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IR35 reforms: Lloyds Bank contractors to get deadline on future employment status

Lloyds Banking Group is the latest large firm set to end engagement of IT contractors through personal service companies due to impending IR35 tax reforms

Lloyds Banking Group is to phase out its use of contractors that engage with the firm via personal service companies (PSC) in preparation for the IR35 tax reforms being extended to the private sector, Computer Weekly has learned.

The move is likely to affect hundreds of IT contractors. The banking giant is in the throes of preparing line managers to hold one-to-one discussions with affected contractors from 8 October 2019, during which they will be told the company has no plans to extend their current PSC contracts beyond March 2020.

There could be scope for affected contractors to continue working for the company as permanent employees, if the “individual’s skills are required on an ongoing basis”, according to guidance issued to Lloyds Bank line managers, and seen by Computer Weekly.

“Where there is a shorter-term requirement, we will discuss entering into a new contract via an umbrella/PAYE [pay as you earn] arrangement,” the guidance said.

“Those for whom there is no requirement for their skills/services beyond March 2020 at the latest, engagements will end as planned.”

During the one-to-one meetings, contractors will be asked if they would like to leave, become permanent employees or continue working at the firm through umbrella companies, and will be given a deadline of 25 October 2019 to make their preferences known.

Umbrella companies could include, for example, IT consultancies or employment agencies which take responsibility for checking compliance with IR35 rules.

Computer Weekly understands affected contractors working in Lloyds’ retail, transformation and CIO divisions will have until 8 November 2019 to make up their minds.  

The collective preferences of the banking group’s contractor workforce will be considered by a central management team, who will notify individuals about the outcome of those reviews by 15 November 2019 at the latest, said the guidance.

Contractors who are earmarked by senior management to become permanent employees will be transitioned over “as soon as possible” or by 29 February 2020 at the latest to give the organisation “sufficient time” to adjust its internal processes, the document added.

The conversion of PSC contractors to umbrella engagements will commence in early 2020 and should be completed by 29 February 2020.

Why now?

A source with knowledge of the bank’s plans, who spoke to Computer Weekly on condition of anonymity, suggested that “thousands” of one-to-one discussions between affected contractors and their line managers will need to happen across the group over the next few weeks.

“It should come as no surprise to anyone, as Lloyds has made it known they are considering the impact of the [IR35] legislation and would be in touch before the end of the year to discuss next steps,” the source said.

“The reason they are kicking it off now is because they have worked out how long it’s going to take to discuss options with contractors, follow through on the permanent and umbrella conversions, and figured out they need to act now.”

The exercise is part of the banking giant’s preparations for the forthcoming IR35 private sector reforms in April 2020, which will see medium-to-large companies assume responsibility for determining how the contractors they engage with should be taxed.

At present, it is down to contractors to self-declare whether the work they do and the manner in which it is conducted means they should be taxed in the same way as salaried workers (inside IR35) or as off-payroll employees (outside IR35).

Under the terms of the HM Revenue & Customs (HMRC) IR35 guidance, organisations are expected to assess the tax status of every contractor they engage with on a case-by-case basis, but some organisations are employing alternative strategies to ensure compliance.

As previously reported by Computer Weekly, Barclays Bank is following a similar approach to Lloyds Bank, by phasing out its use of limited company contractors, as well as those who engage with the firm through personal services companies or other intermediaries.

According to an internal email circulated among line managers at Barclays, the bank will not be extending or renewing its engagements with contractors who engage via these means beyond 2020.  

This effectively absolves the company from having to determine whether the contractors it engages with should have their work classified as inside or outside IR35, as per HMRC’s regulations.

Individuals who want to continue working with Barclays will have the option to do so on a PAYE basis, and those who are unwilling to do that will cease to work for the organisation.  

HSBC is understood to have had a similar ban on limited company contractors in place since September 2019, and is believed to have issued off-payroll workers with an ultimatum – become permanent employees or end their engagement.

Given the similarities in stance these three major players in the banking sector have taken, contractors who decide to walk away could find themselves short of options when it comes to deciding where to work next, our source added.

“There is a sense that a lot [of affected contractors] will seek permanent positions, and those on very good day rates will likely take the PAYE hit, as their salary demands are unlikely to be met. Others will walk, but I think there is a sense that the position playing out here will be the same across all banks,” said the source.

Computer Weekly contacted Lloyds Banking Group for comment on this story, but had not received a response at the time of publication.

The IR35 reforms were introduced to the public sector in April 2017, and Some government departments lost up to 40% of their IT contractors as a result.

Read more about the IR35 reforms

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