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RBS to stop engaging contractors in IR35 U-turn

Another bank plans risk-averse approach to IR35 reform

The number of banks taking extreme action to next year’s IR35 changes continues to grow, with Royal Bank of Scotland (RBS) said to be the latest financial services firm that will stop working with contractors because of IR35 reform – a move which would see RBS backtrack on the promise it made only in July to keep its contractor workforce.

According to a memo seen by Contractor UK, RBS will stop engaging contractors working through personal service companies outside IR35 from 28th February 2020. This is less than two months before the bank will be tasked with determining the IR35 status of the contractors it brings on board. 

Instead, contractors working at RBS have been given two options: move onto the payroll or work through an umbrella company. This is in contrast to reports earlier in the year, also from Contractor UK, which said RBS will continue to engage independent workers when IR35 changes arrive on 6th April 2020. 

IR35 decision may “damage ability to scale resource”

RBS now joins Lloyds, Barclays, Tesco Bank, HSBC and Morgan Stanley in taking what IR35 experts have described as a “short-sighted” approach to IR35 reform. Compliance firm, Brookson Legal, was one of a number of specialists that offered its view on the situation, with compliance director, Matt Fryer stating: “While it may seem like an easy solution in the short term, it removes access to a skilled contractor workforce that wishes to remain flexible. This may damage businesses ability to scale resource up and down at short notice.”

Banks don’t understand importance of contractors 

Several major banks’ reaction to IR35 reform hasn’t come as a surprise to one IT contractor, who criticised these businesses for “treating contractors badly for years.” Andrew Neil, who has felt the full impact of the IR35 legislation, having been pursued by HMRC for £100,000 in the past, said: “Banks just don’t get how important contractors are to IT. They assume they are glorified typists. Shame on the banks for not standing up to HMRC bullies.”

MPs “demand action” over banks’ IT failures 

Reports of RBS’s strategy for IR35 reform comes at a time when MPs are “demanding action” from banks over the increase in IT problems, which a Treasury Committee Report described as “unacceptable.”

However, in culling IT contractors, system failures and online crashes that impact customers are to be expected, explained Qdos CEO, Seb Maley: “By getting rid of contractors, the likelihood is that banks will face further problems down the line. These firms, after all, rely on the niche skills and expertise of independent workers, who provide business-critical services. Forcing contractors onto the payroll is a knee-jerk and unnecessary reaction to incoming IR35 reform, which could easily result in these workers leaving their projects at banks and taking on roles outside IR35 elsewhere.”

Have you been told by your client about their plans for IR35 reform? Start the conversation below…

By Contractor Weekly

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14 thoughts on “RBS to stop engaging contractors in IR35 U-turn”

  1. Neil Hallam

    As we’re now heading for a December general election, Parliament will be dissolved, the budget won’t be introduced in November as previously planned and could even be delayed until January, so the fog around IR35 reform will just continue for longer… Meanwhile end clients are needing to take strategic planning decisions regarding future work and how to resource. Expect more companies to take this same approach, as it’s the only way they can plan NOW, rather than waiting until whatever clarity may come in 2020.

  2. JK

    The only ones to benefit out of this crazy reform are offshore companies. They undercut and working visas are readily given to their workforce. So opportunities for contractors from this country are already in decline. Not many contractors will be given the option of going permanent. HMRC can wave goodbye to the additional tax they are after from the IT sector in any case.

    • Richard

      Agreed. Although add to that big five consultancies (and their requisite off shore options).
      Big 5 + Offshore have their competition removed overnight… and the banks can look forward to paying *more* for *less*.

      I guess the last joke in the above scenario is that once recent grads and offshore resources are in short supply the banks might end up having the same psc contract workforce they just booted out – resupplied to them via sub contract from said big 5 … just this time around the big consultancies will be able to control the market and pricing rather than letting recruitment firms (who will get shut out) to level the market and find the best resources.
      None of it makes any logical sense and none of it will generate any more tax revenue ….

  3. Biggus Dickus

    Say hello to even more Indians. Every place I have worked is stuffed with them now, even places requiring security clearance. There won’t be any British people left in IT at this rate. Completely shameful that Governments of all colours have harassed and hounded contractors for nearly 20 years squeezing with tax at one end and downwards pressure on work and rates via third world labour at the other. Stop voting for LIbLabCon – they are the same. The system requires new parties to sweep the old corrupt order away.

    I’ve noticed the quality of IT systems declining substantially over the years. This is mostly the use of cheap third world labour coupled with increasingly complex systems. At some point there will be major IT problems for many big companies. Serves them right.

  4. theo clemence

    The opinions in this article assume that the highly skilled contractors will go elsewhere – however if ALL banks adopt this “approach” (as happened in the Netherlands for example) it’s the contractors NOT the banks that will loose out. Having said that, laws of supply and demand will always prevail – if their is a shortfall the gross contract rates may end up skyrocketing. Only time will truly tell ….

  5. MPH

    Over the years the intellectual capital that is required to manage the banks systems has shifted from being in people’s heads to being both poorly documented and understood as support and development shifted from in-house to local outsourced, then offshored and even offshore captive. Each transition dilutes their capability to be agile and effective so the expected benefits are not realised, so the vendor gets changed due to a similar promise of improvement.
    The core banking systems often run on obsolete tech, which is no longer taught, the contractors who did dev/support are leaving/retiring.
    I think that is the markets/analysts requirement for banks to reduce costs for tech dev/support/ops is driving much of this and it is compounded by IR35. It is a chain of failure, not a single event.
    In my experience, quality is the issue as the values that the outsourced staff have are not aligned with the companies; contractors adopt and often promote the company’s values and understand the relationships and dependencies (people, process, data and tech) to ensure the success of their work, eliminate these and failure occurs.
    Its both IR35 and cost reduction in ever increasingly regulated and complicated operating environment.

  6. Biggles

    @Biggus- Totally agree. They cost 1/4th the rate of British contractors, and in my opinion are utterly useless. Not to mention the impact on housing, Uk demographics etc. Not a fan.

  7. Gareth

    I had an offer today which insisted I work PAYE – so I added 33% to my rate to let them think about it.

    • EddyJ

      Veteran Public sector contractor here. I’ve been doing exactly the same for last 2 years. All contractors should stick to their guns and they will.

      In the end the market dictates. Flexible labour from qualified UK professionals doesn’t come cheap and they will have to pay one way or the other in the end. Ultimately private businesses will become more frustrated with expensive labour costs inflated by this unfair tax system in the UK further lagging this country behind as Brexit indecisive horrendously expensive island that no one wants to invest in.

      LibLabCon are all old and corrupt. We need better political alternatives or trash this system altogether

    • Jk

      Companies will just ship cheap labour from offshore. I can see it happening already. Unless the government restricts visas, contracting as we know it now is dead.

      • BA DADI

        Org lacks the courage and fortitude to take on big shark like companies

        Facebook a good example 28 million on turnover of 1.7 billion (represents about 1.6%)

        Absurd!

        No! They are in their comfort zone attacking the little fish

  8. Robert

    Comments about Indian IT staff are so correct CGI brings in loads of these people from overseas gives them ‘security clearance’ then puts them to work on Smart Metering for a third of the usual rate paid to British citizens. In the future this country will have no people left with skills or experience and companies will be forced to get projects done in India with all the resulting security implications and risks

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