A number of high profile clients will stop engaging limited company contractors in 2020 due to the private sector off-payroll changes. What should you do if you are affected? We ask a well-known IR35 expert.
Over the past few weeks, emails and letters have been sent from a number of prominent end-clients to contractors, giving notice of their plans to cease using limited company workers in advance of the April 2020 rule change.
Major banks including Barclays, Lloyds, HSBC, Morgan Stanley and RBS have already informed contractors of their decisions – which will take effect from various dates in early 2020.
Those currently engaged by these clients (and others) have typically been offered the option of joining the client’s payroll (going PAYE), or using an umbrella company service.
Here, Seb Maley, CEO of IR35 advisory Qdos provides some answers to contractors who may be affected by these decisions.
Are all of these companies ceasing to use limited company contractors, and offering PAYE and/or umbrella instead?
It seems to vary from bank to bank, but generally speaking, the firms you mention are stopping engaging contractors outside IR35. Tesco Bank, for example, is apparently blanket placing contractors inside IR35 should they choose to continue working at the organisation. Meanwhile, Lloyds has said it will stop engaging contractors operating through personal services companies altogether.
Why are major banks, in particular, so risk averse when it comes to the off-payroll changes?
Good question. Given these banks could continue to compliantly engage contractors outside IR35 while, at the same time, protect any IR35 liability they might carry, we’re also surprised by this trend. It will result in banks losing out on the skills and flexibility of contract workers, not to mention the financial benefits enjoyed when compliantly engaging independent workers outside IR35.
That said, it could be a sign of banks being adverse to risk and taking what they perceive to be the easy and safest option. Regardless, we do not think it’s a necessary course of action – nor is it one that’s representative of the private sector as a whole.
If I go PAYE, is there a retrospective tax investigation risk for my previous contract terms?
No. HMRC has said it will not investigate contracts that, from 6th April 2020, are deemed inside IR35. Contractors who stop working outside IR35 and become employees will not be impacted either. We see this as a move made by HMRC to encourage workers to move onto a client’s payroll and therefore pay more in tax.
However, to reiterate, we are confident there will be plenty of opportunities to operate outside IR35 going forward. Our work alone with over 100 businesses and agencies suggests there will be tens of thousands of roles determined outside IR35 after the arrival of reform.
What general steps should I take if I’ve been told that my employer will no longer use limited company contractors?
Contractors still have a choice – a choice to accept their client’s strategy and become an employee (PAYE), an employee for tax purposes (inside IR35), work via an umbrella or leave and source another contract.
In this particular scenario, it might be difficult to change a client’s mind, given the sheer size of these organisations. However, that’s not to say banks won’t reverse this decision further down the line.
Are there different things to be aware of if I chose to use an umbrella rather than a PAYE?
It boils down to whether you want to continue operating as a contractor (which you can do through an umbrella company) or become an employee, which is the ultimatum a number of these banks are handing independent workers.
If you choose to work via an umbrella, IR35 doesn’t apply. You’ll also still be able to operate outside IR35 on other contracts simultaneously and easily after your current contract concludes. However, bear in mind that when working through an umbrella, you will pay employment taxes plus a service charge, which impacts the amount you take home.
As an employee of a company, you are technically no longer a contractor. It’s why, for most contractors who intend to carry on working independently after IR35 reform, being expected to work as employees or leave current projects is not something they want or are willing to do.
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