Lloyds has been criticised by a number of IR35 experts after it was reported that the bank will stop engaging limited company contractors due to incoming changes to IR35.
To avoid reform to IR35 in the private sector, which will be enforced next year and will see medium and large companies become responsible for determining IR35 status, Lloyds has reportedly told its PSC contractors they must work via umbrella companies and move onto PAYE or leave.
As previously reported in Contractor Weekly, Lloyds joins Barclays and HSBC as the latest banks taking drastic action to avoid next year’s changes. In the Lloyds scenario, by shifting contractors onto the payroll and through umbrella companies, the bank will not need to assess the tax status of independent workers, nor would it carry the risk associated with doing so.
Lloyds has told contractors their current engagement will not be extended past March 2020, meaning it escapes the IR35 rule changes, which will be enforced on 6th April 2020. However, that’s not to say this is a wise move, as IPSE’s Andy Chamberlain explained: “This is a short-sighted and extremely damaging decision – and not just for the self-employed. It will be bad for contractors and bad for business.”
IPSE’s Deputy Director of Policy then called on the Government to make a U-turn over IR35 reform, urging a “rethink” of “this dangerous policy. Now, facing an uncertain economic future, this country needs the flexibility and dynamism of the self-employed more than ever, and the Government must do more to support them.”
In being told they have no choice but to work on the payroll, contractors could see a reduction of up to 30% in take-home pay, when taking tax and additional charges into account. This is opposed to operating outside IR35, when an individual is able to pay themselves with greater tax efficiency through their own limited company.
In reaction to the news, Seb Maley, CEO of IR35 specialist, Qdos, touched on this: “Assuming that Lloyds contractors decide to stay and go PAYE, it could cost these individuals a significant amount. Given plenty of these contractors will no doubt be genuinely self-employed, for Lloyds – and other banks for that matter – to hand individuals ultimatums is totally unnecessary.”
Despite this worrying news, Mr Maley did make it clear that Lloyds, along with Barclays and several other banks’ approach to IR35 changes, is the exception and not the rule: “No contractor wants to be told they won’t be allowed to continue working in this manner – particularly if they belong outside IR35, which I imagine many of them do. That said, the picture emerging in the banking sector isn’t representative of the private sector as a whole. Focusing on life after reform, we are confident that outside IR35 opportunities will continue to exist.”
According to Computer Weekly, that also reported the story, contractors will be given until 25th October to decide if they would like to become employees, work through an umbrella company or stop working with the bank. The publication also said Lloyds expects to have moved any contractors who opt to stay and work via an umbrella by 29th February 2020.
Have you been impacted by Lloyds’ IR35 strategy?