With the rise of IR35 concerns in the minds of business leaders, there has been a huge increase in IR35-safe offerings.
Helpfully, engaging with a reputable Managed Service Provider (MSP) is one way of mitigating the IR35 risk.
However, it is a little too easy to set up shop as an MSP, and there is a thin line of difference between a proper MSP and a sham arrangement.
If you are part of a sham, you are probably 10 minutes away from an HMRC barrister tearing into the evidence you give in court to your defence.
In this blog post, we will describe what a reputable managed service provider looks like and how you can spot a fake.
What is your managed service provider offering?
Firstly, it is important to understand what the managed service provider is offering. Is outside-IR35 an outcome of working with them or the purpose behind their MSP offering? The former is fine, but the latter approach is suspect.
Good MSP services will fall well outside IR35 through a combination of measures, and not just be a borderline pass. For example, through substitution and the SoW approach as a combination of measures.
But can they say what purpose their MSP offering serves other than to keep you outside IR35? If not, there is a good chance that HMRC will try to prove that the arrangement was contrived.
It is important to define the actual services that you require before selecting and committing to an MSP. For example, at Mindful, we focus on providing an intelligent client function / client-side team. There is a much larger purpose that benefits the programmes we support.
Are suitable arrangements in place?
If they are a recruitment agency, are MSP arrangements managed differently from the rest of their contractors? For example, is the same contractor management system being used for resources on your MSP arrangement, as the one they use for all contractors with other clients?
If the whole concept of an MSP in your recruitment agency’s eyes is only “contractual”, that is a reason for you and them to worry. Whether you need help running daily IT operations or are just looking for infrastructure management support, make sure the MSP has some sort of credentials to deliver it.
A re-purposed recruitment agency may only be good at recruitment; do you think your evidence in court that you appointed them for a technical service will carry weight?
Is your managed service provider taking control?
A managed service provider should support your overall people strategy. This encompasses much more than just controlling a sift and screening interim recruitment operation.
A reputable MSP team will also perform pay rate benchmarking to keep rates competitive and use data analytics to track and understand salary and payment trends. They will be capable of contributing to your target operating model discussions.
Furthermore, your MSP should be an expert in negotiating the best possible rates with contract workers. This ensures you are getting the greatest value and performance as well as access to the best available contingent talent.
Overall, a genuine MSP arrangement requires some amount of “letting go” on your part. Your MSP provider should have a higher degree of “control”.
Do you sense in your initial interaction with self-proclaimed MSP providers, that you are getting something more than you are accustomed to getting from a recruitment agency? If not, introspect what makes that service a “managed service” – If it’s too good to be true, it probably is.
What is their business model?
Is your managed service provider open about the MSP business model i.e. is the model openly stated on their website, and expressed without fear on their social media platforms? Or instead, is it suggested in a hush-hush manner? If they can’t stand behind their model, how can you?
It is imperative to do some research on your MSP before you sign any contract. For example, if they say little about their MSP service on their website and other material, then the MSP is probably just a route to market. However, even if the MSP has a suitable business model, it is worth checking to see what other people have said about their service.
Does the company have client testimonials available or client references who you can contact? If they don’t, then it is probably best to remove this MSP from your consideration.
At Mindful, we believe that a personal recommendation is the best compliment that you can give us. We are proud of our client testimonials and they can be found on our homepage.
Do you have protection from IR35 risk?
Is it important to understand how they protect you from IR35 risk? For example, do they say anything beyond a Statement of Work to protect you? Although this is an easy win for the MSP, it is the least that they can do for you. It also runs the risk of being on paper only if nothing has changed in reality.
You can find out more about IR35 in our blog: 5 Things You Probably Didn’t Know About IR35 (That You Probably Should).
Where do you go from here?
A reputable managed service provider is a great option for a project or programme resourcing.
However, it is important to choose your managed service provider wisely.
A sham agreement will damage your reputation and cause a huge waste of time, money, and effort.
If you want to learn more about the importance of a client-side team listen to our podcast episode, What is a Client-Side Team?.
