Morgan Stanley IR35 Decision
Banking and IT Contractors are reeling after the Morgan Stanley decision to take no more contractors. This is a direct result of Philip Hammond’s and Theresa May’s decision to roll out the public sector IR35 changes in the private sector from April 2020. This will come into effect in October 2019.
Options for Morgan Stanley’s Contractors
They have offered their existing contractors the following options:-
- Leave Morgan Stanley immediately
- Accept a contract that is inside IR35
- After 22 months of Option 2 they must become a permanent employee of the bank
Of course, none of these options are very palatable to their banking and IT Contractors. One would expect that the majority of them are trying right now to get contracts elsewhere.
Other Banks May Replicate Morgan Stanley IR35 Decision
However, they may find other major banks doing something similar with the IR35 changes in April 2020 looming. The Morgan Stanley IR35 decision could set off a domino effect. This is what happened when a couple of banks made decisions to cut their contractor rates by 10% across the board. Indeed Morgan Stanley cut their contractors rates by 10% jut a few months ago.
Fewer Banking Contracts for Contractors
The danger for contractors is that there will be fewer contract jobs with banks in the future. Indeed it may be the same with many, many companies.
A recent survey showed that 59% of companies are thinking of taking a blanket approach to contractors. That would be likely to involve making their contractors sign contracts saying they are inside IR35.
The same survey showed that many companies are considering cutting back on the number of contractors that they use. The Morgan Stanley IR35 decision could be just the first of many in he private sector.
Morgan Stanley IR35 Decision Devastating for UK Contractors
This could have a devastating effect on the UK contractor market. Contractors are saying that they will have to raise their contract rates to compensate for the major drop in income from April 2020.
However, it is the contract market that decides this. And if the number of contract jobs falls and there are the same amount of contractors chasing them, then contract rates will plunge. After all, if contractors could get higher rates they would already have done so. They are not, currently, keeping their rates artificially low.
The Morgan Stanley IR35 decision could be devastating for the contractor industry if it is just the first of many. The recent survey shows that this is likely to be the case.
HSBC and Lloyds Banks Dumping Contractors Too
Said Accountant Alan Broome of Broome Affinity Group ” From my perspective, this feels like the leading edge of a rather large sh!storm. I’m aware that HSBC and Lloyds are rolling out similar approaches.
“What this means long term I have no idea, but short term it will mean a lot of pain as the contractors and the clients find their level. Ideally, everyone in the hiring chain should be sitting down and hammering out new terms of engagement but I see little evidence of this.”
When this gets implemented, freelancers could lose up to 25% of their income.
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