The decision of businesses such as RBS, Lloyds, Tesco Bank and Morgan Stanley to adopt a blanket policy on limited company contractors has been heavily criticised by Industry bodies. Lobbyists are calling on Parliament to address the issue and hold HMRC to account.
There are echoes of the public sector IR35 reform experience, when it was proven that HMRC was condoning role-based IR35 assessments by companies such as Network Rail and the NHS. These assessments failed to take into account individual circumstances and the daily working practices of the contractor.
The businesses that have gone ‘PAYE only’ say that it’s only a temporary measure to mitigate immediate risk. A Tesco Bank spokesman commented: “Like many other organisations, we are currently assessing how we manage off-payroll resource in order to comply with IR35 [reform]. Whilst we agree our future approach, we have implemented a number of interim measures.”
The reclassifying of many contractors as ‘employees’ also raises the issue of payment. If hirers do decide to make blanket decisions that IR35 applies, the focus will be on the renegotiation of rates to compensate contractors for their significant drop in earnings. There’s also the issue of whether rates quoted to contractors will be adjusted to compensate deemed employers for increases in employers’ NICs and the employment levy.
It remains to be seen if companies will expect contractors to absorb all the costs, or if they will meet them halfway. Lloyds, however, has a ‘no pay bumps’ policy written into their small print. “There are no rate increases to be offered to compensate for lower take-home pay,” one Lloyds contractor clarified, writing on a contractor forum. “All PSC contractors will need to convert to permanent or umbrella by 29th Feb or leave the group by 31st March. There is no CEST assessment being undertaken; nobody will be deemed inside or outside IR35; this is simply being communicated as a new method of engagement for PSCs.”
Such an uncompromising stand is a risky one for business to adopt, even as a stopgap measure. While contractors have the option of going elsewhere, business risks losing key talent. However, if enough organisations adopt the ‘PAYE only’ it will give limited company contractors little room to manoeuvre. What’s clear is that contractors can’t sleepwalk towards April 2020.
The co-founder of Bauer & Cottrell agrees on the latter point. “It may be that we will see these banking sector IR35 policies evolve, just like we saw with the public sector off-payroll rules. Many had to change their policies to ensure that they could engage with contractors outside IR35 to attract the skills and talent they need.”
Limited company contractors are advised to inform themselves on the implications of the reform and make their own contingency arrangements. Contractors are increasingly turning to umbrella companies in this uncertain interim period, as working via a PAYE umbrella company eradicates the IR35 risk. It’s also advisable for limited company contractors to create their last invoice in January or February to ensure payment before 6th April 2020.
With the autumn budget postponed, the recent Briefing document published by HMRC gives little reassurance that the government’s position will change on the proposed reforms. To learn about the Briefing document, read our article here.
If you’ve been affected by blanket assessments or feel that you would benefit from impartial guidance on the Off-Payroll changes, Contracting Wise have a range of established solutions that can help you. To speak to a member of our team, call: 0203 642 8679