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Lloyds condemned for “damaging” IR35 decision

Lloyds Bank tells contractors to go PAYE or leave

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. 

Lloyds joins Barclays and HSBC

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.”

“Scrap IR35 reform”

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.”

“Not representative” of private sector

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?

By Contractor Weekly

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18 thoughts on “Lloyds condemned for “damaging” IR35 decision”

  1. Tim

    I (a 22 year contractor) and a number of other long term contractors have either moved to permanent or considering it due to employers not starting new projects due to both Brexit and IR35 uncertainty. Most employers are moving their contractor to ‘Serviced Company’ or Umbrella scheme, it just they are not the size and profile of the big banks. There will be agencies and specialist accountants losing business and be at risk of losing their employees or closing down. IR35 is affect more than just the contractors themselves and the taxman will end up losing out massively by having to fund unemployment and have reduced taxes due to lower paid contractors either via the umbrella taking their cuts, the employers dropping the rates or the contractors moving to lower paid permanent roles. For most businesses the transient contractor workforce is essential (including government agencies) they have short term projects which need short term experienced resources and contractors fit that bill. In my new role I know that I will need to keep a similar permanent/contractor workforce to cover the BAU and short term projects. More and more UK based companies will have to consider using more offshore outsourcing, this will become harder with Brexit and will also mean Tax losses for the government.

    • Simon

      Agree, this is a short sighted policy from Government. The duplicity is evident that some of the government departments themselves have been kept outside of IR35 to attract contractors.

    • Steve

      I work for one of the three big American outsourcing companies. They have “quietly” moved work outside the UK. IR35 and Brexit have basically put a nail in the coffin of the UK being the knowledge base for Europe.. Well done! I’m 54 this year and basically taking retirement.. Why would I want to work away all week, practically no expenses for less take home pay than a builders mate.

    • Gary

      The government and HMRC are the ones to blame for this fiasco.

      Tax take from me will fall for sure. (at least 50k pa if you include VAT,Corp tax

      Even though I would like to continue working I will be retiring early.

      It is difficult to understand how HMRC could not anticipate this.

      They have managed to collapse the most flexible workforce in Europe, just as they need it most with Brexit

  2. Ms Deeanne J Clarke

    Who pays the employers ni?

    A) if using an umbrella
    B) if PAYE with bank.

    Can you provide an expected breakdown based on a typical 500 ukp a day contract.

    What happens to

    Expenses:
    travel costs?
    sundry items and meals
    training and equipment

    Entitlements:
    holiday pay
    sick pay
    pension contributions
    Redundancy /termination

    If divorced and a paying parent of say, 2 children, what is the impact of child maintenance.

    Can you show Before and after example

    That would help. Or to coin the phrase from the film; show me the money!

  3. John

    Where will clients like Lloyds and Barclays go to find their “flexible” headcount ? Large consultancy companies (like Microsoft, IBM, TCS, Cognizant, etc.) I wonder ?

    Is anyone going to scrutinise the relationship between the headcount provided by those large consultancy companies and the end client ? We all know that the client will still have some ability to select individuals, refuse substitution and control where / when they work.

    So, is the client going to deduct NI & PAYE from the rates they pay to those large consultancy companies ?

    I doubt it.

    Instead the consultancy will pay their staff the smallest salary they can get away with, and the rest of the fee for the “service” will go into the company’s profits, to be divided up amongst the *really* rich.

    IR35 is hypocritical and unfair on so many levels. It will squash small businesses, stifle innovation and make it harder and more expensive for clients to find the skills they really need. The net result will be bad for everyone: bad for business, bad for the consumer, bad for the economy and ultimately bad for the overall revenue collected.

    • Chris

      This.
      The only plausible reason I can think of why this government is intent on pushing this through is that it will redirect the profits to a different part of the economy where they have a stake — the large consultancies mentioned. It’s just another way to enrich the 1% at the expense of those of us actually taking the risks and doing the work. Time to leave the kleptocracy that is the UK.

  4. Robert

    It doesn’t matter what arrangements are made. HRMC will later make changes to the law so that what you are currently doing regarding how much you earn and pay in tax which has been inspected by them and in fact tax refunds given. They will then declare it illegal, change the law so that it is now, then backdate it seven years before the change date. Make you repay all the money for that period previously earned legally under current law at the time plus interest. Then if that is not enough now can backdate claims to 1999.

  5. Leo

    Have HMRC thought through the loss of Corp Tax and VAT from contractors who either go umbrella or go permie.. Most IT Contrcators at least reclaim a very small amount of VAT so they will pretty much lose 20% across the board.

    Also what happens to a Ltd Co where others are employed including additional share holders. How do they get their pay and Dividends if deemed inside IR 35

  6. John

    As an older contractor who for many years has worked stupid and long hours for a fixed pay including christmas/new year.. I am looking forward to holidays, sick pay/holidays, 9-5 plus multiple coffee breaks and 1 hour lunches. Being an utter pain in the arse and openly putting down these useless project managers I once helped keep their jobs. I currently getting offers for reasonable paid staff positions but boy I am going to milk the system.

  7. Andrew Harrison

    This article plays right into HMRC’s hands:
    “contractors could see a reduction of up to 30% in take-home pay, when taking tax and additional charges into account”.
    Reading this I thought “so that’s 30% more in tax” – before I retired I paid QDOS for insurance, paid hotel and travel costs (no longer tax deductible), paid for an ill health and a life insurance policy and more than 30% into a pension scheme. If you take that extra 30% as spendable income, it isn’t. Let’s also look at NI – National Insurance that second word is a hint. If your limited company doesn’t pay NI on your behalf then the Government doesn’t have a liability to pay you a state pension. The HMRC tax grab is misguided and mistargeted don’t help them by simplistic sound bites.

  8. David Stark

    22 years a contractor so had a good run at it and was excellent way to work while it lasted. I never expected it to last forever. Will the government or HMRC have fully thought it through? Of course they wont have but it is what it is and we as contractors just have to decide how we will operate under the new rules imposed by the government, hmrc and the companies who employ our services.

    What do i predict will happen? The majority currently contracting through LTD companies will swap across to umbrella companies. Will there be an increase in rates? Doubt it, why would a large bank want to pay more because of an individuals tax liability?

    It doesn’t surprise me the approach the large banks are taking as they will always take the route safest for themselves.

  9. James

    11 years contracting. Have defined a new strategy to get around private sector IR35 regs… have started contracting for the government – loads of long term (6 months at a time) contracts outside IR35. Genius!!

    • Richard

      Until HMRC in future decides to change the legislation, decides to apply tax retroactively and decides to send you the bill.

      Working under HMRC rules is just too risky.

      There’s only one option, which may or may not be simple depending on your circumstances: leave the UK.

  10. Ian harrison

    Hi. I would suggest all contractors close their bank accounts with these companies, mortgages etc. And encourage family to do the same and tell the bank why you are leaving. We have more power than them, as we the customers.

    I will be closing my first direct account that I have held since 1995! I will be moving my mortgage whe that is up for renewal too.

  11. Charlie
  12. Resigned To The Stupidity Of MP's

    Just DO NOT TAKE AN IR35 role.

    HMRC made special arrangements when it lost its contract staff.

    This was a bad Labour Party decision, now being used by Tories.

    Simple MATH will show that there is NO EXTRAX TAX to be gained, it will be losses to the revenue.

    Permanent members of staff should be very concerned, the majority of contractors I have worked with are extremely capable and nearly always brought in because the permit staff couldn’t cope or do the job.

    Th eNEW guys coming to your place may just be YOUR replacement.

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