While giants of the financial sector like HSBC, Morgan Stanley, and M&G Investments are taking the no-risk approach to IR35 – i.e. culling all limited company contractors – RBS has, refreshingly, approached the legislation with a level head.

The Royal Bank of Scotland is currently exploring ways to maintain its contractor workforce ahead of the April 2020 private sector IR35 rollout date. While the bank is yet to pin down any actualities, its commitment to flexible working provides a beacon of hope for contractors that typically work within the financial industry.

RBS gives hope to private sector contractors in the face of IR35

By way of announcing its ‘pro-contractor’ decision, the Royal Bank of Scotland sent out an email to its contractor workforce, offering reassurance and practical advice as to how the contractors can stay on the right side of the taxman, as reported by Contractor UK.

‘Staying outside IR35 is crucial for the financial health of contractors,’ the RBS email reads. ‘Nothing is certain in an IR35 case, but here we put together some factors that seem to point to IT contractors being outside IR35.’

While the email’s wording is somewhat cautious, RBS contractors can at least rest easy knowing that they won’t be given any ultimatums. In return for this investment of time and resource, RBS could well find itself a hive of self-employed talent before too long.

“RBS seems to be pro-contractor because as far as we can see [the bank has got] people looking at how they can maintain a contractor market to deliver change,” one PSC contractor said while speaking to Contractor UK. “There’re projects going on in the background to come up with viable and sustainable solutions [because] RBS will not be able to deliver strategic change without contractors.”

RBS to get the cream of migrating contractor crop thanks to IR35 awareness?

While there’s nothing in RBS’s email that any contractor worth their salt doesn’t already know, it’s a positive sign that the private sector IR35 reform may not be as rough as some predict.

Research from Brookson Legal found that just over half of engagers asked had already started preparing for the off-payroll rules, most specifically in regards to understanding how to implement the legislation fairly.

“These large financial firms like HSBC, Morgan Stanley, and M&G Investments could be shooting themselves in the foot by inadvertently directing highly skilled contractors to competitors who are willing to embrace the proposed changes and are willing to work with freelancers to preserve their self-employed status in a legitimate manner,” says Larsen Howie’s Head of Tax, Andy Vessey.

“I am not persuaded that these decisions are motivated by avoiding hiring a Senior Accounting Officer (SAO) unless the implication is that these financial institutions consider the ‘off-payroll’ rules an unnecessary inconvenience that they just can’t be bothered to engage with,” Vessey continues. “In which case, I believe there is credibility in that opinion.”

What steps should RBS take to ensure IR35 compliance for PSC contractors?

Committing to IR35 compliance with a sizeable contractor workforce is no mean feat, and an appointed Senior Accounting Officer will almost certainly be needed to keep the company-wide operation as smooth as possible. RBS will have to meet certain ‘reasonable steps’ criteria as outlined by HMRC in preparation for April 2020, for which this member of staff is vital.

“An SAO is personally responsible for making sure that a company takes reasonable steps to establish, maintain, and monitor the adequacy of their accounting systems for the production of accurate tax returns,” Andy Vessey explains. “The SAO must maintain and monitor the appropriate tax accounting arrangements and identify any areas which do not meet the requirements on an ongoing basis.”

Reasonable steps, according to HMRC, mean:

  • ensure awareness of all taxes and duties for which the company is liable;
  • ensure that risks to tax compliance are properly managed;
  • enable the various returns to be prepared with an appropriate degree of confidence.

Why have HSBC, Morgan Stanley and M&G decided to avoid IR35, unlike RBS?

While the idea of having to hire a dedicated officer for one piece of legislation would seem more hassle than its worth to many HR departments, Andy Vessey doesn’t think it’s necessarily the main motivator for big banks like HSBC to avoid IR35 altogether.

“SAO’s deal with more complex tax issues than employment status and, given that it should not be too difficult to demonstrate reasonable care in making status determinations, this is why I am doubtful that hiring an SAO is the decisive factor in these decisions,” he says. “It is more likely that the reason is media related. Speaking to a well-respected agency recently, their understanding is that the reluctance of these banks to engage PSCs in the future is driven by not wanting to receive adverse publicity for getting status decisions wrong and being taken to task for such.”

“Whatever the reason, I think it’s a lazy approach,” Vessey continues. “Such a policy should not be endorsed. However, these bankers are not trying to sidestep the reforms but rather avoiding them altogether.”

“I should not be so surprised that this approach is gaining momentum in the financial sector as I caught a whiff of this last year when talking to a senior member of another bank’s tax department, who displayed the same laissez-faire attitude.”

Hopefully, RBS has demonstrated to many large private sector businesses that contractors are worth the IR35 risk and that compliance is an investment in agile business resource.

Additional IR35 advice

If you’re concerned about IR35, we offer a range of contract reviews with comprehensive advice on how to stay outside the legislation. We also offer IR35 Tax Investigation & Liabilities insurance (TILI), which includes tribunal defence from our resident tax and IR35 expert Andy Vessey ATT as part of the policy. Andy is also available for IR35 training, conferences and specialist commentary on the off-payroll rules. Please get in touch.

You can also read more about IR35 and what you can do to minimise your investigation risk here.

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