HSBC bans its consultancies from supplying limited company contractors

[WordIsBond]

So, what happens if someone forms a consultancy in which all the contractors are PAYE employees but also shareholders, each with two shares redeemable by the company for £1 when they leave employment, each paying £10K dividends a year? Which lets the employee gift one or both of his shares to his spouse, and/or at least take advantage of the dividend allowance?

They wouldn't be PSCs, and the consultancy wouldn't be a PSC, and if you had enough of them, none of them would own more than 5%, anyway, which would put them outside IR35, I think. The guy running it might own more shares (of a different class, say), so he keeps control.

The tax hit would be high but there wouldn't be any PSCs involved and it would be better than brolly.

Just wondering. Asking for a friend, shall we say.

[jamesbrown]

So, what happens if someone forms a consultancy in which all the contractors are PAYE employees but also shareholders, each with two shares redeemable by the company for £1 when they leave employment, each paying £10K dividends a year? Which lets the employee gift one or both of his shares to his spouse, and/or at least take advantage of the dividend allowance?

They wouldn't be PSCs, and the consultancy wouldn't be a PSC, and if you had enough of them, none of them would own more than 5%, anyway, which would put them outside IR35, I think. The guy running it might own more shares (of a different class, say), so he keeps control.

The tax hit would be high but there wouldn't be any PSCs involved and it would be better than brolly.

Just wondering. Asking for a friend, shall we say.

I think a fundamental problem with this type of model, regardless of details, is that you have a bunch of contractors and not necessarily much trust or ability to ensure that everyone else pulls their weight. In other words, a lot of risk. I wouldn't even do this with people I did trust. Not worth the hassle.

[unixman]

I don't think it's difficult to handle. There will be plenty of contractors willing to go inside. The market isn't exactly great at the moment. Clients don't have to do much at all. They can carry on being risk averse regarding IR35.

Banks have to procure talent from the labour market, just like everyone else. They might save money one way, but it will just add to costs elsewhere. Eg:

Pay a PSC contractor a high rate and pay HR to manage the IR35 risk.
Pay an umbrella contractor a high rate, reduce risk.
Pay a permie a wage and pay HR to administer, pay perks and eventual redundancy to employee and big NICs to HMRC.
Pay a very high rate to a consultancy and pay Purchasing dept. to administer.

HSBC might huff and puff, but there is only so much talent out there and a free market operates.

[ladymuck]

I wonder if there's a bit of returning a favour going on...

HSBC to stay in UK after bank levy climbdown - Citywire

[Paralytic]

given the latest "guidance" on where liability will fall, this whole IR35 mess is going to be more difficult to handle than many have predicted.

I suspect the "no umbrellas" is Chinese whispers. I can't believe Barlcays will do that. I don't think its that difficult to handle - the banks have made it very simply. Not very palatable for contractors yes, but not complicated for those banks have have simply disengaged from PSC.

[Paralytic]

Just wondering. Asking for a friend, shall we say.

Many other "friends" have posted this question on other threads. It simply won't work. In determining IR35 status, HRMC "look through" whatever commercial arrangement is in place. If the working practices of the person is employee-like (as per the 3 pillars) then they are inside and it is the responsibility of the fee payer to pay the equivalent rate of PAYE as an employee would pay.

And that's completely ignoring the chance of a new consultancy getting on a clients supplier lists. Or would you propose the individual consultants would go via an Agency? And what would that contract look like? And how would dividends be paid when one person bills @ £500 for 200 days a year but another only bills 50 days that year? Does everyone still get the same, or do you then have different class of dividends for each consultant so people can get paid what they bring in?

[SussexSeagull]

Only if the talent has somewhere else to go.

If they don't make it worth it people aren't going to travel from round the country to the City. Money talks and by doing this they are putting themselves in the pack with other industries.

[BrilloPad]

If they don't make it worth it people aren't going to travel from round the country to the City. Money talks and by doing this they are putting themselves in the pack with other industries.

They will get offshore the work.

[krytonsheep]

So, what happens if someone forms a consultancy

In one of the IR35 reform docs it mentions ( this is for public sector reforms, but guessing it applies to private sector).

The new legislation will apply not only to employment agencies and employment businesses but also other types of business that supply workers to a public sector client, such as a consultancy or outsourcing specialist. The government thinks that if this broader definition were not applied, it would be relatively simple to avoid the effect of this change by restructuring contracts to be about service provision rather than a supply of a worker

[fidot]

So how is this not affecting Capita etc?