Ocado Contractor IR35 Decision – Online Grocers Says No More PSCs

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Ocado Contractor IR35 decision
Ocado Contractor IR35 decision

Ocado Contractor IR35 Decision

The Ocado contractor IR35 decision is made. The online grocer will no longer take on contractors who operate via personal service companies. All of their current contractors will have to convert to PAYE.

Questions on Ocado Contractor IR35 decision

  1. Who are Ocado and what do they do?
  2. What are Ocado going to do about IR35?
  3. What will Ocado’s contractors do about the Ocado Contractor IR35 decision?
  4. Why are Ocado blanket banning contractors using personal service companies?
  5. How will the IR35 changes disrupt Ocado’s business?
  6. How will Ocado be able to compete for the best freelance talent in future?
  7. How many contractors will Ocado lose after the Ocado contractor IR35 decision?
  8. Did the Government mean for companies to blanket ban PSC contractors?
  9. Why are the Government disrupting an efficient marketplace for contract workers?
  10. Why are the Government hitting contractors once again?

Who are Ocado and what do they do

According to Wikipedia “Ocado is a British online supermarket that describes itself as ‘the world’s largest dedicated online grocery retailer’. In contrast to its main competitors, the company has no chain of stores and does all home deliveries from its warehouses.”

According to their own website “We are the world’s largest dedicated online grocery retailer with over 580,000 active customers shopping with us today. Our objective is to provide our customers with the best shopping experience in terms of service, range and price, which builds a strong business and delivers long term value for our shareholders. 

“We have developed a unique end-to-end operating solution for online grocery retail based on proprietary technology and IP, suitable for operating our own business and those of our commercial partners.”

What are Ocado going to do about IR35

According to one of their contractors “Ocado just told all their contractors that they are not even going to bother assessing contracts and terms, Nobody will be deemed outside IR35 without any assessment even being considered.”

It seems that some contractors will take permanent jobs with the online grocer. Others will be PAYE through their agency. Others again will operate via an umbrella company in the future paying PAYE through them.

What will Ocado’s contractors do about the Ocado Contractor IR35 decision

So, what will Ocado’s contractors do after this blanket ban comes into effect?

According to the contractor ” Some, myself included, have already submitted their end date notices and won’t be re-engaging.”

So, what percentage of contractors will leave the online grocer after the Ocado Contractor IR35 decision?

According to the contractor “As things stand at the moment, it looks like about 1/3 will be leaving. I don’t expect the count to be final for another two months. It is unclear how many, if any, will be returning under different terms and function titles after some safe length of time off.”

Why are Ocado blanket banning contractors using personal service companies

That’s yet another company who have been terrorised by the Government and HMRC into blanket banning all their personal service company contractors.

Many of their contractors, if assessed, would be found to be outside IR35. Also, Ocado could change the contracts and working practices of their contractors to make more of their contractors outside IR35.

However, like many of our major companies they have chosen not to do so. This is going to have a huge disruptive effect on the UK economy.

How will the IR35 changes disrupt Ocado’s business

Ocado already have what they believe is the optimum mix of contractors and permanent employees. If there is something which disrupts this then the company will be working less efficiently. As a result, profits will be lower and so they will pay less tax and employ fewer people and the missing people will not pay tax.

Also, companies who operate blanket bans on contractors will either have to pay much more for them to counter the fact the contractors will now pay much more in tax or they will simply not be able to compete for the best contract workers. This will have a huge knock-on effect on their ability to deliver computer systems for their business.

How will Ocado be able to compete for the best freelance talent in future

Ocado are basically, a technology business. They are their computers systems. So if they can no longer afford the best IT talent this will have an effect on profits. If they have to pay more to hire the best talent this will have an effect on their profits too. Either way, this will mean they pay less tax.

The Government and HMRC say that they will take on an extra £3 billion in tax over the next 4 years. That’s the equivalent of less than a penny in the pound on income tax.

However, to get that tax they will cause severe disruption to all of the UK’s major companies. They will also shove major extra costs onto our major firms causing profits and taxation to fall.

How many contractors will Ocado lose after the Ocado contractor IR35 decision

If Ocado lose a third of their contractors those contractors will take with them not only their skills and experience, but their knowledge of the company’s business and computer systems.

Those replacing them are not only likely to be not so good (if they are prepared to take effectively less money), and would have to learn from scratch about the company’s business and computer systems.

The Ocado Contractor IR35 decision will make it much harder for the company to recruit them.

The media has yet to pick up on this in any major way. There will be huge disruption to the UK economy – all for a piffling amount of tax.

Did the Government mean for companies to blanket ban PSC contractors

It was never meant to work like this.

Companies were supposed to test their workers using HMRC’s online IR35 test Check Employment Status for Tax (CEST). Those that passed the test could continue to use their personal service companies. Those that failed would have to go PAYE. Almost a million assessments by HMRC’s CSET tool have shown that 54% of contractors pass this test.

Indeed, the Government ruled that companies could not blanket assess contractors. They had to test them one by one.

However, companies can get around this by blanket banning personal service contractors at their companies. They are doing this because they are so afraid of tax penalties emanating from HMRC.

Why are the Government disrupting an efficient marketplace for contract workers

The Government are massively tinkering with the flexible workforce marketplace which was working at optimal efficiency before the Government decided to intervene.

That’s the trouble when Government interfere in an efficient marketplace.

If someone was to count the cost to our major companies of these new IR35 reforms it would dwarf the tiny amount of money, less than a tenth of a penny on income tax, that the Government will gain from the IR35 tax.

Yet a Conservative Government are about to cause massive disruption to a market which was previously working at maximum efficiency.

What should the Government do about companies blanket banning contractors

The Government should step in to stop the blanket banning of PSC contractors at our major companies – something they never meant in the first place.

It could be argued that previous Prime Ministers and Chancellors like David Cameron, Theresa May, George Osborne and Philip Hammond did not understand the contractor market.

However, Boris Johnson operates a personal service company for his earnings from journalism like his column in the Daily Telegraph.

Sajid Javid used to be Managing Director of Deutsch Bank before he entered politics and was an avid user of contractors. Indeed, he even said in those days that the Government should “repeal the silly IR35 tax”.

Why are the Government hitting contractors once again

If this Government continues with its IR35 assaults on contractors, under Boris Johnson and Sajd Javid, it cannot be because they believe it is the right thing to do. It can only be because they believe that the freelance community are a soft touch when they want to extract extra tax to pay for the NHS, police, doctors etc.

That’s something that contractors representatives IPSE should consider very carefully.

What would you do if your company banned personal service companies? We have a poll at the top right of this page with options. Those with PCs and tablets can see it. If you are using a mobile phone you have to put it into desktop mode to vote.

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