Banks Head Towards Crisis Over IR35

6th February, 2020
By 6. February 2020Finance, IR35
Banks Head Towards Crisis Over IR35

There are signs that the banking sector could be heading towards a major crisis in the lead up to the Off-Payroll reforms in April. This was the sector that instigated the now widespread PSC ban, which has resulted in many contractors being forced out of their limited companies and onto the payroll.

Banks are particularly risk averse because of the heavily regulated nature of the sector, which makes ‘inside’ IR35 determinations more likely. The lack of understanding around how banks can accurately assess individual contracts has seen the Bank of America, Deutsche Bank and Schroders all take up a ‘no PSC’ policy in the past week.

Limited company contractors have been told that they must go onto the payroll or leave; in most cases this will be without any scope for renegotiation of their rates. Subsequently, many contractors are not only left funding employer taxes, they’re also significantly out of pocket for expenses such as travel, which can’t be claimed under the off-payroll rules.

There are reports of banks informing contingent workers that their revenue stream is being reduced by 30-40%. In one case, a contractor commented: “They were completely unprepared to answer any of our questions. It was as if they expected not to be challenged.” It seems that many banks haven’t conducted any cost analysis to justify their decision, or fully considered that many contractors will leave their current contracts as a result.

A high proportion of contractors working in banking are IT specialists whose skills are in demand across a wide range of markets. There’s also a concern that accepting an inside status on current contracts may trigger retrospective action from HMRC. This means that banks are starting to experience the first wave of an exodus as contractors move to other sectors or to overseas hubs for work.

A report found that banks and asset managers were particularly reluctant to hire permanent staff because of Brexit, with profits and investments down. Brexit uncertainty will continue in 2020 as the UK faces a tight timetable in which to strike a free-trade agreement with the EU. This is precisely the time that Britain needs its flexible workforce, yet the heavy handed approach to IR35 looks certain to result in heavy disruption to crucial projects.

Some banks are facing losing up to a fifth of their project change workforce after almost all contractors unanimously decided to leave. One contactor commented: “My client has a critical portfolio next year in terms of revenue growth. I believe that if these contractors don’t extend, the bank’s delivery capability will take a massive hit and it will struggle to meet its targets.” In the growing confusion and panic, banks just don’t seem to have considered the worst-case scenario.

There’s also concern around how much the taxman is involved in condoning blanket policy. The financial sector is where major organisations have access to a dedicated HMRC account manager, so it’s becoming clear that such individuals certainly aren’t discouraging banks from blanket assessing contractors, knowing full well that it pushes far more engagements ‘inside’ IR35.

This merely adds to contractors’ mistrust of HMRC, who should be acting to prevent unlawful blanketing. The government promised to provide businesses with guidance on the reforms, but with less than two months to go, its efforts seem questionably inadequate. Whether businesses are acting complicity with HMRC, or simply clueless when it comes to implementing the complex reforms, many contractors fear they have been left with no legal protection. This is particularly true in sectors like banking, where a sledgehammer approach has left contractors feeling depressed, victimised and exploited.

This content has been supplied by IR35 Guru.

If you’ve been affected by the Off-Payroll reforms, or if you’re unsure about your employment status, ContractingWise has a range of options to help you keep your contracting career on track. To talk to a member of our team, call: 0203 642 8679