It has emerged that Barclays is the latest bank that will stop using limited company contractors, as it looks to sidestep IR35 reform arriving next April.
In an email sent to “UK line managers”, which has since been circulated online, Barclays announced “as a consequence” of incoming IR35 changes, it “will no longer engage contractors who provide their services via a personal service company, limited company or other intermediary.” Instead, the bank will “engage contractors on a PAYE basis only for new or renewed contracts.”
The bank stopped short of explaining its specific reasons for this approach, but said it had decided this course of action “after reviewing its third-party resourcing arrangements.”
Barclays has also said from 1st October 2019 it will not extend the contracts of PSC contractors beyond February 2020. The email then went onto explain that from 1st January 2020 any new engagements or contract extensions will be arranged on a PAYE basis only.
Complex IR35 is to blame
This means that from 6th April 2020, the date on which medium and large private sector businesses become responsible for deciding the IR35 status of contractors, the organisation will not need to act because it won’t engage any independent workers.
IPSE, the IR35 lobbying body, responded with criticism, but chose to direct the majority of its comments towards the government, not Barclays. Deputy Director of Policy at IPSE, Andy Chamberlain, said the bank’s decision was “deeply troubling” before explaining this is a result of the overly complicated IR35 legislation.
“IR35 is a nightmarishly complex piece of legislation - so complex that Barclays has decided it cannot manage the risk of falling foul of it. That approach from Barclays makes a mockery of the government’s claim that the genuinely self-employed won’t be affected by the April 2020 rules.”
Barclays not the first to unveil reform plans
Earlier this year, it was reported that HSBC was planning similar measures. Along with Barclays, Lloyds bank will reportedly do the same, according to Contractor UK.
There is concern among contractors that other private sector firms will stop using limited company contractors, given the responsibility for setting IR35 status will transfer from the worker to the company, with the risk handed to whichever party in the supply chain pays the worker.
This is an issue that IPSE’s Andy Chamberlain was keen to address: “We urge other businesses not to take this short-sighted and dangerous step, and urgently call on the government to halt and reconsider the changes to IR35.”
Not known if umbrella will be an option
As of yet, it has not been disclosed by Barclays if it will engage contractors operating through umbrella companies when IR35 changes are enforced. Should the bank allow for this, it would not need to administer IR35, nor would it carry any risk. This is because the IR35 legislation doesn’t impact individuals working via an umbrella, given they are effectively deemed to be employees of the umbrella.
Should there be a trend towards clients placing contractors inside IR35, independent professionals can opt to work through an umbrella company, such as Parasol, should the client allow for this.
In doing so, IR35 is no longer a concern and the worker will receive their salary with tax deductions already made. In contrast to operating inside the IR35 legislation through a personal service company, umbrella company workers are able to claim certain employment benefits too.
With the countdown on to the introduction of private sector changes next April, in the coming months, it would come as no surprise if other engagers outline their specific plans for the changes.
Get support from Parasol
If you’re a recruiter looking for more information on how we at Parasol can help support you and your contractors throughout the IR35 legislative changes, please give us a call on 01925 644861 or speak to your account manager.