Tesco Bank blanket assesses all contractors as inside IR35 from March 2020

All limited company contractors at Tesco Bank will be declared inside IR35 if they wish to keep working with the bank beyond March 2020, ContractorUK has learnt.

Such PSC contractors will generally not be extended beyond that month; other than in rare instances which will require director-level approval, Tesco Bank (TB) said internally.

Contracts already set to run beyond March will be honoured, but with two caveats – that the PSC accepts they will be deemed inside IR35, and that there will no rate rise to compensate.

'Two camps'

Also in a memo seen by ContractorUK, Tesco Bank states awareness of how the draft IR35 rules treat ‘contracted out’ services, under which TB would be free from having to set status.  

“Tesco Bank sees off-payroll resource as falling into two camps: consultants and contractors,” reflects contractor accountant Alan Broome, managing director of tax advisory Acumenica.

“It's obviously going to be beneficial to be seen as a consultant rather than a contractor. In other words, start acting less like an employee and more like a business-owner.”

Addressing TB's PSCs further, Mr Broome said it meant no longer working to ‘job descriptions’ or ‘attending interviews,’ but setting ‘Scoping Documents’ or ‘SoWs’ after ‘client meetings.’

'Stop-gap measures'

Reassuringly for contractors whose services are not consultancy, or who just want to avoid inside IR35 working, the Tesco Bank memo characterises the changes as stop-gap measures.

In fact, although bank-wide, the general renewal ban post-March; the non-adjustment of rates promise and the inside IR35 blanket determination are measures pending Tesco Bank setting its long-term policy on PSCs.

“Even if these are a stop-gap measures, Tesco Bank doesn’t need to take this course of action,” says IR35 expert Seb Maley, chief executive at Qdos Contractor.

“Blanketing contractors is non-compliant and a risk-averse not to mention unnecessary approach to reform. It will result in huge skills gaps [for Tesco Bank] as contractors, with no choice but to work inside IR35 without a rate rise, will walk away.”

'Harsher stance'

Status specialist Kate Cottrell, a former tax inspector said: “Although [Tesco Bank’s] final and universal policy is not yet available, this bank is clearly taking a harsher stance than others.

“Even with director-level approval for a post-March extension, you will still be inside IR35. And contractors crudely forming consultancies just to bypass the rules will not be permitted -- by TB or HMRC.”   

Yet for resisting a total end to all engagements with limited company workers, as HSBC and other banks have announced, the Tesco Bank policy on IR35 could be seen as less draconian.


At Acumenica, Mr Broome said: “[It is] a more pragmatic approach [than other banks have taken] in dealing with their off-payroll compliance. Nonetheless, contractors still can’t sleepwalk towards April 2020.”

The co-founder of Bauer & Cottrell agrees on the latter point. “It may be that we will see these banking sector IR35 policies evolve, just like we saw with the public sector off-payroll rules [at taxpayer-funded bodies]. 

“Many had to change their policies to ensure that they could engage with contractors outside IR35 to attract the skills and talent they need. 

“In the meantime, all can take some action if only to properly understand all the implications of what appears to be happening now…[but in terms of practical steps, some TB contractors] probably need to create their last invoice in January or February to ensure payment – gross -- before 6th April 2020,” she said.

'The few contractors who choose to stay'

Yet without action from its side, like the setting of an April 2020-ready policy which takes back its changes, Tesco Bank now risks a contractor exodus, according to Qdos.

“If the [announced changes hold], Tesco Bank’s IR35 strategy will cost them more, as they will lose niche skills and pay employer NICs to HMRC on behalf of the few contractors who choose to stay,” Mr Maley said.

“Businesses cannot expect genuine contractors to be taxed as employees and continue working on projects -- Tesco Bank must know this.”

'Currently assessing'

Asked whether it has encouraged banks to take a certain approach towards private sector IR35 reform, a spokesman for UK Finance (formerly the British Bankers' Association) which has 200 banks at its members, said it does not comment on individual member companies.

A Tesco Bank spokesman said: “Like many other organisations, we are currently assessing how we manage off-payroll resource in order to comply with IR35 [reform]. Whilst we agree our future approach, we have implemented a number of interim measures. We will confirm our agreed approach soon.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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