Should contractors be concerned with HSBC's plans for IR35?

Fears grow around HSBC's plans for IR35 reform

Rumours that HSBC has told the vast majority of its contractor workers that they have no choice but to become permanent members of staff if they want to continue working at the bank could well have substance.

For some time, it has been speculated that HSBC is planning to take what can only be described as extreme action to deal with incoming IR35 reform, which will be enforced from April 2020.

However, an article recently written by Contractor UK seemed to all but confirm this will be the case and that after ‘one further contract extension’ contractors must weigh up whether they would rather be cut loose or become an employee.

The article also explains that HSBC has created an exclusive ‘keep list’ of contractors, who will be able to continue operating through their limited companies as independent workers but only through a third-party from September. This third-party could be, for example, a consultancy firm, which would mean that they would become the ‘engager’ for IR35 purposes and legally responsible for making IR35 determinations.

While HSBC has yet to confirm or deny these reports, should they turn out to be accurate, thousands of contractors working with banks and in the financial services sector will be concerned that others will follow suit.

We’ve taken a look at why such a move would be unwise and unlikely to benefit HSBC in the short or long-term, nor the contractors it engages.

Why would this ultimatum be short-sighted?

When the IR35 solutions exist to help HSBC make well-informed assessments that not only protect the company’s liability but also result in accurate decisions, a ‘take it or leave it’ offer to contractors would be unnecessary. For HSBC itself, such a move could seriously impact its ability to attract contractors, who incidentally voted for the bank as the ‘Best Client’ in Contractor UK’s Reader Awards in 2017.

By and large, contractors want to continue working independently - whether that’s for financial reasons or simply for the freedom and choice it offers. Would the vast majority of contractors take HSBC up on the offer of permanent employment? At this point in time, it seems somewhat unlikely.

Given opportunities to work outside IR35 will remain in the run-up to and after the arrival of IR35 reform, you suspect that contractors will look to work elsewhere - with clients that are happy to engage them safely outside the legislation.

Is there a wider cause for concern?

Of course. As is the case with all these things, should it materialise, there is always the possibility that others could adopt HSBC’s reported approach to IR35. This is something contractors could be concerned about, along with the individuals currently working at the bank who are directly affected by these reports.

But it’s not a reason for contractors to panic - not least because as of yet HSBC hasn’t confirmed it. Additionally, it would be very surprising if other financial services companies took a similar view. After helping a number of end-clients prepare for the introduction of IR35 changes, Qdos is confident that many medium and large private sector companies will approach IR35 reform in the right manner. In doing so, we believe the mistakes made in the roll-out of public sector reform can be avoided.

Would this approach be IR35 compliant?

Technically, yes. If what is being reported is accurate, HSBC would be making a commercial decision before IR35 reform is introduced. In effect, this would mean that the ‘reasonable care’ clause in the legislation - something that critics would argue is being ignored - won’t apply.

Reasonable care is only relevant when it comes to IR35 assessments which, should it materialise, HSBC would not be making. However, that’s not to say it’s a wise or fair way of dealing with next year’s changes.

How could HSBC approach IR35 changes?

Knee-jerk reactions to incoming IR35 changes similar to those being reported should be avoided. HSBC, or any other medium or large end-client can manage reform by assessing IR35 on a case-by-case basis.

The best way for a business to be able to benefit from the skills and flexibility of contractors in years to come is by equipping itself with the expertise needed to make accurate IR35 determinations on a large scale.

Anything else, such as a one-size-fits-all solution or mechanism to remove the need to make IR35 decisions typically risks non-compliance or, as could well be the case with HSBC, will deter contractors.