New regulation on how off-payroll consultants are treated is proving a challenge across the financial sector. With a recent poll showing four in ten businesses are considering phasing out contractors entirely when the legislation is introduced, some commentators are even predicting an industry-wide ban on freelancers. 

But is this the right approach? More importantly, does it really mean the end for contractors in finance?

What's changing?

On 6 April 2020 new IR35 rules come into force. The legislation is an attempt to stop contractors supplying their services through an intermediary and thus avoid paying tax at source. In short, it prohibits a business from listing its contractors ?off the books? as personal service companies (PSCs).

The original IR35 legislation, introduced into the public sector back in 2000, allowed freelance contractors to determine their own tax status. But this time around, the onus is very much on employers to define contractual status and whether or not employees need to pay PAYE.

How will it affect the finance sector?

Over one in four employees in the sector in London are non-UK citizens. In the wake of Brexit, IR35 changes could impact over six per cent of the total financial services workforce. It is estimated that 26,000 contractors have left banking in the last year. However, it is worth noting that the financial services sector relies on workers in a wide range of areas besides banking, and there are many options available to suit different types of workers.

While a number of organisations are applying blanket bans of PSCs to ensure they are compliant, this need not be the case as many of the contractors affected are already working within the law. However, the understandable reluctance of firms to take any risks effectively means many legitimate PSCs are no longer able to use their limited company. Some will go back ?in house? or be compelled to move on to employment contracts, but it is possible many will leave the industry altogether. The much-talked about government review into IR35 last week is not expected to delay the introduction of legislation, and it leaves little time for consultation or scrutiny.  

What can financial firms do?

In spite of all the problems outlined, IR35 doesn't have to be an insurmountable challenge. And it doesn't have to spell the end of freelancers in finance.

While it's only natural that firms are leaning towards caution by adopting blanket bans, it's as much down to a lack of guidance as anything else. It doesn't have to be this way. There is expert guidance out there on how to tackle IR35 without banning contractors, including using intermediaries to handle employment contacts. Acting now, to ensure your business is clear on its responsibilities and understands who falls within IR35 and who doesn't, can help you keep hold of key talent and minimise disruption.