IR35 set to hit Vodafone, GSK, Barclays, Deutsche Bank and National Grid as big companies respond by cutting contractors

Contractors set to walk out of contracts as a result of the IR35 rule change, while some firms will stop hiring contractors altogether

Contractors are set to quit firms en masse when the new IR35 regulations come into force on 6th April 2020, while many organisations are planning to discontinue employing contractors entirely

And in some companies, contractors who don't take up offers of full-time employment could find themselves taxed at source anyway, without any of the advantages of full-time employment contract.

That is the warning of organisations representing contractors and freelancers as the date for the implementation of the new rules draws near, and following the sudden change last week at Number 11 Downing Street.

Organisations as diverse as Vodafone, Barclays, GSK, Deutsche Bank and National Grid are set to be hit, with the Financial Times claiming that 50 out of 53 workers at Deutsche Bank's 'change management' team in London are considering leaving before the end of March. The contractors have been asked by the Bank to join its payroll, taking a 25 per cent pay cut in the process.

One contractor told the FT, "People are willing to walk and there will be a massive impact... Huge swaths of work will be mothballed".

Furthermore, contractors working on other IT projects across Deustche Bank in London are also reconsidering their positions, the report added. The Bank, meanwhile, expects back-office centres in Romania and India to take-up the slack.

On top of Deutsche Bank, Barclays, HSBC, Lloyds and RBS will all be discontinuing the use of contractors who trade as limited companies, rather than risk getting wrong the complex assessments to determine whether a contractor falls within the scope of IR35 or not.

Last week, a 150-strong group of contractors and freelancers lobbied Parliament, calling for a halt to the planned changes to IR35, pending a full review.

In an open letter to the Chancellor of the Exchequer, a number of groups representing freelancers and contractors warned of "the devastation" that will be caused by the "bewildering" new IR35 rules. They urged the Chancellor to suspend the roll-out for up to a year "in order to prevent the closure of thousands of compliant UK businesses".

"Many large companies (including several major banks, Vodafone and GSK) have announced they will no longer engage contractors out of fear they will fall foul of the notoriously complex legislation... This means genuinely self-employed people are losing work opportunities, while clients themselves are losing vital, flexible expertise."

Because the new rules are so complex, organisations large and small have simply decided to stop hiring contractors entirely, rather than risk having contact with IR35.

"Other organisations have correctly assessed that the only way to avoid a huge tax liability is to declare that all engagement are inside IR35. This is inevitably resulting in entirely compliant contractor businesses having to close."

While some companies have sought to persuade contractors to become full-time employees, others plan to dispense with them entirely and hire staff under similar arrangements from overseas to do the same work remotely. Jobs have been lost and roles have dried up as a result.

"What is more worrying of all is that many contract and freelancer workers are effectively being forced into a status of 'zero rights employment', where they will be tax as employees, via PAYE, but without any of the security of benefits of employment..."