Lloyds’ blanket ban denial turns IR35 risk ‘real’ for its limited company contractors

A disclosure by Lloyds insisting that it has not run 'blanket' off-payroll assessments and still uses PSCs has backfired, because it appears to expose the bank’s contractors to an IR35 risk.

Before the disclosure, made by Lloyds in reply to a supplier, experts said the bank’s ability to control its contractors’ days and work, was not an IR35 issue if they were all umbrella staff.  

But addressing a charge by the supplier that Lloyds Banking Group failed to take ‘reasonable care’ on IR35 status and instead just banned all PSCs, LBG said it actually still uses a few.

'Escalation process'

“We are aware of projects where the Group is continuing to engage contractors via PSCs,” Lloyds said in a reply on a workplace incident reporting tool, shared with ContractorUK.

“[So] we have not issued a blanket ban on the engagements with PSCs as you have alleged.

“Indeed, there is an escalation process [in place at Lloyds] to assess if there is a business case to engage with a contractor on a PSC basis.”

While the disclosure may serve Lloyds well once the ‘reasonable care’ clause in next year’s off-payroll legislation passes into law, in the nearer term it might unsettle its existing PSCs.

In fact, if moved to ‘essential work’ not their contracted work (a transfer Lloyds has made due to COVID-19), IR35 experts say it signals Control, Mutuality and lack of Financial Risk.

In addition, if Lloyds has controlled the PSCs’ days by reducing them from five to three (as it proposes for all contractors from the middle of this month), then it further signals Control.

'Lloyds kicking the IR35 can down the road'

An agent who places contractors at financial firms said: “Assuming those remaining PSCs are operating outside IR35, then yes, this [controlled days and tasks] is a big IR35 risk.

“But it sounds like Lloyds are kicking the IR35 can down the road, and that they will deal with that particular issue later on.

“Or they won’t -- as don’t forget the IR35 risk is with the contractor -- under the existing legislation, so this probably isn’t a consideration for big firms like Lloyds right now.”

'Scandalous'

Research by Qdos, published this week, shows that just over half of limited company contractors decided by their engager as ‘inside’ IR35, now plan to revert to ‘outside’ IR35.

The Lloyds supplier reflected: “It’s interesting how LBG suggests they have made exceptions for some people to work via PSC outside IR35.

“By contrast, some PSCs have rather tragically just had their contracts cancelled by Lloyds, and there's a scandalous suggestion that the bank will try to control the hours of the 3-day week.”  

Asked to elaborate, the supplier said contractors fear they face shifts like 0900-1400 or 1000-1500 and paid for the equivalent (three working days), but asked to do the shifts Monday to Friday.

'Real risk'

Reflecting last night, IR35 status firm Bauer & Cottrell told ContractorUK: “There is a real risk for any [PSC] contractor claiming to be outside IR35 where they have simply been moved around and had their working time reduced from what was previously agreed.

The firm’s co-founder Kate Cottrell advised: “I would expect to see at the very least an agreed, signed contract amendment. 

“We know HMRC are extremely busy with other work at the moment and they have put current investigations on hold, but this does not mean that just because we have this dreadful virus, HMRC won’t pick up on these [potential] cases at a later date.”

'Taxman duty-bound to collect'

The former tax inspector reminded that the Revenue is “duty-bound” to collect the “correct amount of tax,” and also reminded that the revised off-payroll framework is “still on the table.”

“Before working outside IR35 [again], contractors must make sure their contract belongs there,” said Seb Maley, the chief executive of Qdos, referring to his firm’s research.

“[And although] IR35 insurance will protect them in the event of an HMRC investigation…a client has to agree to engage outside IR35 contractors once again”.

'12-month service threshold to WfH'

But at Lloyds, the bank no longer agrees that working from home is the right response to its contractors -- not in relation to IR35, but to COVID-19.

“LBG are only allowing contractors with more than 12 months' service to work from home,” one of the bank’s contractor says.

“[That’s] even if their work can be done from home…[like mine] only needing a computer with systems access”.  

Problematically, Lloyds is requiring the 12-month service to be uninterrupted “which screws any contractor who has a gap in their project…[even though] they only recruit on rolling 6-month contracts anyway."

'Churlish'

“Or I can choose suspension without pay,” the LBG contractor added.

“It's an absolute outrage given that they have also refused to allow [most of] us to switch back to PSC and we're not therefore eligible for the [government's] furlough scheme.”

“This does seem rather churlish to me,” reflected Natalie Bowers of niche recruiters Bowers Partnership, which says all its contractors are at clients allowing ‘WfH’ due to the pandemic.

She added: “It will feel like to affected contractors that Lloyds doesn’t trust them -- as a workforce. Or maybe the bank just doesn’t have the necessary governance and effective management structures in place.

“Either way, I fail to see how length of service can be a determinate of a contractor’s ability to work remotely. Although let’s be honest, [working from home] is not – yet – as productive as being in the office for most of the contractors I speak with.”

'At least it's still work'

Yet one Lloyds contractor last night suggested that working from the office, working from home, or working a 3-day week with or without hours controlled, was 'at least still work.'

The contractor said Lloyds contractors have lost their contracts outright and been made jobless at five of the bank’s sites – starting with Speke, but also at Chester, Leeds, Cardiff and Chester.