IR35 – Seismic shift for off-payroll contractors

​Several large companies affected by the extension of the off-payroll IR35 rules next April have started to curtail their use of contractors working through personal service companies (PSCs) as the landscape of freelance working looks set for a seismic shift.

With six months to go, Barclays has now joined HSBC in reviewing its “third-party resourcing arrangements” in the light of the rules changes. HSBC contacted contractors earlier in the year to say they would no longer engage those working through limited companies. Existing contractors will need to choose either to move to PAYE employment or cease working for the bank.

It’s not just the large firms themselves who are reviewing these working relationships. HMRC wrote to around 1,500 contractors working for GlaxoSmithKline through PSCs telling them to check their status and ensure they are genuinely self-employed and meet the determining requirements.

With the new rules falling on larger companies initially, some may shift the responsibility for contracting workers to managed service providers, who can take on contractors working through PSCs and would be responsible for paying tax and NICs. The anxiety for many freelancers now is that the complexity of the rules, and potential burdens for non-compliance, mean that companies affected may simply opt to avoid any direct personal service company contracts.


Meanwhile the tribunals have been busy again, with the implications of their decisions adding to the confusion. Where earlier in the year some presenters who had worked for the BBC won their tribunal cases appealing against HMRC’s IR35 determinations, most notably Lorraine Kelly, the tables have now been turned. In September three different presenters working for the BBC through PSCs lost their cases, to the tune of £300,000 of tax owed, largely as employers’ national insurance contributions.
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While the three judges didn’t entirely agree about the IR35 status of the three presenters, they were clear that the ‘imbalance of bargaining power’ was an important determinant in the case. Despite the losses, the judgement stated that the presenters and their advisers had acted in good faith.
The range of different judgements from tribunals, lack of trust in HMRC’s status determinations and potential liabilities mean that many contractors may find the employment landscape difficult to navigate in the next year. If you may be affected, please get in touch about your options.

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