Lloyds' consultancies shouldn’t despair, but they must act

You don’t have to listen hard to hear the despair dripping of the few words that shocked consultancies have mustered up, after Lloyds Banking Group outright banned them supplying it with PSC contractors, in a move copied off HSBC.

Well I say, despair not. But do make some quick accounting and administrative moves to defend against what’s been correctly called the big banks ‘overreaching’ as they try to punch through IR35 reform, writes former tax inspector Carolyn Walsh, managing director of Andraste Accounting.

The one-two

Firstly, your own consultancy is not a Personal Service Company (PSC) and the company profit isn't subject to deduction under PAYE. However, because a PAYE deduction could now be made on your consultants’ rate plus your margin, your accountant will be able to reclaim some part as an overpayment.

Secondly, be aware that your consultancy may already fall under the ‘Agency Legislation’ (Chapter 7 of the Incomes Tax [Earnings and Pensions] Act 2003). And if you are denied the opportunity to pay the consultants supplying services as limited companies, you may have been required to pay them under PAYE anyway, either under your PAYE scheme or via an umbrella company.

In that case, you’ll likely need to either renegotiate rates with Lloyds Banking Group to cover your costs as the employer, or renegotiate pay rates with the contractor-consultants to allow your company to pay your inflated employer costs. In turn consider -- if there is an opportunity to pay consultants through their PSCs and they are actually operating outside IR35, then their own accountants can likewise reclaim the overpaid taxes through their personal tax returns.

Get your head right for this going the distance

Whatever happens through this challenging time for your consultancy, think of these first few months of private sector IR35 reform (officially in force from April) as a stop-gap which can be managed, if your end-client (Lloyds in this case), and the consultants you supply, work with you. 

Please note: I say ‘in this case’ intentionally, as there are whispers that other banks are gearing up to follow suit in canning not just their own intake of PSCs; but their usage of PSCs provided by consultancies too.

Stay nimble, light on your feet

Next, be on stand-by, because there will be opportunities to take on contracts which do not require the ‘personal service' of an individual, many of which will fall outside IR35.

So, small business owners like consultancy-owners need to find a way to survive the first few months of IR35 reform or, for some we know of who are affected, the first few months of their new shiny consultancy’s existence! One can only imagine how unfair it must seem to put all that effort -- and take that risk -- into establishing a new consultancy business, just to have it ripped away with very little notice by a corporate giant who doesn’t like the look of risk-taking.

Final questions/considerations before you fight back

But even these brand new consultancies should try to stand firm. To find the time to do the above, why not outsource some of the administration you would usually stress yourselves with? Perhaps get an IR35, tax or accounting adviser on board to work towards moving your business out of the reform’s reach? Do you have contacts you already know, maybe on LinkedIn, who could assist you and your consultancy with getting it into procuring projects, rather than simply supplying labour or personal services?

It's been accepted by the government (according to the few impact assessment which they have run), that small businesses may suffer increased employer and administrative costs under the off-payroll working rules. This has been deemed by HM Treasury and HMRC to be acceptable collateral damage, but giving up without a fight means a 100% chance of a loss and that really isn’t unacceptable.

Profile picture for user Carolyn Walsh

Written by Carolyn Walsh

With over twenty years’ experience in the sector, Carolyn assists freelancers, contractors, agency and umbrella company workers, interpreting tax legislation and guidance with a no-nonsense approach.
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