IR35 blame game: Barclays to halt off-payroll contractors, goes directly to PAYE

No bailout for tech freelancers. Bank moves to avoid potential liability for tax, NI contributions

UK bank Barclays is to call time on all off-payroll working and shift its entire contractor base to the Pay As You Earn (PAYE) system to swerve potential financial implications of private-sector IR35 legislation.

Currently, the British tax collector requires freelancers that work like other full-time employees to self-assess their employment tax status and if off-payroll working rules are applicable, remit the right taxes.

The controversial ruling comes into force on 6 April in the private sector and ahead of this, Barclays is trying to protect itself from the pain that others in the public sector, where IR35 already applies, have had to endure, notably the BBC.

In a letter – seen by The Register – sent to contractors yesterday, the bank said that "as a consequence" of IR35, "Barclays will no longer engage contractors who provide their services via a personal services company, limited company or other intermediary."

"Instead, Barclays will engage on a PAYE basis only for new or renewed contracts," the letter continues.

Barclays said that under the new rules, it will need to determine the employment status of the worker, communicate this to the worker and the agency or intermediary involved, and then "communicate the reasons for the determination of the worker and resolves any disputes".

"In addition, the end user (Barclays) may be held liable for collecting the correct income tax and National Insurance contributions if HMRC fails to collect these from the payer or from other parties in the supply chain," the letter continued.

As such, the bank said it has reviewed third-party resourcing plans and "decided it will no longer engage contractors who provide their services via a personal services company, limited company or other intermediary."

Under the proposed timeline, Barclays will "not extend" contracts of existing off-payroll contractors. The bank's letter stated:

This means for contractors paid via agencies, contracts must not extend beyond the end of February and for contractors paid via procurement, their services must cease by 14 February and invoices submitted by 29 February.

From 1 January 2020, new contracts and contract extensions will be arranged on a PAYE basis only.

Contractors who provide their services via a personal services company, limited company or other intermediary, and who choose to continue working for Barclays can do so on a PAYE basis.

The development at the bank has understandably gone down badly with those involved in dealing with the possible fall-out of the legislation.

"While Barclays' reported approach to managing IR35 reform is short-sighted and unnecessary, it's important that contractors realise this is not a typical response. Nor do I expect it to become one," said Seb Maley, CEO at Qdos Contractor, a tax consultancy that specialises in IR35.

"If the bank is to go ahead with this, they will lose out on the flexibility and savings achieved when compliantly engaging contractors outside IR35 – something that we expect most private sector firms to continue enjoying when the changes arrive."

Techies freelancers judged to fall within the boundaries of IR35 will pay as they earn and cough National Insurance too, just like full-time staffers on the payroll, but they will not accrue holiday pay, sick leave or other benefits.

Dave Chaplin, CEO at Contractor Calculator and IR35Shield.co.uk, said he has already heard from Barclays contractors that are going to jump ship in December.

"As I've said before, there's going to be the biggest game of musical chairs in the contracting industry as every contractor tries to grab a seat with 'outside IR35' written on it," he added. "Barclays are going to write PAYE on all of theirs."

Ironically, HMRC suffered so-called brain drain when IR35 was implemented in the public sector.

According to a survey yesterday by Brookson Legal, it is estimated some 170,000 self-employed contractors will be hit by IR35.

The Register has contacted Barclays for comment and is awaiting a response. ®

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