Barclays has told its contract workforce that it will no longer engage contractors who operate via limited companies, as a consequence of the forthcoming private sector IR35 off-payroll changes next April. Other firms are taking similar measures.
Contractors to be engaged “on a PAYE basis only”
In the letter, dated September 30th, and seen by IT Contracting, the bank explains the background to its decision and states that from now onwards, it will not engage limited company contractors on contracts which last beyond February 2020.
Barclays says that it “will instruct its agencies and managed service providers (MSPs) to engage contractors on a PAYE basis only for new or renewed contracts”.
As the off-payroll legislation applies to payments made after April 6th 2020, all contracts potentially caught by the new rules won’t continue beyond the end of February.
Lloyds, HSBC, RBS, GSK, and others also not prepared for off-payroll risk
Other large companies, including Lloyds, Morgan Stanley, HSBC, Royal Bank of Scotland, and GlaxoSmithKline are understood to have announced similar measures, and we expect others to follow – especially in the short-term.
From our understanding, none of these decisions are ‘blanket in-IR35 assessments’ (something which has happened with regularity in the public sector); it means that these companies will not hire limited company contractors at all, so the IR35 legislation doesn’t even come into play.
Contractors will have to become PAYE employees, work via umbrella companies, or simply not renew.
Clearly, some organisations are not willing to manage contractors under the new rules – especially in the short-term, when so little certainty exists about how the IR35 reforms will work in practice. The online CEST tool designed by HMRC to help clients determine employment status is also widely distrusted.
Decision “not a typical response,” says IR35 expert
Seb Maley, CEO of leading IR35 advisory, Qdos, said that this approach is “short-sighted and unnecessary”, but points out that “this is not a typical response. Nor do I expect it to become one.”
However, Maley points out that the approach taken by Barclays and others is by no means universal: “…behind the scenes, there are many private sector businesses quietly preparing to compliantly engage contractors outside IR35 from April 2020 onwards.”
“Our work alone, with over 100 companies, suggests that tens of thousands of contractors will have their IR35 status assessed fairly and accurately when reform lands next year.”
Firms prepared to operate IR35 from April 2020 will have “competitive advantage”
Interestingly, a new report from Brookson Legal suggests that companies who do not manage the IR35 changes successfully (i.e. by making blanket bans on limited company contractors) will face a talent drain.
Understandably, the main fear expressed by contractors – including the 500 included in the survey – is a lack of trust that end-clients will manage their new responsibilities correctly. Just 22% believe that their hirers will make a correct IR35 status assessment.
And worryingly, 80% said that they had yet to speak to their client about IR35. The same percentage said that they are more likely to work with a company that proactively advertises roles that are outside of IR35 and has proper IR35 policies and procedures in place.
Clearly, engagers who are prepared to invest resources in successfully operating the new off-payroll rules will have a competitive advantage over those who are unwilling to do so.
Uncertainty for hirers
The main reason why some firms would rather risk losing key talent by putting limited company contractor hires on ice is due to the amount of uncertainty which surrounds the April 2020 implementation.
The ATT is the latest organisation to express frustration over the lack of clarity. Michael Steed, co-chair of ATT’s Technical Steering Group said: “There remains much work to be done to ensure that private sector engagers and agencies are both aware of the changes and ready for them. The current lack of clarity on some key areas makes it difficult for businesses to prepare properly. More information and detailed guidance from HMRC are urgently needed if the roll out of these new rules will succeed.”
Therefore, it won’t be a surprise if more key hirers follow Barclays – at least until firms can feel confident again that they can engage limited company contractors without the threat of liability.
Here are some useful guides to the off-payroll changes – including steps both contractors and clients can take in advance of the April 2020 start date:
- An overview of the April 2020 off-payroll private sector changes
- What engagers (clients) should do to prepare for the IR35 reforms.
- What contractors can do to mitigate against the IR35 changes
- Is it worth remaining a limited company contractor after April 2020?
- Cost-effective insurance against an IR35 investiation
- IR35 private sector reforms – our essential FAQs