What’s really behind December’s slew of companies canning PSC contractors

It would be much simpler if there was only one reason why end-clients have used the final few weeks of the working year to put their policies on private sector IR35 reform in place.

The truth is, there is actually a combination of reasons behind this last-minute burst of ‘no PSCs anymore’ corporate decisions. Yet they do all add up to one thing -- risk, writes former tax inspector Kate Cottrell, co-founder of IR35 advisory Bauer & Cottrell.

• There’s the financial risks of administering the new IR35 rules from April and critically for end-users in terms of liability, the risk of getting things wrong. 

• Given the vast numbers of contractors which even just a few of the end-users to have this month banned PSCs are using, there’s the risk of running out of time.  Remember, we have around just two clear months left (February 28th, say. if invoices are cleared before April 6th), before the new rules are scheduled to bite. It would therefore be impossible for those with thousands of contractors to play by the new rules and undertake individual assessments of IR35 status.

• If the corporate newcomers to banning PSCs have a lot of contractors, and they believe most would be inside IR35, then they already face the risk of losing their PSC contractors eventually, before even getting to the point of trying to comply with or reflect the April rules.

• These end-users run the risk of adverse consequences from a lack of IR35 training and experience, internally from those personnel who would be assigned duties and obligations under the reformed IR35 legislation. The end-user staff (especially in the HR department) are unlikely to be trained in IR35, and certainly will not have the necessary experience to handle the many processes required, even if the end-user chooses to just stick to CEST.

• A ‘no-PSCs’ approach would satisfy other compliance issues for Accounting Officers around tax avoidance.

• The same ‘no-PSCs’ approach means a reduction in the risk of budget overruns, as such end-users need not invest in software, and they have much less of a need to further ensure supply chain compliance.

The season of goodwill?

Given that it is currently the season of goodwill, it is entirely possible that these latecomers to the ‘PSC ban party’ are simply doing the decent thing.

So while risk is a determining factor, surely, it could be that these firms are simply doing the decent thing and making their positions clear before Christmas. At least this way, their contractors will know where they stand, and then may be able to address the serious shortfall in income that these legislative and (in turn) organisational changes will lead to for many.

My festive message

To my mind, the bigger question is whether such anti-PSC announcements at this late stage could still send a clear signal to the new government. And that signal should be decoded by the government to reveal the message – ‘Postpone the new rules and run the promised IR35 review very soon.’ If the rules are postponed, or pulled entirely, it would be very easy for the end-users acting against their limited company suppliers to simply say ‘as you were’ and let their PSCs carry on as before. For businesses, this would equate to no risk and no work to do.

Shelving or scrapping the April 2020 rules is the very best thing that the new government can do at this stage, not least because we are witnessing some very large organisations that have still not decided what to do about either IR35 reform or the impact of it on their many limited company suppliers, And goodness only knows what the UK’s many medium sized businesses are doing in preparation for the April 6th launch date.

We have almost run out of time, so let’s hope the new government takes some action (and fast), as promised to all their voters on this very issue of IR35 reform which was committed to by nobody less than the chancellor of the exchequer Sajid Javid.