Lloyds follows HSBC in banning consultancies’ limited company contractors ahead of IR35 reform

Lloyds Banking Group (LBG) has joined HSBC in banning consultancy-supplied limited company contractors, in an IR35 reform ‘domino effect’ that experts feared to ContractorUK.

Not even 24 hours after HSBC’s move, Lloyds quietly told all its third-party consultancies that they too can no longer use such PSCs, for any work or projects tied to LBG contracts.

Even tiny consultancies are caught up in Lloyds’ “knee-jerk” ban, seemingly at odds with the government’s intention that small companies should be totally exempt from the April 6 rules.  

“Just as we feared when we heard what HSBC had done, other…banks [are now] blindly following in blanket-banning consultancy PSCs,” says Orange Genie.

The contractor accountancy firm’s Helen Christopher adds: “This latest knee-jerk move by the banks is as worrying as it is frustrating, but there is just no telling some end-clients.”

‘We might shut, as our consultancy isn’t viable anymore’

Other than directly affected PSCs, it is Lloyds’ niche consultancies who sound worried the most. “Us small companies are supposed to be outside the April rules as we need flexibility

“But all our staff will now be taxed as PAYE, yet not all will stay,” says one. “We might as well cancel the deal [with LBG] and shut our firm down, as in no way is it viable anymore.”

Status advisory Bauer & Cottrell said: “This [announcement by LBG] is a red flag for any business who has been relying on the ‘small company’ exemption – in draft only at this stage.

“[Even if they are ‘small companies’ they] too need to take action to establish the risk and costs, not least because any client could now go down this route.

“And sadly it’s likely that clients like [Lloyds and HSBC] will be able to present this as ‘take it or leave it,’ as they may have immediate termination clauses -- on their part only.”

‘Look at termination provisions’

So consultancies regardless of size, inside financial services or not, should review their contracts as a matter of urgency, recommends the advisory’s Kate Cottrell.

“You need to establish what you have agreed to provide, and especially [look at] the termination provisions and any Change Control procedures,” she adds.

“Then, you also need to review the contracts your business has with your own PSCs. Plus, run the calculations to establish what the financial consequences are to you and your PSCs.”

‘Lloyds have no sympathy’

Sounding as if their business has already crunched numbers that don't stack up, a Lloyds consultancy said: “How are we supposed to provide expert resource now and deliver the deal [as per the] contract?

“The problem is made worse because Lloyds actually have no sympathy at this stage, and simply want to reduce the cost of the service we provide them with.”

Orange Genie’s Ms Christopher reassured: “I honestly believe that these decisions will be reversed in the months to come.

“End-clients will begin to realise that they cannot run their businesses efficiently and effectively. They’ll also see good talent snapped up by rivals being more forward-thinking.”

‘Consultancies wondering how they carry on’

As to what ‘forward-thinking’ looks like, the accountant replied by pointing out that many end-clients “absolutely want to assess their contractors correctly on an individual basis”

And others are “keen to find ways to work outside IR35”. But Lloyds’ and HSBC’s PSCs -- and consultancies -- will be “feeling very despondent and….wondering how they carry on,” she acknowledged.

“It will seem extremely unfair [to these parties], especially where they are also being expected to reduce rates as well,” confirmed Ms Cottrell, a former HMRC official.

“The most unfair part of it all is that we won’t have the final legislation until March 11th at Budget 2020. Oh, and HMRC has just told contractors to ‘do nothing until April.’ Tell that to those of them with mortgages, rents and families.”

‘Disingenuous, short-sighted’

A consultancy facing the banking sector reflected: “Thanks to this disingenuous, short-sighted approach [of banning us from providing PSCs], many small boutique specialist companies [like ours] will definitely go out of business. This is a fact.”

Mounting a fight back on Twitter, some PSCs and consultancies are trying to affect the business of those doing the banning.

“I have moved my limited company’s bank account from HSBC to Starling,” said one. “We would hope all contractors…blanket ban their use of the large banks’ [current and savings accounts in return for the banks’] blanket ban on the use of PSCs.”

‘Let’s hope the government is watching’

Reflecting on the tit-for-tat tactics, Ms Cottrell said: “I hope that government is watching this all very closely. A government, by the way, which claims it is the champion of small business. 

“In the meantime, the message is that whatever the size of your business you must prepare for the worst case scenario [under the April 6th changes to IR35]. And you must do that now.”

A spokesman for Lloyds Banking Group was invited to comment but had not replied by the time of going to press. A statement was also previously sought on Lloyds’ decision in October to ban PSCs – a move it made after HSBC pioneered the ‘cease and desist’ approach to limited company contractors.