HSBC Contractors 23% IR35 Rate Cut Shock – BEFORE Tax / NI

HSBC Contractors IR35 Rate Cut
HSBC Contractors IR35 Rate Cut

HSBC Contractors in IR35 Rate Cut

HSBC contractors in HSBC IT are being informed by their agency Reed that their rates will be cut by slightly over 23%.

A typical contractor there would have his, or her, rate cut from £600 a day to just above £460 a day.

HSBC Contractors at first thought that this would be their new income after PAYE and National Insurance is deducted.

Imagine their shock to find out that this reduction in their contract rate is BEFORE Income Tax and National Insurance are deducted.

This will mean that HSBC contractors will be keeping less than half of the rates that they are on now.

They will now, effectively, be employees of Reed.

Questions on HSBC contractors rate cuts

  1. When will HSBC stop hiring Personal Service Company contractors?
  2. When will current HSBC contractors have to leave?
  3. Who are cutting the contractors rates and why
  4. Why are the banks blanket banning Personal Service Company contractors?
  5. Do the Conservatives have Further IR35 Changes coming after the Election?
  6. Will the other UK banks follow the lead of HSBC?

When will HSBC stop hiring Personal Service Company contractors

From November 1st HSBC are no longer taking on contractors who use their personal service companies. It doesn’t matter whether they are outside IR35 or not.

All those HSBC contractors who work through Reed will effectively become employees of Reed.

Originally contractors were told that they had to convert by the end of January. If they refused they could still stay on till the end of February provided they ad a contract till then.

When will current HSBC contractors have to leave

Previously they were told that their contracts could be extended until those dates.

However, Reed contractors have now been told that they will have to either accept the rate cut and Reed’s PAYE / NI offer or leave immediately when their contracts end.

Many of the contracts are up in December. Those contractors originally believed they could renew their contracts and stay on up to the end of February.

Now HSBC Contractors are being told that unless they take the rate cut and Reed offer they will out of work over Christmas. Christmas and the New Year are notoriously quiet times for hiring contractors.

Who are cutting the contractors rates and why

Verbal and written communication from Reed seem to suggest that it is HSBC cutting the rates – but they are ambiguous. However, it seems that HSBC are saying that they will be paying Reed exactly the same amount as before for their contractors services.

So, why are Reed cutting contractors rates before making them pay PAYE and National Insurance?

They say it is because the contractor has to swallow 23% of employer contribution deductions.

But what about the VAT? Will HSBC pay Reed the gross amount, including VAT, or will it be the amount without VAT? Communications show that it will be the latter.

Financial companies cannot claim the VAT back. Not having to pay VAT will save someone that money. Paying that to contractors would pretty much cover the 23% that Reed will deduct from contractors’ income.

Why are the banks blanket banning Personal Service Company contractors

One wonders why all the big banks are blanket banning PSC contractors. Even HMRC are using some contractors.

All they had to do was put their contractors through HMRC’s Check Employment Status for Tax (CEST) IR35 test.

HMRC have guaranteed this test. If contractors pass the test then HMRC promise that they will not come after the companies testing the contractors That’s even if it is found later that the contractors are really inside IR35.

Do the Conservatives have Further IR35 Changes coming after the Election

One wonders if they all know something that we don’t. Perhaps there is further legislation coming and the big banks have been tipped the wink by the Government.

After all, Chancellor Sajid Javid used to be Managing Director at Deutsche Bank before going into politics.

Here’s a couple of clues.

This was in the recent Queen’s Speech “We will increase fairness and and flexibility in the labour market by stopping employers and workers experiencing significantly different outcomes from flexible forms of working.”

Can anyone guess who they are talking about and what that means?

Add in Treasury Minister Jess Norman saying recently when answering a question in Parliament on IR35 “There is only 10% compliance in this area”.

One presumes he, Boris and Sajid intend to make the other 90% ‘compliant’ too.

Will the other UK banks follow the lead of HSBC

As our major banks all seem to do the same thing one wonders if the other banks will follow suit here.

HSBC were he first to announce a blanket ban on contractors. They were followed by:-

  1. Barclays Bank
  2. RBS
  3. Lloyds Bank
  4. Tesco Bank
  5. Morgan Stanley

Will the other banks (or the agencies they use) now follow HSBC once again and cut their contractor rates by 23% before forcing them to go PAYE with their agencies?

Reed’s HSBC contractors rate cuts may just be the tip of the iceberg.

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    1. If Reed was a preferred supplier agency, but is now employing people as the sole Umbrella company, is this not essentially a Closed Shop? Was this employment practice not outlawed in the 1990?


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