Does IR35 mean that 'HMRC believes legitimate PSC engagements is relatively rare'

As the IR35 deadline is fast approaching and has already led to Barclays Bank and Lloyds Banking Group putting an end to contractors, with similar issues arising when the same rules were applied to the public sector, an employment director has asked does this mean that “HMRC believes legitimate Personal Service Company (PSC) engagements are relatively rare?”

Nigel Morris, employment director at MHA MacIntyre Hudson a chartered accountants, tax and business advisers firm holds this view.

Mr Morris said:

This may be an unintended consequence of the new legislation; the aim of the new rules ostensibly being to ensure individuals are treated on the merits of their own circumstances.

However, the fact that the new rules have still led to this situation, especially after similar issues arose in the public sector when the same IR35 rules were applied, suggests that HMRC believes legitimate PSC engagements are relatively rare. Needless to say, this is bad news for the many contractors whose work falls outside of the IR35 rules.

Moves towards a blanket ban are happening now because contracts in some sectors, such as IT, are often three to six months in duration, so the April 2020 introduction of the new rules is now near enough to trigger action. The fear is that the administrative burden brought about by the new rules will be too onerous and expensive. In particular, the end users of services will be required to perform assessments of the roles undertaken by PSC contractors to establish whether the new rules apply. This will be an expensive task for businesses with many such engagements to consider. Some companies may have as many as 5,000 PSC contracts to examine.

On the 3rd and 9th of October both Barclays and Lloyds, half of the “big four banks” announced they would be putting an end to contractors.

Barclays announced it will stop using off-payroll contractors through limited companies, which has been described as “a taste of the IR35 chaos to come” by the Association of Independent Professionals and the Self-Employed (IPSE).

Lloyds decided to either scrap contractors or force them in to umbrella companies, a move that was dubbed as “bad for contractors and bad for business” by IPSE.

Darius is the editor of HRreview. He has previously worked as a finance reporter for the Daily Express. He studied his journalism masters at Press Association Training and graduated from the University of York with a degree in History.