From April 2020 organisations will determine a contractor’s IR35 status rather than the contractor themselves. News this week has highlighted that instead of taking this responsibility on, many businesses are deciding to take a “blanket” policy approach which forces contractors to either go on the payroll or quit, ahead of IR35 reform.
Major banks choosing a ‘risk-averse’ option
Banks use lots of contractors, so IR35 reform is particularly challenging for them. Risk averse by nature, they have been the first to outline their approach to the IR35 reforms to their workforce - and potentially use the IR35 changes to put larger-scale policy changes in place.
HSBC, Barclays, RBS and Lloyds have all communicated to staff various policies which avoid the task of assessing contractors at all, under the IR35 reform rules.
Organisations who avoid making status decisions, also avoid any liability for getting it wrong. However, this is short-sighted both reputationally and commercially as they are likely to see a mass walk-out of their contractors. It’s also not compliant with the legislation itself, which requires assessments to be made on a case-by-case basis.
Major Banks IR35 reform decisions:
HSBC was first to detail its plans. ContractorUK reported in May that the bank would “cease engaging limited company contractors from this September”.
The same report says that some contractors met with HR to prove they were outside IR35 but were instead “terminated with immediate effect.”
Personnel Today reports that Barclays won’t be engaging “contractors who provide their services via a personal services company, limited company or other intermediary” and contracts won’t be extended beyond February 2020.
But contractors can continue working for Barclays “on a PAYE basis (via the agencies and managed services providers they currently use).”
Contractors at Lloyds face a similar situation to those at Barclays – go on the payroll or quit. ContractorUK quotes a Lloyds contractor writing on their forum: “All PSC contractors will need to convert to perm or umbrella by 29th Feb or leave the Group by 31st March. There is no CEST assessment being undertaken [and] nobody will be deemed in or out of IR35”.
Additionally, any Royal Bank of Scotland contractors working after February 20th will all be deemed as within IR35 and begin paying PAYE after that date.
What about other companies?
The IR35 changes are already prompting action outside of financial services. Contractors at pharmaceutical company GlaxoSmithKline (GSK) are also claiming that they won’t be hired through their personal service company.
This comes after HMRC sent letters to 1,500 contractors at GSK, nudging them to use the Check Employment Status for Tax (CEST) tool to work out whether they’re inside or outside IR35. The contractor then needed to send evidence to HMRC by 19 September to prove they were outside IR35.
Are these approaches compliant?
So-called ‘blanket assessments’ go against the spirit of the legislation, which says “reasonable care” needs to be taken in assessing a contractor’s IR35 status. Some experts, like Dave Chaplin from Contractor Calculator, claim this can only be done on a case-by-case basis.
Is this approach risk-free?
Rather than being ‘risk free’ this approach risks harming the organisations. For a start the workforce is less agile and therefore less able to react quickly to market forces. Additionally, we have seen in the public sector that the adoption of similar blanket policies has resulted in significant increase in both project costs and delays.
As Seb Maley, CEO of Qdos Contractor, said when discussing Barclays’ decision: “they will lose out on the flexibility and savings achieved when compliantly engaging contractors outside IR35.”
HMRC did not intend the new legislation to lead to blanket bans on the use of contractors. However by putting the onus on the hiring company to determine contractor IR35 status, coupled with the risk of financial penalty if they get it wrong, the IR35 reforms seem to be leading to exactly that.
If you would like to discuss how our contractor replacement solution can ensure you continue to deliver your cyber security programs after the IR35 reforms, please get in touch.