Changes to off-payroll rules mean that the responsibility for deciding whether a contractor engaged through a PSC (Personal Service Company) falls inside or outside of IR35 will shift to the end client from spring next year, despite calls for delay from across the business community.
This move by HMRC is designed to crack down on ‘disguised employees’ – those that enjoy significant tax benefits as contractors while working in the same way as employees. For many companies, this means an arduous process of assessment, reform, and transforming best practice. However, some large organisations have simply said that they will no longer engage PSCs at all. Removing the risk of investigation and potential penalty from HMRC. But is this sweeping action the right way to meet the challenges of IR35 reform?
Big Names Ban PSCs
Recent headlines have reported on a variety of big-name financial institutions who have decided to stop engaging with PSCs entirely. HSBC, Morgan Stanley, Tesco Bank, and RBS are just some of those who have confirmed they will no longer engage with contractors operating through limited companies. This approach may be worryingly short-sighted, especially given that finalised legislation has yet to be released.
The Loss of Valuable Skills
The problem with such a blanket approach to the coming reforms is that it heavily penalises ‘true’ contractors, leaving them in a situation where they have to completely rethink their business structure or face losing valuable contracts. It also creates a significantly reduced pool of accessible talent for large organisations, many of whom rely on a large contractor workforce to achieve their business goals. The move to ban PSCs may reduce risk of penalty from HMRC, but it could pose an even greater risk to ongoing access to skills.
Some Large Firms are Bucking the Trend
The good news is that not every large organisation is taking such an arbitrary approach to IR35 changes. Many are going through a process of individual assessment and determination. Balfour Beatty is one high-profile name that has recognised the “important contribution” of contractors operating through PSCs. They have also confirmed their commitment to an ongoing assessment process. Aberdeen Standard Investment have also confirmed they plan to adopt a ‘wait and see’ approach and suggest they are also likely to carry out individual assessments.
We believe that failure to carry out individual assessments could leave many organisations facing a significant loss of crucial talent. This is one of the reasons we have partnered with Brookson Legal to create a complete solution to IR35, allowing businesses to balance off-payroll compliance with access to contractor expertise. We provide support at every step, from carrying out assessments and determinations to providing indemnity against HMRC challenges. Get in touch to discover how we can ensure your business is ready for April 2020.