Banks try to swerve IR35 with “no PSC” policy

9th October, 2019
By 9. October 2019Finance, IR35, News
Banks try to swerve IR35 with “no PSC” policy

Lloyds are the latest banking group to adopt a “no PSC” policy, meaning the contractors they engage won’t be able to work through a personal service company or limited company. On Tuesday, the company informed thousands of its contingent staff that they would lose their contracts if they didn’t join a PAYE umbrella company, which would see their pay reduced by around 30%.

The news comes after Barclays, HSBC and Morgan Stanley made similar moves in an attempt to reduce risk ahead of next year’s tax reforms. From April 2020, changes to the off-payroll rules mean that responsibility for deciding if IR35 applies to a contract will rest with the end-client, who can also be held liable for collecting the correct income tax and NICs.

Instead of assessing each contract according to the new rules, banks are taking a hard-line approach on PSCs. Contractors working through their own limited companies will be left with the choice of either leaving their engagement, going permanent, or joining an umbrella company. These new terms for engaging contractors attempt to eliminate the need for carrying out CEST assessments, effectively allowing the client to ‘opt-out’ of making individual employment status determinations.

It’s not yet clear if the strategy is compliant as it is simply another version of the blanket rulings that were commonplace in the public sector when IR35 reforms were introduced in 2017. HMRC’s recent targeting of 1,500 contractors at pharmaceutical group GlaxoSmithKline with warning letters has spurred companies into action. However, instead of a considered approach, many are taking extreme measures.

At HSBC, contractors who met individually with HR to prove their ‘outside IR35’ status were subsequently terminated with immediate effect. Although some contractors may be given the option of going permanent, banks rely heavily on short-term contingent workers and can’t necessarily commit to the extra cost of hiring permanent staff.

By opting out of the rules and going PAYE only, banks are hoping to retain the benefits of using contractors without any increased risk to themselves. While understandable given CEST’s notorious unreliability and the lack of off-payroll guidance, this policy looks set to backfire in the long term. Most contractors possess skills that can be transferred to other sectors where firms intend to implement the off-payroll rules properly with individual assessments.

In the public sector, many organisations were left facing massive staff shortages after contractors walked away from their engagements rather than go PAYE. It’s not clear how companies like Lloyds and Barclays would cope with a mass deficit of workers if their limited company contractors opt to go elsewhere. To find out more about the off-payroll rules you can read our guide here.

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