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

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.