Banks’ risk-averse approach to tax reforms could impede the financial services sector
The risk-averse attitude to incoming reforms to the off-payroll working rules shown by a number of high-street banks and financial services companies could stand in the way of their own and the UK’s economic recovery, warns tax specialist Qdos.
Ahead of changes to the off-payroll working rules (IR35 reform), which were due to take effect in April this year before being delayed by 12 months due to Covid-19, the likes of HSBC, Lloyds, Barclays, Santander and RBS reportedly announced they would not be engaging with contractors working through their own limited companies. Many opted to blanket place these workers ‘inside IR35’ or offer them no alternative but to work via umbrella companies or as an employee.
Despite the delay to the reform, many have upheld contractor bans. This is because from 6 April 2021, these companies will become responsible for deciding a contractor’s IR35 status – assessing if the worker provides a service in a self-employed manner or as an employee. As part of the reform, the party responsible for paying the contractor will shoulder the IR35 risk, carrying the liability.
Banks that decide not to engage with genuine contractors due to the reform could lose out on the skills, flexibility and savings independent workers offer, impeding the sector’s recovery from COVID-19 and in turn, the UK’s.
After the UK economy contracted by a record 20.4% in April, Qdos believes banks and other financial services companies that continue engaging contract workers, who together contribute £305bn to the economy annually, will be better-placed to bounce back.
Seb Maley, CEO at Qdos, said:
“The government is set to roll out IR35 reform next year and banks taking a risk-averse approach to the changes face losing contractors, who make up a vital part of their workforce. This could have a significant impact on banks, the sector and the UK’s economic recovery.
“After all, the vast majority of contractors do not want to work as employees or via an umbrella company. They simply want to work with clients willing to assess their employment status fairly.
“Contractors offer businesses specialist skills, unrivalled flexibility and savings, each of which will prove instrumental in helping the financial services sector and the economy bounce back from this crisis.
“These companies can still safeguard themselves without needlessly banning contractors due to the reforms, but only if they rethink their stance and start preparing for IR35 reform immediately.”
Banks and financial services companies can still engage with contractors after the reforms and safeguard themselves by following Qdos’s advice below:
- Conduct case-by-case IR35 assessments
- Do not rely on results provided by HMRC’s Check Employment Status for Tax tool (CEST)
- Collaborate with contractors, involve them in the decision making process
- Minimise risk with IR35 insurance
