BP IR35 Decision – Contractors Must Go PAYE – No PSCs

BP IR35 Decision

The BP IR35 decision is that they will take no more personal services company contractors. It will have to be PAYE in some form or other, either via Harvey Nash, the main agency or through an umbrella company.

They will issue a blanket ban on PSC contractors. All future contracts will be inside IR35 and all future hires will be on the basis of inside IR35 contracts.

Contractor Questions on BP IR35 Decision

How much of a blow is this to the UK contracting profession?
When will BP stop using personal services company contractors?
What Options have BP given their contractors?
Will BP increase rates to compensate their contractors for the extra tax?
Why will contractors with umbrella companies have an advantage?
What effect will the BP IR35 decision have on the company and their contractors?

How much of a blow is this to the UK contracting profession

This is a huge blow to the contracting profession in the UK. How many bona fide contractors will there be after April 2020 when the new IR35 rules come in.

BP have been a huge user of contractors over the years. They were able to make great use of the flexible workforce. Now, Government changes over IR35 have forced them to abandon what they believed was their optimum use of contractors and permanent staff.

Unless BP’s contractors all meekly accept what will be a huge pay cut for themselves then BP are going to lose contractors.. Those contractors will take with them out the door not only their skills and experience but their knowledge of BP’s business and computer systems. It took some of them a long time to pick up that knowledge and it won’t easily be replaced.

When will BP stop using personal services company contractors

According to an email received by contractors of the main agency there, after April 1st, BP will not use any contractors who want to be able to continue to use their Personal services companies. Nor will they hire any more of those.

What Options have BP given their contractors

Contractors have three options:-

Go PAYE via their agency
Go PAYE via an umbrella company
Leave

The agency have given contractors a list of umbrella companies to use. They cannot use any others.

Those already with umbrella companies can continue to use those.

The contractors must be directly employed by either the agency or the umbrella company. So, basically they won’t be contractors any more.

Will BP increase rates to compensate their contractors for the extra tax

BP will not increase rates to compensate contractors for their extra tax burden.

If a contractor is with an umbrella company, the umbrella company will charge the agency just the same as before. However, they will then deduct the contractors’ PAYE tax and National Insurance before paying the contractors.

There would be extra costs to the agency for a PAYE solution. However, BP have said that they will not accept any rate increases to cover this. So the agency will have to cut contractor rates to compensate for those extra charges.

If a contractor was on £400 a day then it would still be £400 a day via an umbrella company. Of course, the umbrella company would then deduct PAYE and income tax from that rate.

Under PAYE through the agency the rate would need to be renegotiated to around £300 a day.

Why will contractors with umbrella companies have an advantage

Those already with an umbrella company have an advantage as they can keep that umbrella and not have to be shoehorned into one of the agency’s choice.

However, this is just another nail hammered into the contracting profession coffin.

BP were one of the big beasts of contractor hirers. This model of using a mix of permanent staff and contractors has worked very well for them.