Following a tip-off back in October that GlaxoSmithKline was planning to blanket determine contractors as inside-IR35, Larsen Howie has received an email from an anonymous source confirming that the pharmaceutical corporation is doing exactly that. They’re offering their flexible workforce an ultimatum: go PAYE or terminate your contract.
GSK cites the IR35 reform as the reason for this contractor cull, stating that ‘in response to the change in off-payroll workers legislation that comes into effect in April…from 2020, UK agency workers will be engaged on a PAYE only basis.’
GSK IR35 communication email is ‘poor’
The email itself is a short communication put together by GSK and delivered by Lorien, a prominent UK contractor recruiter that specialises in tech. It offers little to no solid information, simply stating that current contractors will be pushed to PAYE or terminated from Q1 2020 – leaving just over a month to make their decision.
Despite GSK’s reassurances that they ‘consider agency workers to be a vital part of their workforce’ and that ‘the decision was made following a thorough assessment of work practices’, the pharma company issues an explicit ultimatum in the very next paragraph. The email reads:
‘This change means that those of you who work through a personal services company will have a choice to make over the coming weeks – to move to a PAYE contract and remain working with GSK, or to complete or terminate your existing contract.’
‘GSK has advised that they want you to have time to consider your options and have asked that you inform us [Lorien] by 31 January 2020 whether you want to remain working with GSK.
Should you wish to remain working with GSK you will be moved on to a PAYE contract in Q1 2020. Should you wish to leave GSK you can remain on your current contract until the current end date. GSK has requested that you inform them of your intention to leave by 31 January 2020.’
GSK takes risk-averse approach to IR35 after HMRC ‘nudge’ letters
This push to PAYE comes after the mass HMRC IR35 'nudge' letters sent out late August targeting approximately 1,500 GSK contractors. These letters asked contractors currently engaged by GSK to check their IR35 employment status and to subsequently prove that they’re genuinely self-employed.
GSK has made the ‘safe’ decision to sidestep IR35 altogether, without waiting to receive any results from the letters and with no apparent effort made to review each contractor’s case individually. However, this route is not as risk-free as it may seem.
Larsen Howie’s Head of Tax, Andy Vessey ATT, has spoken out before on why blanket decisions are not just bad for contractors, but why ruling out a flexible, specialised workforce is also a bad business move for the companies that use them.
“This is a short-sighted, disappointing, and lazy attitude to take," Vessey says. "It is similar, however, to HSBC’s response to the IR35 reforms that were publicised earlier in the year. HSBC’s original communique was also badly worded and one they had to clarify.”
The likes of HSBC, Lloyds, Barclays - and now GSK - who’ve announced a limited company contractor cull could well be shooting themselves in the foot. By taking such a stance, they’re ultimately directing highly skilled contractors with detailed knowledge of systems and processes to competitors who are willing to embrace the IR35 reform. The medium-large companies that are willing to work with contractors to legitimately preserve their self-employed status will enjoy the cream of the crop with little competition, resulting in coups that could prove business-defining for certain underdogs in the financial and pharma world.
What can businesses do to prepare for IR35 without blanketing?
Charlie Cox, Commercial Manager of international staffing company Sthree, is vehement on the subject of blanket employment status determinations and the ongoing private sector contractor cull.
“If you or your organisation are thinking about determining that all of the contractors who supply services through a limited company to your business will fall within the Off-Payroll Working rules (you consider them all to be Inside IR35), you absolutely should not do this,” he says. “Not only is it illegal, but it will also not likely be an accurate reflection on the actual status that should be applied and is also not treating each assignment individually, as you should do in line with the legislation, taking reasonable care.”
There are many routes that businesses can take to proactively prepare for the IR35 reform, however, including identifying the number of workers who currently operate via a PSC or limited company, determining if IR35 applies to any contracts and working practices that extend past April 2020 and assessing arrangements involving complex labour supply chains.
The most important thing to remember when preparing for IR35 is that collaboration is key. Make sure to maintain good communication during the whole process and encourage openness throughout the supply chain to minimise the potential for any nasty surprises while maintaining – or even building on – trusting business relationships.
How Larsen Howie can help you prepare for IR35
Should you want some peace of mind, whether you’re a contractor, recruiter, or end-client, we offer a full contract review amongst other services to help you prepare for IR35. We’ll give a pass or fail based on the current contract held, along with comprehensive comments on how to improve any problem areas. Additionally, we offer IR35 investigation representation from our Head of Tax, resident IR35 expert and cornerstone off-payroll Jensal Software case defence, Andy Vessey ATT should it go to tribunal.
For any further information or advice, please call us on 01163 800 400 or drop us an email. Alternatively, take a look around our Knowledge Hub for more IR35 advice, industry news and contractor guides.