-UK bidders, while benefiting UK suppliers below threshold values.
  • When formalised, contracting authorities and members will be required to train employees on new laws, updating internal policies, and understand how the laws affect internal and external engagement processes and culture to identifying and selecting suppliers, which in turn could affect members supply chains.

New IR35 legislation.

Following the Government’s decision to postpone the IR35 changes last year, the new deadline was the 6th of April 2021.

The good news is that many organisations in the Care sector do not have to worry about these changes. The change applies to medium and large sized businesses that meet 2 or more of the following criteria as defined by the Companies Act (2006):

  • an annual turnover of more than £10.2 million.
  • a balance sheet of more than £5.1 million (balance sheet total means the total amounts shown as assets in the company’s balance sheet before deducting any liabilities).
  • more than 50 employees.

So, what is the change?

As soon as the new legislation came into effect, all medium and large sized organisations in the private sector are responsible for assessing the employment status of their contractors. This marks a significant change from the current rules, placing extra responsibility in the hands of your Finance and HR teams to ensure your organisation remains compliant, while also facing a potential increase of costs to retain contractors where the employer becomes responsible for NI/tax costs.

What do you need to do?

Firstly, complete an audit of all your contractors. Hopefully, you have an accurate record in a centralised system. Then determine which contractors fall inside IR35. HMRC have three basic criteria when determining which workers fall inside IR35 and they are:

  • Personal service and substitution – your contractor should have very specific skills or services they are being paid for to be classed as outside IR35.  If the contractor is doing the same role as an employee, the Government have decided that the contractor should pay a similar amount of tax as an employee would and it is your responsibility to make sure it happens.
  • Supervision and control – what degree of supervision, direction and control do you have over your contractor? This could determine if they are in or outside of IR35.
  • Mutuality of obligation – a contractor outside IR35 should do the work they are contracted to do, finish and have no expectation of further work.

Once you have completed your audit, you must calculate accurate tax and NI payments and if the contractor is to bear the cost, then this will need to be agreed in advance. You may of course decide to increase their pay to retain the contractor and if so, it is wise to reflect such inflation into budgets.

The next stage is to prepare new policies and agreements. From April 2021, you will need to provide a Status Determination Statement (SDS) to every contractor you want to keep. And when you take on new contractors, their employment contracts and working agreements must be updated to include the IR35 criteria and its implications.

Finally, make sure you avoid the cost of non-compliance. Failure to comply with the new regulations will mean penalties. However, the Government know this is a big change for the private sector, at a time when your Finance, Operations and HR teams have been focused on Covid related pressures. And they want to help. Use this link to see what help is available to support you.

As you can see the impact of this new legislation on affected UK businesses is substantial; new processes, policies and system updates need to be implemented and managed quickly.

Are you prepared?

Marr Procurement has been helping our clients across the public and private sectors manage their IR35 obligations since it was introduced in the public sector in 2017, supported by years of expertise of market benchmarking and right fit selection of recruitment and temporary agency organisations.

If you have any questions or need our help, please don’t hesitate to contact our Procurement Director, James Ball.

You may also be interested in the other articles that can be found on the Marr Procurement website, including Top 10 tips to reduce your costs in 2021.

James Ball
Procurement Director
Marr Procurement

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