Brian Jackson - Fotolia
The Bank of America stands accused of leaving its IT contractors in limbo by allegedly holding back details about what their future terms of engagement with the firm will be, once the IR35 reforms come into force in April 2020.
Computer Weekly understands the firm, which is known to employ more than 7,500 people in Europe, the Middle East and Africa (EMEA), informed staff in December 2019 that it would be phasing out its use of limited company contractors in the run-up to the IR35 reforms coming into play in April 2020.
Any contractors who want to remain working for the firm can do so by engaging with an umbrella company and agreeing to take on an inside IR35 contract, Computer Weekly has learned, even if their role is currently classified as outside IR35. Contractors who abide by these terms are on course for a net pay cut in the region of 16%, it is claimed, which has left many of them weighing up their future with the firm.
According to one of the affected IT contractors, who spoke to Computer Weekly on condition of anonymity, these decisions are being complicated by the fact neither the bank nor the agency it uses to source contractors has shared details of what the terms of their engagement with the firm will look like post-April 2020.
“They have provided no details of how this will work and what the new terms of engagement will be, aside from an agent who has been hassling me to decide what umbrella company I use,” said the contractor.
“There’s a feeling in the bank’s contracting community that the radio silence is deliberate brinksmanship to frighten contractors into taking a poor deal at the last minute,” the contractor continued. “Many have obligations, such as families and a mortgage, so simply can’t walk away or retire, [particularly] when so many other potential clients [within financial services] are doing exactly the same.”
Computer Weekly contacted the bank for clarification on these points, but its press representatives said the firm had no comment to offer. The same is true of its agency, Pontoon, who is provider of contingent workers to the firm.
The Bank of America’s decision to phase out its use of limited company contractors essentially enables the firm to sidestep the key obligation the IR35 tax avoidance reforms will put on private sector enterprises from 6 April 2020.
From this date, all medium-to-large private sector enterprises will assume responsibility for determining if the contractors they engage should be taxed in the same way as permanent employees (inside IR35) or as off-payroll staff (outside IR35).
Enterprises are expected to individually assess the tax status of each contractor they engage with, but the administrative burden – coupled with the risk associated of getting these decisions wrong – means many firms are opting out of using contractors at all.
Consequences of enforcing ‘no contractor’ rules
The Bank of America is far from the only financial services firm employing this tactic, as Computer Weekly has also reported on similar strategies being employed at Barclays, Lloyds Bank and HSBC in recent months.
Speaking to Computer Weekly, Dave Chaplin, CEO of contractor tax consultancy ContractorCalculator, said opting to do away with contractors completely is a risky decision to take and could have a huge impact over the coming months on any IT projects they have planned.
“There are an awful lot of hiring firms who don't know yet that their contractors are planning to leave and abandon projects because the work they do is outside IR35, and they worked hard over the years to ensure the work they do accurately reflects that,” he said. “So I think a lot of firms are in for a bit of fright.”
And this is precisely why it’s so important to ensure there’s an open, two-way dialogue between contractors and enterprises so both sides are able to future-proof their projects and plan their next moves.
“The clients and hiring firms really need to speak to their contractors to find out what their intentions are, to make sure that any projects they’re working on won’t be damaged by all their contractors leaving,” he said.
Read more about IR35 and financial services
- With six months until IR35 tax avoidance reforms are extended to the private sector, a number of financial services firms are thinning out their contractor workforce – is that the way to ensure compliance?
- Lloyds Banking Group is to phase out its use of contractors that engage with the firm via personal service companies in preparation for the IR35 tax reforms being extended to the private sector, Computer Weekly has learned.
- 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.
For contractors as well, there is also a risk that if they accept an inside IR35 contract after previously working for the same company on outside IR35 terms, HM Revenue & Customs (HMRC) may decide to open an enquiry about their past employment habits, and the amount of tax they have previously paid.
HMRC has never said it intends to do this, but the introduction of the loan charge policy in November 2017 has left many contractors fearful that other retroactive enforcement action from the agency could be forthcoming in due course, he said.
As extensively documented by Computer Weekly, the loan charge policy has left thousands of IT contractors saddled with life-changing tax bills pertaining to work they did up to 20 years ago, that they were remunerated for in the form of non-taxable loans.
“It’s very difficult for HMRC to gain anybody’s trust on that matter now [since the loan charge],” he said. “For the ones who were outside, but the company has made a blanket policy that they are now inside, they won’t want to have to fight to prove their innocence, so they would rather have a clean break and end the engagement.”
Read more on IT legislation and regulation
IR35 legislative tweak to remedy settlement offset issue by April 2024
IR35 reforms to be scrapped: What IT contractors need to know
IR35 reforms: Private sector warned HMRC's 12-month 'light-touch' enforcement period is ending
IR35 private sector reforms one year on: Assessing the impact on the UK’s tech talent pool