IR35: companies get cold feet with blanket ban on Personal Service Companies

16th Oct 2019

With less than six months until the April 2020 deadline for the private sector rollout of IR35, Nigel Morris, Employment Tax Director says big companies are taking pre-emptive action, imposing a blanket ban on contractors working through Personal Service Companies (PSCs), which is contrary to the intent of HMRC’s new IR35 rules.

Nigel discusses this ban on Personal Service Companies further:

“An increasing number of big companies, including Barclays have ramped up preparations for the new IR35 rules by imposing a blanket ban on contractors working for them through PSCs from April 2020. This may be an unintended consequence of the new legislation; the aim of the new rules ostensibly being to ensure individuals are treated on the merits of their own specific circumstances.

“However, the fact that the new rules have still led to this situation, especially after similar issues arose in the public sector when the same IR35 rules were applied, suggests that HMRC believes legitimate PSC engagements are relatively rare. Needless to say, this is bad news for the many contractors whose work falls outside of the IR35 rules.

“Moves towards a blanket ban are happening now because contracts in some sectors, such IT, are often three to six months in duration, so the April 2020 introduction of the new rules is now near enough to trigger action. The fear is that the administrative burden brought about by the new rules will be too onerous and expensive. In particular, the end users of services will be required to perform assessments of the roles undertaken by PSC contractors to establish whether the new rules apply. This will be an expensive task for businesses with many such engagements to consider. Some companies may have as many as 5,000 PSC contracts to examine.

“This is a very unfortunate development and will adversely affect contractors in IT, project management and other types of consulting work. Depending on the nature and scope of the services provided, it is quite legitimately possible for some PSC engagements to fall outside the scope of IR35. Businesses may think a blanket ban is an easy way to avoid administrative problems, but such a ban may in fact result in unnecessary increases in costs through higher tax and National Insurance payments plus a potential inability to recruit and retain workers.”

Need advice for your IR35 planning?

To find out more about the advice we can offer your organisation to help prepare for IR35, visit our business information page here or get in contact with our Employment Tax Director, Nigel Morris on +44(0)7718 340 634 or by email at nigel.morris@mhllp.co.uk

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