There are signs that firms may be rethinking their ban on limited companies ahead of next April’s IR35 reforms. The example set by influential banks such as Lloyds, Barclays and HSBC has caused a number of companies to adopt a similar ‘PAYE only’ policy, with asset management firms Royal London and Northern Asset Management the latest to follow suit.

However, there’s also early indications that companies are considering the potentially negative impact of such a ban on business. This is likely to be on the advice of experts who warn that a ‘PAYE only’ policy could end up being more costly for businesses in the long run.

Many contractors are planning to raise their rates by 20% to compensate for loss of earnings working inside IR35. Companies will also have to factor in additional costs such as pensions and sick pay if they take contingent staff onto their payroll.  In addition, the severe disruption to projects should contractors decide to walk is giving companies pause for thought.

M&G Investments has put back their cut-off from December 2019 to March 2020. Similarly HSBC, the very first bank to initiate a ban on limited companies, has told some contingent staff that their contracts will extend to the end of March, taking them right up to the April deadline.

Of course, the ban isn’t just a question of costs, with many companies stating that they’re adopting a PAYE only policy to avoid compliancy risks in the absence of adequate guidance from HMRC. Industry spokespeople have said that the blanket decisions are a gift for the Treasury, who won’t need to carry out future compliance tests for those companies.

Yet it’s doubtful that the ban on limited company contractors will prove feasible in the long term. IT outsourcer Harvey Nash interviewed 350 businesses who use a high quota of contractors. Over 80 per cent believed that the impact of the reforms on their business would be negative. While a number of firms might initially take a ‘reactionary’ approach to the changes, once the dust settles they may be compelled to determine status on a case-by-case basis.

In the public sector, the need for firms to retain access to essential skills forced many companies to revoke their blanket determinations. This has seen some private sector firms take note and adopt a more compliant approach. Infrastructure firm Balfour Beatty has told all limited company suppliers that they are currently being assessed so that individual decisions on their IR35 statuses can be reached. Meanwhile, the energy and industrial services provider Wood Group has engaged a tax adviser to assess its PSCs’ IR35 status on a case-by-case basis.

There’s a risk that forcing contractors onto the payroll could permanently damage the relationship between the engager and their contingent workforce. News that IT contractors at RBS are considering legal action against the bank suggests such a scenario. Despite the fact that the finance sector is heavily reliant on ‘techies,’ RBS is facing accusations that they haven’t been transparent about changes in contractors’ rates following their ban on limited companies.

There’s also the possibility that Parliament may rule that blanket decisions don’t qualify as taking ‘reasonable care’ when it comes to status decisions. HMRC were heavily criticised for encouraging role-based assessments in the public sector, with lobbyists demanding redress.

The problem is that pressing issues like Brexit and the NHS are likely to dominate the build up to the election. Although the Lib Dems have promised to review IR35 in their manifesto, there’s been little mention of the reforms from party leaders in their pre-election agendas so far. Despite this, the Treasury has made it clear that it remains committed to pushing the reforms through on schedule.  

This content has been supplied by IR35 Guru.

Contractors are being urged to prepare for the change by familiarising themselves with IR35 legislation, keeping up to date with any changes, and seeking expert advice where necessary. Umbrella Exchange offer a wide choice of service providers for the contracting industry, to speak to a member of our team call: 0203 393 3881