How did this all start?
In a complete shock to everyone at HMRC, hardly any of the proverbial ‘turkeys voted for Christmas’ and this was the status quo until April 2017.
IR35 has been with us for over 20 years and during that time showed itself in a variety of ways tackling first the construction sector then moving across a range of other sectors. However, as legislation is was a resounding failure as IR35 required the taxpayer to consider and assess their own status and to apply the more punitive IR35 tax structure if the work relationship was closer to that of employment.
Game changer – #1
In April 2017 HMRC implemented game changer number one, instead of the taxpayer assessing their own status, the requirement would be on Public Sector organisations to assess the status of their contractors and to apply the correct tax regime. Going one step further, this also made the Public Sector organisations responsible for the tax if they incorrectly assessed the status.
Being risk adverse, many organisations in the Public Sector simply recruited many contractors who wished to take employment and save many leave the sector. This brain drain affected many organisations ability to deliver projects & contracts on time, most famously HMRC’s own IR35 team.
This single change of moving the onus from the contractor to the organisation resulted in the biggest IR35 impact so far…..but they are at it again!
Game changer – #2
HMRC has announced that the same regime will now apply to the private sector from April 2020 with more detailed guidance being released by HMRC this Summer.
This is going to be huge and as the article from ContractorUK sets out, the effects are starting now.
HSBC tells contractors ‘quit or go perm’ before IR35 reforms bite
HSBC will cease engaging limited company contractors from this September, saving itself the job of having to assess them under a new IR35 from April 2020, ContractorUK has learnt.
The bank has told all PSC contractors at key units like HSBC Digital that after one further contract extension, they must choose between being terminated or becoming employees.
But HSBC has sweetened its ultimatum for some contractors on a so-called ‘keep’ list it has drawn up, by saying they can stay on as long as they work via a third-party from September.
The thinking at HSBC is that it will remove itself from April 2020’s obligation to decide contractors’ IR35 status, by making them staff or a third-party’s PSC. Or just by axing them.
‘A sledgehammer to crack a nut’
“Culling a flexible workforce and replacing them with employees will remove any IR35 concerns for HSBC,” status advisory Qdos Contractor confirmed last night.
“But it’s a worryingly short-sighted approach to dealing with IR35 reform [akin to] using a sledgehammer to crack a nut.”
The advisory’s Seb Maley then cautioned HSBC “Moving contractors to a third-party supplier is also a risky move.
“We recently reviewed dozens of such arrangements for a large public body and a significant proportion of them were ostensibly providing labour – in the same way an agency would – but dressed up as a managed or outsourced service. This provides a false sense of security as, legally, the original client – HSBC if this goes ahead — must still make the determinations.”
Whether the bank goes ahead with its September ultimatum is indeed still a question, according to another expert on IR35, Bauer & Cottrell. Its co-founder Kate Cottrell said:
“[HSBC] could see all their talent disappear and just like what happened in the public sector [before IR35 reform was introduced there], the bank may then have to change its approach.”
So what are Enterprise doing?
We have tracked IR35 though its development phases, legislation and most recently supported clients in assessing what would work best for them in the 2017 Public Sector attack.
Through 2019 and in anticipation of the 2020 Private Sector attack we will be inviting our client’s organisations who use contractors to meet with us so they can assess the impact of these changes on their business.
We will be holding a series of workshops to run through the effect and ways to mitigate the impact and possibly even benefit from these changes.
If you would like to be part of these workshops or are concerned as to how these proposed changes may affect your business then please get in touch at firstname.lastname@example.org or alternatively contact the office on 01302 752700 so we can get you booked in.