Financial firms rethink limited company contractor bans
The first signs of companies backtracking on their bans on limited company contractor hiring -- which they put in place due to IR35 changing from this coming April -- are emerging.
In fact, despite being one of the first financial firms to say it will stop engaging PSCs, M&G Investments has put back the cut-off from December 2019 to March 2020.
Similarly, the very first bank to initiate a halt on ‘Ltd’ hires, HSBC, has told some contractors that they now will be extended until March’s end, just before a blanket ban will apply.
The subtext seems to be that warnings from both IR35 experts and project-based contractors about the organisational problems that blunt bans could impose have finally got through.
“Scrapping contractors actually poses a bigger risk to these companies than IR35 reform does,” status advisory Qdos said on Friday, referring to financial companies in general.
“Contractors will likely leave, putting business-critical projects at risk. [While] those [contractors] who stay, will increase their prices to continue earning a similar amount.”
Colin Morley, director of Harvey Nash, agrees that “knowledge transfer” is “a worry” for private sector engagers, especially those inside the crosshairs of the reforms who want to be outside.
“We predict that there will be a merry-go-round of contractors leaving their current engagement where they are operating outside IR35, because the client will determine them inside IR35,” he said.
“They will leave because of the fear or a retrospective tax claim. So how can businesses mitigate the loss of the resource and the IP, so that BAU projects aren’t damaged?”
Seb Maley, chief executive of Qdos, reflected: “Companies who approach IR35 reform fairly and responsibly can really take advantage of the talent lost by those who don’t.”
He also said that PAYE staff actually cost more to the end-user, in financial terms, than taking on limited company workers operating “compliantly outside IR35”.
This little known fact may explain the revisions to their PSC policies being made at financial companies such as HSBC and M&G Investments.
An M&G insider said: “The story keeps changing here. First of all they said all contractors would finish by the end of the year. Now they are talking about extensions until March 13th 2020.”
Last night, a boss at a staffing agency put such extensions for limited company contractors down to potential disappointment with consultancy ‘solutions.’
“Consultancies are swarming over clients, suggesting that they are silver bullet to IR35 [reform],” the boss said. “But consultancies could actually increase [the engager’s] costs, and at the end of the day, the consultancies are just going to use contractors anyway -- the only difference being that they are not necessarily going to be subject to the same HMRC scrutiny.”