IT Contractors in Investment Banks? Outside IR35?

[sammywammy]

I understand that IR35 applies to a much larger category of contractors than simply IT workers but I have a number of questions about how it is possible to be outside IR35 when working as a typical IT contractor for an investment bank.

I have read the various criteria and tried to make sense of them. Terms like "mutual obligation" and the ability to replace yourself with a different contractor if necessary, make sense to me but I cannot see how they apply for most IT contractors I've known, who work for banks.

I have been working as an IT contractor for a few years and never got round to actually setting up a limited company. My understanding was that the real benefits of having a limited company and being paid through it, was when you were outside IR35: your job was definitely not that of an employee and you were focused on a specific project (which when finished, your contract would not be renewed).
If I am honest, my role is very similar to that of an employee, just like a lot of contractors who I have known while working for various banks and I am fairly sure that if looked at closely, I would fail to avoid IR35. But possibly, I am being overly honest!

Are most IT contractors in investment banks operating outside IR35? Are they doing so knowing that they are in a very grey area and after close scrutiny, would be found out? A lot of people must have come across IT contractors who have worked for 15 years at the same bank. Surely they have not been working outside IR35 all that time or am I being naive here?

[BlasterBates]

No you're quite right those contractors are high risk. The fact is though, at least up until now, the chances of being investigated has been negliible. HMRC have now set up a special unit specifically for IR35, so it might change. If you do go Ltd I would definitely select a big Accountancy firm who specialises in contractors, just simply so that you get to hear whether the IR35 is going to become a problem, and also that you have an accountant who knows how to deal with any enquiry.

[Greg@CapitalCity]

Its impossible to answer this. I would suggest the best thing you can do is invest some time in speaking with an IR35 specialist about YOUR specific circumstances. See what they say - they might be able to enlighten you further. Also, try putting yourself in the shoes of a business owner, and take a look at the world from their perspective. There are numerous reasons why a bank (or any other employer) might want to engage contractors rather than employees to under some parts of their work - the important thing is that the two maintain a commercial B2B relationship.

[slogger]

Its impossible to answer this. I would suggest the best thing you can do is invest some time in speaking with an IR35 specialist about YOUR specific circumstances. See what they say - they might be able to enlighten you further. Also, try putting yourself in the shoes of a business owner, and take a look at the world from their perspective. There are numerous reasons why a bank (or any other employer) might want to engage contractors rather than employees to under some parts of their work - the important thing is that the two maintain a commercial B2B relationship.

I think its the similar to most other industries ... I have been a contractor over 20 years, 15 of which in the city .. I actually found the banks to be easier to work with re ir35 - their legal/hr departments tended to have a good knowledge of the area.

moo - lots of times banks tell ltd co work not needed, force time off - good point
- always been told proof needed for insurance
- always had a substitution clause - and have actually used it several times ( your sub doesnt have to be vetted all the time - e.g. I've subcontracted small bits of work to another it contractor outside of bank - i invoiced bank directly for work but I get invoiced by other contractor and pay them from my ltd co - all ok)
- always have to pay for my own equipment (work remotely/own home office a lot)
- several times I've had difficulty with payment (esp when going direct to large companies - you (rightly!) get treated as though your another large company and have same difficulties) - couple of times not been paid (agency going bust, client co who i went with direct went bust - only two in 20 years but still painful!)

.. but big problem with ir35 etc is lack of clarity -- I have been investigated twice and passed relatively easily (but took months!) - other people I know with similar working arrangements took over a year to get hmrc to agree ok.

[Gentile]

OP, you are right. There appear to be contractors out there who work more like employees of their 'clients' than as contractors, and are engaged exclusively by one client for years at a time in some cases. I've worked for an investment bank in the past (albeit briefly), but I've never worked for any one client for more than 9 months at a time or so. And in each case I was there to deliver a project with a fixed scope and an end date that we roughly stuck to barring an extension for a month or two here and there.

I did notice when I interviewed for the one investment banking gig that I got involved in, that the ClientCo constantly confused how to go about recruiting permanent staff vs contractors. Although I only responded to a tender to contract, they still kept making the basic mistake of asking me if I wanted to join their staff permanently? That's par for the course at the end of a contract for ClientCos in some other fields, where a client for whom you've successfully delivered a project asks if you'll consider taking on a permanent position within their staff, but investment banks seem to be singularly misguided in this area and get confused from the outset about whether a contractor will be interested in permanent work. (I guess that should have been an alarm bell for me with the client I have in mind, since I only ended up working for them for a week, and the hiring manager continued to conduct telephone interviews with prospective permanent staff in the middle of a busy office within my earshot for the whole week I was there – he was a classy guy!).

Anyway, I wouldn't work for years at a time myself, and feel safe to be outside IR35. I prefer to work for ClientCos that are sure they really do need a contractor to fulfil a fixed-scope piece of work, rather than to accept the risk of working for a client that is likely to lead both you and them into trouble with the Taxman.

[slogger]

OP, you are right. There appear to be contractors out there who work more like employees of their 'clients' than as contractors, and are engaged exclusively by one client for years at a time in some cases. I've worked for an investment bank in the past (albeit briefly), but I've never worked for any one client for more than 9 months at a time or so. And in each case I was there to deliver a project with a fixed scope and an end date that we roughly stuck to barring an extension for a month or two here and there.

I did notice when I interviewed for the one investment banking gig that I got involved in, that the ClientCo constantly confused how to go about recruiting permanent staff vs contractors. Although I only responded to a tender to contract, they still kept making the basic mistake of asking me if I wanted to join their staff permanently? That's par for the course at the end of a contract for ClientCos in some other fields, where a client for whom you've successfully delivered a project asks if you'll consider taking on a permanent position within their staff, but investment banks seem to be singularly misguided in this area and get confused from the outset about whether a contractor will be interested in permanent work. (I guess that should have been an alarm bell for me with the client I have in mind, since I only ended up working for them for a week, and the hiring manager continued to conduct telephone interviews with prospective permanent staff in the middle of a busy office within my earshot for the whole week I was there – he was a classy guy!).

Anyway, I wouldn't work for years at a time myself, and feel safe to be outside IR35. I prefer to work for ClientCos that are sure they really do need a contractor to fulfil a fixed-scope piece of work, rather than to accept the risk of working for a client that is likely to lead both you and them into trouble with the Taxman.

i think its a common misconception that length of contract is and indicator of ir35 status, projects can and do take years in some places, also you can move from project to project - its not the length of time - its the working practice whilst your there..

[Gentile]

i think its a common misconception that length of contract is and indicator of ir35 status, projects can and do take years in some places, also you can move from project to project - its not the length of time - its the working practice whilst your there..

It's not a misconception. It is an indicator that people who choose to work in that way have more than a passing relationship with their one and only "client", that could amount to disguised employment when taking other factors into consideration. By contrast, it's difficult for anyone to argue that someone who works for different clients all the time (and sometimes more than one client simultaneously) can be a disguised employee of all of those different end clients.

[BlasterBates]

i think its a common misconception that length of contract is and indicator of ir35 status, projects can and do take years in some places, also you can move from project to project - its not the length of time - its the working practice whilst your there..

There is a court case where a contractor ended up being inside for the latter half of a several year contract.

The trouble is it gets harder to prove you're there for a specific project, and if you're just moving from project to project that is an indication that you're like a permie being assigned to where the work is. Generally all the permies wll be assigned to projects as well. It would be different if you were laid off from time to time. You somehow need to differentiate yourself from the permies.

[jamesbrown]

There is a court case where a contractor ended up being inside for the latter half of a several year contract.

IIRC, there was a change in working practices from project-based work to becoming generally available (among other things), so length of contract was not the issue, at least directly.

[northernladuk]

It's not a misconception. It is an indicator that people who choose to work in that way have more than a passing relationship with their one and only "client", that could amount to disguised employment when taking other factors into consideration. By contrast, it's difficult for anyone to argue that someone who works for different clients all the time (and sometimes more than one client simultaneously) can be a disguised employee of all of those different end clients.

I agree with Gentile. I see two problems wit long contracts. First, whilst on paper length of contract should not be an indicator in itself I think the mindset of many people on long term contracts makes themselves hidden permies. They often forget the relationship and slip into a dangerous routine. Luckily there are no 'tests' for this mindset but if it comes to an investigation you are immediately on the backfoot and have to defend yourself out of it rather than it being obvious if you have multiple clients. I personally don't think it will be long before length of contract does get targeted. Secondly, if they start looking at the role and then discover it is an enduring role in a team of permies you will have a hard job to prove that you are not treated as a hidden permie as well so a double edged sword.

I don't think you should sit comfortably if you are in a long contract filling an enduring role. You need to be working harder to stay out of IR35 than most IMO.