HSBC Tells Consultancies to Ban Limited Company Contractors

27th January, 2020
By 27. January 2020Finance, IR35, News
HSBC Tells Consultancies to Ban Limited Company Contractors

In the latest controversial move concerning their IR35 policy, HSBC have announced that the consultancies they work with must stop using PSCs. The move brings all their outsourced workers into line with the PSC ban, which requires all contractors to go permanent or PAYE. As the first company to introduce blanket policy of this nature, it’s feared that the bank’s actions will set a precedent that many other engagers will follow. Less than 24 hours after HSBC’s move, Lloyds informed all its third-party consultancies that they too can no longer use PSCs.

As the list of companies to introduce blanket policy tops 150 across multiple sectors, it’s not difficult to appreciate why contractors are so concerned. The growing confusion around IR35 reform is making many businesses take a hard line approach to minimising their liability. This is because after April 6th, they will be the ones to carry out IR35 status determinations, yet many businesses aren’t even aware of the legislative changes, let alone how to implement them.

As to why HSBC has stopped its consultancies supplying them with PSC contractors, a former tax inspector said it could be in response to a move that the Treasury made on the quiet. HMRC’s guidance for the public sector stated that ‘genuine outsourced services’ were unaffected by the reform, however the statement has subsequently disappeared from HMRC’s site.

Among other arrangements ‘genuine outsourced services’ covered consultancies that supplied clients using a ‘statement of work’ contract (SoW). A SoW typically outlines project deliverables and costs, timeframes and activities. It also negates the need for an IR35 assessment by the end-client, given that it will be the consultancy or provider of the service that decides the IR35 status of contractors.

There has been talk that private sector engagers are agreeing SoWs with agencies, consultancies and some contractors. However, the services provided by the consultancy must be genuinely outsourced. A SoW can’t be a provision of labour disguised as a consultancy agreement in order to sidestep the rules. For this reason, HMRC will likely be paying close attention to what appears to be hastily ‘cobbled together’ consultancy arrangements.

HSBC’s latest ban not only prevents contractors from forming consultancies as a workaround to the changes, it also extends control over working arrangements via its Consultancy Associates Model.  The bank uses onsite Recruitment Process Outsourcing (RPO), which acts as an extension of the companies HR. This means that the RPO will look to limit its own exposure to IR35 reform, while also maximising its margins.

Before Christmas, HSBC informed its entire GBM division that not only must they go PAYE, they must use their RPO’s payroll rather than an umbrella company. Also written into the new contracts was a ‘no rate uplift’ policy. In fact, HSBC’s PSC ban sits with a 25% pay cut to move to PAYE. This is to cover the increased costs to agencies and engagers, such as Employers’ NI and the Apprenticeship Levy. Through this arrangement, HSBC and its RPO can engage previously costly limited company consultants as little more than reduce rate temps.

Although some contractors might go along with the arrangement in the short term, HSBC’s policy shows an astonishing lack of regard for the impact of their actions. Such heavy handling is likely to mean that contractors, especially highly paid specialists working through consultancies, will eventually leave, creating a serious problem for HSBC’s projects. In addition to this, the bank’s future relations with contractors has been severely damaged.

As we leave the EU, reliance on a flourishing and flexible workforce will be vital. Companies like HSBC could have leveraged their power to exert pressure on the government to find a solution that would be less economically damaging for business. Instead, they’ve taken the easy way out, using their power to ‘legitimise’ an approach that will ultimately take much more time to untangle.

This content has been supplied by IR35 Guru

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