HSBC Tells Contractors it’s Agency PAYE or Out

18th December, 2019
By 18. December 2019Finance, IR35, News
HSBC Tells Contractors it's Agency PAYE or Out

HSBC contractors working through the recruitment outsource agency Resource Solutions have been told that they must go onto the agency’s payroll or leave. Resource Solutions supply contractors working within HSBC’s Global Banking and Markets (GB&M) division, which helps businesses to establish international trade relations.

The correspondence, sent to all GB&M contractors, informs them that as of Nov 1st 2019, HSBC are no longer engaging contractors who provide services via a PSC or similar intermediary. From January 31st 2020, any future engagement approved by HSBC within GB&M will be via Resource Solutions on a PAYE basis.

Although HSBC is widely acknowledged to be the instigator of the PSC ban, it hasn’t been clear if their ‘PAYE only’ policy refers to agency, umbrella or company payroll. In addition to the uncertainty, the bank pushed back their original deadline from December 2019 to March 2020 for some contractors, prompting industry bodies to speculate that they may be rethinking their position.

It’s likely that the bank is acting on the findings of an independent audit carried out on their workforce. Contractors working in highly regulated and supervised divisions of banking are more likely to be classified as inside IR35. Outsourcers such as Resource Solutions act as an ‘extension’ of their client company, meaning that HSBC will gain favourable engagement terms over its contingent workforce without having to commit to permanent employment in the majority of cases.

Although it remains to be seen if HSBC will adopt ‘Agency PAYE only’ policy for some of it’s other operations, chances are that this will depend on the nature of the work being carried out. However, the decision to not only enforce a ‘no PSC’ ban on an entire division, but also to specify ‘no umbrella or similar intermediaries’ indicates that the bank is extending the reach of its control where it can – an obvious attempt to further minimise risk.

Post April 2020, the engager will not only be held responsible for making IR35 determinations, but can also be held liable for subsequent compliancy failures in the supply chain. Paragraph 15 of the draft legislation amends the PAYE Regulations with the effect that liability ultimately transfers to the client if HMRC fails to collect outstanding funds from the first agency.

An accompanying PDF sent to the affected HSBC contractors outlines what it means to move to an Agency PAYE arrangement. It also explains what revenue from PAYE is used for “to help provide funding for public services such as the NHS, education and the welfare system.” The document goes on to explain the Agency Workers Regulations and the benefits to contractors working under them, including sick pay and holiday pay at the basic rate.

What neither the document nor the correspondence mentions is that in most new contracts, HSBC’s PSC ban sits with a 25% pay cut to move to PAYE. In an internal memo to its PSCs, HSBC reiterates its ‘no PSC’ policy but then outlines a new downgraded pay rate in a ‘PAYE details’ section. This is to cover the increased costs to agencies and engagers, such as Employers’ NI and the Apprenticeship Levy.

Although affected contractors may gain some short-term employment rights, the cut doesn’t take into account the out-of-pocket hit caused by moving inside IR35. However, in April 2020, when hirers and agencies must pay the employers’ costs separately to the workers’ advertised pay rate, the true cost of employing contractors under IR35 will start to dawn.

The decision not to allow contractors working within certain HSBC divisions not to use an umbrella company payroll provider has further implications. Not only have these contingent workers been caught by a blanket policy, they have also been prevented from choosing a payroll solution that suits their individual circumstances. Even contractors working at HMRC aren’t restricted to Agency PAYE and have greater flexibility when it comes to their payroll provider.

With Agency PAYE, each new contract is a separate run of employment that will end when the contract ends. However, with an umbrella company, not only is the IR35 risk entirely eliminated, the contractor’s employment can continue from contract to contract. This means that although they may have multiple contracts with different end clients, they will only have one employer – the umbrella company.

This continuity of employment can make life easier when applying for a mortgage or borrowing money, or when contractors frequently work on short-term contracts. It also makes it easier to change between umbrella and limited company payment structures when a contract is outside IR35. The crux is that umbrella companies receive their income from the contractor, and so are more easily able to act in their best interests. Agencies, however, are paid by the end client and can therefore be conflicted in the advice and support they give.

This is certainly true when a large client uses a single agency to source talent. An example of such conflict can be found on the Resource Solutions website, which carries the following IR35 advice for its business clients: “The starting point is to learn the lessons from when the legislation was first enacted in the Public Sector – the main lesson being not to make blanket assessments on your contractor population.”

It’s unlikely that all contractors working in HSBC’s GB&M division have been individually assessed. Even within highly regulated operations, recent IR35 tribunals have shown that ‘supervision and control’ is not a definitive indication of employment status on a contract by contact basis. Other status tests such as ‘mutuality of obligation’ and ‘being in business’ are a much better indication that the contractor does not have the security that comes with full time employment.

While the government have pledged to review IR35, it remains to be seen if they will make this a priority and what action, if any, will be taken. Until then, HMRC’s reforms pose the biggest liability risks for companies and agencies. With several companies facing aggressive tax probes, these two parties will no doubt act to ensure that they are protected at all costs. Unfortunately, for the time being, this looks likely to be at the contractor’s expense.


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

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