Controversial changes to contracting in the UK private sector are imminent. As many as 170,000 individuals working through their own companies (who would be employed if engaged directly) are expected to be affected*. The April 2020 IR35 deadline is fast approaching.

Day-to-day banking operations could be seriously compromised by changes to traditional contractor relationships. So, if you haven’t already, it’s time to assess and address the implications of this latest IR35 regulations reform for your workforce strategy.

What Would Banks Do Without Contractors?

When IR35 rule changes hit the UK public sector in 2017, employers had a simple choice — pay more to retain their contractor workforce or risk losing resources to the private sector. At that time, it was still possible for workers to remain outside of IR35 regulations and enjoy the associated tax advantages. But once these new changes hit the private sector the door is closing on this option.

The four main IR35 sticking points explained:

  1. Fewer Contractors to Call upon

    Several major banks have already announced that they will stop engaging Personal Service Company contractors, forcing workers to go permanent or engage inside IR35 regulations through umbrella companies. With more banks expected to follow this approach, this will lead to a narrowing of both supply and demand for the contingent worker market, as contractors take permanent roles or move to more accommodating industries. Inevitably, the scarcity of talent will lead to longer lead times and increased costs for clients.

  2. Key Person Dependencies

    Banks have always relied on external specialists to plug gaps in their in-house experience and expertise. During their tenure, many contractors take on key project roles and gain critical in-house knowledge that makes them vital to project delivery. IR35 now poses a challenge to managers running projects that run into 2020 and beyond. Either, they deal with the hassle of handovers in the middle of an active project, or retain the current individuals — the spiraling cost of which could reach as much as an extra 35% by the time additional taxes and possible rate increases have been added.

  3. Workforce Friction

    Typically, permanent roles have been shunned by contractors, largely because of the massive discrepancy in take-home pay. But being unable to operate outside of IR35 will take a great bite out of their earnings anyway. So, the alternative will suddenly look a lot more attractive, especially when they factor-in the added benefits and stability of a permanent role. However, if an organization’s grade boundaries and promotion system are distorted by the conversion of day rates to equivalent salaries, it could create friction with the existing permanent workforce.

  4. Less Budgetary Wiggle Room

    Contractors are always at the sharp end of bank cost-cutting initiatives. First out of the door in a downturn, they’re often required to take furloughs at year-end to help managers ease budgetary pressures. But with a smaller contingent workforce, cost flexibility is drastically reduced and new ways will need to be identified to make ends meet when cuts come around again.

    So, What Can You Do About It?

    Review and overhaul your workforce strategy for 2020 and beyond. Ask yourself:

    • How and where are you using contractors across your organization?
    • How are you going to reduce your exposure in the long term?
    • Can you offset cost increases by making savings elsewhere?
    • Can you make better use of low-cost nearshore locations?


    As far as the countdown to IR35 is concerned, it’s 3 minutes to midnight. Plan ahead now and minimize the fallout come April.


    *Source: GOV.UK
    Mark Reynolds
    Mark is a Senior Engagement Manager within Luxoft’s Financial Services consulting and advisory division. With 12 years of experience in Financial Services technology, he is an expert in working with nearshore delivery organisations, having built and led large managed service teams across central and eastern Europe on behalf of leading financial institutions. Mark draws upon this background to help clients simplify their IT estates and to make effective use of nearshore as part of their global workforce strategy.