Barclays to operate PAYE on all contractors, will others follow suit?

Barclays have this week announced that they will only engage contractors on a PAYE basis from the end of this year, and other organisations such as GSK and Lloyds are expected to follow in their footsteps.

It is a real shame that these organisations have not waited a little while longer when we should have the final legislation and updated guidance from HMRC on a host of issues such as the definition of “reasonable care” and what a client led dispute resolution service will look like.  However, from the organisations perspective, where they have lots of contractors, complying with the new rules amounts to a huge amount of work, expense and of course opens them up to significant financial risk.  We must not forget that they are also subject to the law on preventing tax avoidance, as well as, their Accounting Officer responsibilities.

No doubt the GSK nudge letters will have also influenced decisions to go down this path.  Some will not take this approach and they will be in a good position to engage the talented contractors they need.  We have seen how this has played out in the public sector – organisations will find a way to attract the skills they need.  We still have a few months to go yet before the new rules bite and we do not know the full details of the policies i.e. it is not clear from the wording if it will be possible to use an intermediary umbrella company.  Things could change and in the meantime contractors really do need to be pro-active now by having a clear picture of their IR35 status now, irrespective of the future in order to protect themselves from retrospective action by HMRC.  It is now all about the risk to all the parties in the chain and especially that of the contractor.

GSK’s actions here are totally understandable.  Any organisation that was aware that HMRC are of the view that 1500 of it’s contractors have incorrectly declared their IR35 status, as outside IR35 would likely do the same.  We do not know any detail of discussions between GSK and HMRC (if any) but we do know that HMRC has said their industry (pharma) is high risk of non-compliance.  Arguably this was a very clever pre-emptive move by HMRC to add pressure to GSK leading up to April.  This HMRC approach is also probably going on behind the scenes at other big clients with senior accounting officers in the firing line to conform to HMRC pressure just like we saw in the public sector.

On the basis that this activity is probably going on in other organisations, contractors need to take action now to establish their IR35 position and potential risks on any retrospective action by HMRC.