IR35 reforms will prompt Barclays to re-engage contractors on PAYE terms, 'leaked email' suggests

Barclays Bank appears to be introducing changes that mean all contractors who engage with the firm will eventually be taxed in the same way as salaried employees, as part of its preparations for the incoming IR35 private sector reforms.

The company is alleged to have emailed its line managers on 30 September 2019, setting out plans to phase out its use of limited company contractors, as well as though personal services companies or other intermediaries.

Starting from 1 October 2019, any contractors who engage with the firm via these means will not have their contracts extended or renewed beyond February 2020, the email – seen by Computer Weekly –  states. And from 1 January 2020, all new contractor engagements and extensions will be operated on a pay-as-you-earn (PAYE) basis, it continues.

This process means that, in due course, all of the contractors the company engages with will be liable for PAYE tax contributions, which – under the terms of the IR35 tax avoidance regulations – essentially categorises them as Inside IR35.

“Contractors who provided their services via a personal service company, limited company or other intermediary and who choose to continue working for Barclays can do so on a PAYE basis via the agencies and managed service providers they already use,” the missive states.

Computer Weekly contacted Barclays to verify the authenticity of the email, and request further comment on this story, but had not received a response at the time of publication.

The letter directly cites the incoming IR35 private sector reforms as the reason for these changes, which – from April 2020 – means medium-to-large-sized organisations such as Barclays, who engage with contractors, will be responsible for determining how these individuals should be taxed.

For example, does the work they do and the manner in which it is conducted mean they should be taxed in the same way as other salaried employees (inside IR35) or as off-payroll workers (outside IR35)?

Computer Weekly also understands the measure may be part of an IT sourcing strategy within Barclays, whereby the firm is increasingly looking to populate its technology teams with direct hires rather than contractors.

Contractors that are deemed to be inside IR35 are liable to make PAYE and National Insurance Contributions (NICs) as an on-payroll worker would, but do not receive benefits such as holiday pay or sick leave.

At present, private sector contractors are responsible for self-declaring how they think they should be taxed, which is an arrangement HM Revenue & Customs (HMRC) has previously claimed has made it easier for contractors to act as “disguised employees” and avoid paying as much tax as they should.

By phasing out its use of non-PAYE contractors, it appears as though Barclays is trying to alleviate some of the administrative burden it is likely to find itself under once the IR35 reforms are extended to the private sector.