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Lloyds shows limited company contractors the door

Lloyds shows limited company contractors the door

Lloyds Bank is the latest firm to announce that they won’t engage contractors who work through a personal service company. In a long-awaited decision, Lloyds announced that their contractors will now be considered off-payroll workers and cannot work through their own limited companies. Going forward, they’ll be given these three options:

  1. Leave the company at the end of their contracts
  2. Take a permanent job if  they have the right skills
  3. Join an umbrella company

Like Barclays, HSBC and Morgan Stanley, Lloyds are making the decision not to engage limited company contractors ahead of next year’s off-payroll changes. From April, the end-client will be responsible for using CEST to determine if a contract falls inside or outside IR35.

Given that CEST has proven unreliable in the past, with HMRC failing to provide sufficient guidance, firms are attempting to avoid liability for incorrect determinations by introducing a PAYE only policy. This effectively sees them sidestepping CEST and the need to provide contractors with status determination statements.

In August, 1,500 contractors at the pharmaceutical company GlaxoSmithKline were sent letters warning them that they could face investigation. It’s not the first time HMRC have sent out this type of correspondence, the difference being that the buck no longer sits with the contractor, but with their client or agency.

With complex and confusing legislation to navigate, many companies don’t feel confident monitoring their compliance with the new IR35 rules. However, the decision to end all engagements with limited companies doesn’t appear to take into consideration the inevitable loss of many skilled contractors.

In the public sector, where the off-payroll reforms were introduced in 2017, blanket IR35 assessments resulted in many contractors walking away from their engagements. Many organisation like the NHS suffered massive staff shortage that severely impacted their services.

Although this approach is expected to produce a domino effect, the action could be seen as short-sighted. Sectors like banking rely heavily on short term contractors in areas such as IT, but wouldn’t necessarily have the funds to employ these staff full time. IT contractors, however, can work across most sectors, and many are likely to walk away from engagements rather than take the 30% pay reduction that going PAYE would involve.

This could leave many companies without access to essential skills and the rising cost of engaging contractors via agencies under PAYE. There’s also the cost of disruption to projects as replacements have to be drafted in and brought up to speed. While there were no further updates on the effective dates of the changes for Lloyds, it’s likely that knowing their options, limited company contractors will choose to act sooner rather than later.

For more information on the off-payroll working rules, download our free guide here.

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