IR35: Banks move to clamp down on contractors
Barclays and Lloyds have become the latest big businesses to inform contractors that their engagements would not extend beyond the introduction of new off-payroll working rules. Contracts will instead be arranged on a PAYE or umbrella firm basis.
The move is the latest in a string of similar statements from companies such as HSBC, Morgan Stanley and GlaxoSmithKline that have announced they will no longer be using limited company contractors from 6 April 2020.
In a letter to line managers picked up by ContractorCalculator, Barclays this week informed staff that as a result of the changes to the off-payroll working rules, from 1 October it will not extend the contracts of contractors who provide their services via personal service company, limited company or other intermediary beyond February 2020.
“From 1 January 2020, new contracts and contract extensions will be arranged on a PAYE basis only”, stated the letter.
“Contractors who provided their services via a personal service company, limited company or other intermediary and who choose to continue working for Barclays can do on a PAYE basis (via the agencies and manage service providers they currently use).”
Lloyds will not extend contracts for those using personal service companies beyond 20 March 2020, with contractors being given three options: leave the company at the end of their contracts, take a permanent job (if an appropriate role is available and their skills merit it), or join an umbrella company.
According to the ITContractor site, Lloyds contractors were informed at one-on-one meetings yesterday that they had until 25 October to let the bank know which option they would prefer.
Reacting to the banks’ decision, IPSE’s deputy director of policy, Andy Chamberlain labelled the decision “short-sighted”, “extremely damaging” and “bad for business”.
“IR35 is impossibly complex, and for a long time, we have warned the government against forcing this complexity onto businesses across the UK,” said Chamberlain. “The risk is that they will panic, as Lloyds seems to have done, and harm the self-employed and the wider economy.
“Perhaps worst of all, this may just be a taste of things to come when the changes to IR35 come into force next April. We urge the government to halt and rethink this dangerous policy. Now, facing an uncertain economic future, this country needs the flexibility and dynamism of the self-employed more than ever, and the government must do more to support them.”
Taking away the risk
Reacting to the Barclays letter, employment taxation expert Alastair Kendrick told AccountingWEB that while he didn’t necessarily agree with the action, he understood the position taken by the bank.
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“Barclays operate under the Banking Code and need to take a whiter than white stance. By taking this action they’ve taken away the risk,” said Kendrick.
“Also, they are such a massive organisation that they might not pick up everyone engaged by a limited company. Is it worth the aggravation of doing all the checking? Going through the hassle that’s going to be created by the CEST test, people disputing their rulings and so on? From a corporate perspective, it makes a lot of sense.”
However, for Kendrick, the position could have a knock-on effect on staffing. “Barclays has the right to do this, but if those contractors are required by the business then they have the right to say ‘I’m not going to work for Barclays’ as well.”
One of the broader issues at stake is the potential for smaller businesses affected by the new rules to take Barclays’ lead and issue similar blanket bans on contractors.
“It won’t be at all surprising if other businesses follow suit,” said Kendrick. “Other businesses might say ‘Barclays is doing it so we’re going to do the same’ and reach the same position.”
For IR35 expert David Kirk, the real question is going to be how the market calms down in the aftermath of the April deadline – whether contractors find their net pay falls or on average stays the same.
“When the public sector rules came into force in 2017, IT contractors had the option of moving to private companies and saying ‘I don’t work for the public sector’, and the net pay for an awful lot of contractors continued to remain the same.”
However, with the rules now spread across both sectors, Kirk believes there is a possibility some contractors could see a dramatic fall in their net pay, with expenses being a major factor. “Those that currently claim travel and four nights B&B in London will be out of pocket,” he said, “whereas those with lower overheads may not see the same fall.”
Kirk also pointed out that there may be opportunities to work abroad for multinationals in countries such as Switzerland where the rules do not apply.
Firms could face ‘a significant hit’
AccountingWEB readers have also been expressing their concern on the site’s Any Answers forum. In a post last week, AccountingWEB member GR stated that clients had been contacting them about how to close down their PSCs, and the tax implications of the new rules. “Judging by emails I am expecting at least 20% of my client base to disappear,” said GR.
Regular contributor ireallyshouldknowthisbut stated that they are expecting “significant fall out” from their contractor client base. “This is about 25% of my turnover, and by far the most profitable bit too so it’s a significant hit our side.”
However, some posters on GR’s thread managed to see the bright side of the changes. Mr_awol said they were quite happy with the changes. “Yes it's easy/profitable work generally but I really don't care for the contractor market and am more than happy for it to be shut down. Many of my more dislikeable clients are contractors,” they said.
Tom is editor at AccountingWEB, responsible for all editorial content on the site.
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