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Contractors told to go on the payroll or quit: how big business is responding to upcoming IR35 changes

3-minute read

Sam Bromley

23 October 2019

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Contractors say that some of the UK’s largest organisations are forcing them to go on the payroll or quit ahead of IR35 reform in April 2020.

From April 2020 large organisations will determine a contractor’s IR35 status rather than the contractor themselves. Similar reform was introduced in the public sector in 2017.

But since then, HMRC’s interpretation of the rules has been disputed and there have been repeated calls to delay the legislation’s introduction.

Major banks going ‘risk-free’

With less than six months until the new rules are introduced, big banks have reportedly been reviewing the way they engage contractors. The bad news is that it’s not looking good for personal service companies (limited companies where the contractor is the sole owner and director).

HSBC, Barclays, Lloyds and Tesco Bank have all issued documents to staff outlining their risk-averse approach to IR35 reform. It’s risk-averse because as the status decision rests with the client, so does the liability for getting it wrong.


HSBC was first to detail its plans. ContractorUK reported in May that the bank would “cease engaging limited company contractors from this September”. A further ContractorUK report at the beginning of October quotes an HSBC insider as saying “a clear policy hasn’t been communicated other than – via a consultancy, renewal is possible, via a PSC, no renewal.”

The same report says that some contractors met with HR to prove they were outside IR35 but were instead “terminated with immediate effect.”

With the Tweet above seeming to confirm HSBC’s approach, IR35 advisory firm Qdos Contractor said the strategy is like “using a sledgehammer to crack a nut."


Personnel Today reports that Barclays won’t be engaging “contractors who provide their services via a personal services company, limited company or other intermediary” and contracts won’t be extended beyond February 2020.

But contractors can continue working for Barclays “on a PAYE basis (via the agencies and managed services providers they currently use).”


Contractors at Lloyds face a similar situation to those at Barclays – go on the payroll or quit. ContractorUK quotes a Lloyds contractor writing on their forum: “All PSC contractors will need to convert to perm or umbrella by 29th Feb or leave the group by 31st March. There is no CEST assessment being undertaken [and] nobody will be deemed in or out IR35”.

Tesco Bank

A further report from ContractorUK claims that Tesco Bank won’t be renewing contracts beyond March 2020. And if limited company contractors have already agreed to go beyond March 2020 Tesco Bank will be ‘blanket assessing’ them as inside IR35.

A memo also reportedly says there won’t be any rate rises to compensate for the new status determination. But it also states that these are “stop-gap measures”, which gives contractors hope that the organisation will settle on a better long-term IR35 strategy.

What about other companies?

The banks use lots of contractors so IR35 reform is particularly challenging for the sector.

IR35 expert Kate Cottrell also speculates that because the banks use lots of contractors, they’re making the most of the opportunity to put larger scale policy changes in place.

It’s not just hitting financial services. Contractors at pharmaceutical company GlaxoSmithKline (GSK) are also claiming they won’t be hired through their personal service company.

This comes after HMRC sent letters to 1,500 contractors at GSK, nudging them to use the Check Employment Status for Tax (CEST) tool to work out whether they’re inside or outside IR35. The contractor then needed to send evidence to HMRC by 19 September to prove they were outside IR35.

Are these approaches compliant?

The approaches outlined above have only been communicated internally at their organisations. They might not become official policy and could just be short-term measures, as Tesco Bank have stated.

So-called ‘blanket assessments’ go against the spirit of the legislation, which says “reasonable care” needs to be taken in assessing a contractor’s IR35 status. Some experts, like Dave Chaplin from Contractor Calculator, claim this can only be done on a case-by-case basis.

And rather than being ‘risk free’ these assessments risk harming the workforce by making it less flexible. As Seb Maley, CEO of Qdos Contractor, says when discussing Barclays’ decision: “they will lose out on the flexibility and savings achieved when compliantly engaging contractors outside IR35 – something that we expect most private sector firms to continue enjoying when the changes arrive.”

What do you think about the measures taken by the banks? Let us know in the comments below.

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