Q. I currently contract for a large bank that has decided to apply a blanket IR35 decision. It means that I’ll be forced to work via PAYE as my client looks to mitigate against any risks that IR35 reform poses. This seems like a misuse of the legislation, with only contractors being penalised. Do I have a legal stand? Can the bank do this legally? What are other banks doing?
A. Unfortunately, this is a stance that several leading banks seem to be taking. The likes of HSBC, Lloyds, Barclays and RBS have all reportedly told contractors that they will need to work either inside IR35, via an umbrella company or become employees in reaction to incoming IR35 reform.
However, legally speaking it could prove difficult to challenge this decision in court, unless it can be clearly shown that you have experienced a blanket IR35 decision. Blanketing inside IR35 is not compliant, given this approach does not constitute as ‘reasonable care’, which must be shown when assessing IR35 status.
That said, given a ‘role-based assessment’ (when one or more contractors with identical contracts are assessed as one) is technically allowed, proving that your client has applied a blanket ruling and not a role-based assessment might be complicated. Needless to say, the area of grey with regards to blanket determinations and role-based decisions is a huge flaw in the rules. At Qdos, we are stressing to businesses the importance of making case-by-case IR35 decisions.
Tweaks to the legislation introduced in April 2020 will give contractors the chance to dispute IR35 assessments – such as blanket decisions – through the ‘Client-led Disagreement Process.’ Although, because this is led by your client, it remains to be seen how much success you’ll have when trying to convince them to reconsider their position. Therefore, we advise you to have your IR35 status reviewed by Qdos before approaching your engager. The view of an independent expert will help strengthen your argument.
While a blanket IR35 decision is not allowed, businesses that tell contractors they can only work via an umbrella company or as an employee (meaning IR35 doesn’t apply) are not technically doing anything wrong. They are sidestepping the rules. And while stopping engaging contractors outside IR35 is short-sighted, knee-jerk and needlessly risk-averse, it is an approach that your client is within their rights to take – albeit one that will see them lose out on the skills, flexibility and cost benefits enjoyed when compliantly engaging contractors outside IR35.
If you’re being forced to work PAYE you might be wondering what your options are. To take into account that you will be taxed as an employee – whether that’s as a result of working via an umbrella or as an employee of the company – it’s worth raising your day rate to balance out the costs of paying employment taxes.
You might also want to consider sourcing another contract. It should be stressed that forcing contractors onto the payroll isn’t representative of the private sector as a whole. At Qdos, we’re working with over 100 recruitment agencies and engagers, which suggests our work alone will ensure tens of thousands of outside IR35 opportunities exist after April 2020.
This answer was provided by IR35 specialist, Qdos Contractor.