Thousands of freelancers working for Lloyds Bank face losing their contracts or being forced to work under umbrella companies and taking a substantial pay cut, because of changes to the off-payroll tax rules (IR35).
In a letter sent to contractors on Tuesday (8 October), seen by Modern Work, Lloyds Banking Group announced that it would be changing the way the it engaged with contractors working through a Personal Services Companies (PSC)/Limited Company.
It said, while “contractors will continue to fulfil a vital role for the Group […] providing important skills and additional support,” the bank has no intention to “extend current engagements/ assignments with PSCs beyond March 2020 at the latest”.
In April 2020, changes to the off-payroll tax rules will come into effect in the private sector. This will mean companies that hire contractors will be responsible for determining whether an engagement falls inside or outside of IR35. If it falls inside, the contractor would face higher tax bills.
What does this mean for Lloyds contractors?
The banking group has offered two options for freelancers whose services are needed on a short-term basis.
The first is to have “new contract” through a PAYE arrangement or an umbrella company. The letter goes on to state: “We don’t intend to make changes to day rates for those that convert to an ‘umbrella/ PAYE arrangement’.”
According to the Financial Times, contractors who opt to work through a third-party umbrella company, face taking a pay cut of up to 30 per cent.
Lloyds contractors have been given until 25 October to decide which option to take.
Is this the end of contracting in the banking industry?
Lloyds Bank is the fourth major bank to announce it will no longer engage contractors. Last week, Barclays announced that they will no longer be engaging contractors via intermediaries. Instead, the bank will only take on contractors from umbrella companies, or Managed Service Providers, on a PAYE basis.
In July, HSBC also said contractors must either leave, take a permanent job, or work through an umbrella agency before April 2020.
Morgan Stanley has offered their existing contractors the options of leaving immediately or accepting a contract that is inside IR35. However, those who decide to work inside IR35 must become a permanent employee of the bank after 22 months.
Andy Chamberlain, deputy director of policy at The Association of Independent Professionals and the Self-Employed (IPSE), said: “This is a short-sighted and extremely damaging decision – and not just for the self-employed. It will be bad for contractors and bad for business.
“IR35 is impossibly complex, and for a long time, we have warned the government against forcing this complexity onto businesses across the UK. The risk is that they will panic, as Lloyds seems to have done, and harm the self-employed and the wider economy.
“The self-employed are an enormous asset to UK businesses and the economy as a whole. They provide businesses with invaluable flexible expertise and, as a result, add over £275bn to the economy every year. Decisions like this risk undermining that immense value.
“Perhaps worst of all, this may just be a taste of things to come when the changes to IR35 come into force next April. We urge the government to halt and rethink this dangerous policy. Now, facing an uncertain economic future, this country needs the flexibility and dynamism of the self-employed more than ever, and the government must do more to support them.
Modern Work did approach Lloyds Bank for a comment, but they declined to respond on the record.