Following an initial “tease” of information in the Government’s Budget Announcement in March this year, HMRC has released information on reforming the tax legislation affecting locum workers engaged with public sector bodies, including the NHS.
What is affected?
The changes affect a piece of legislation nick-named “IR35” which has been in force since 2000. It’s quite a small piece of tax law which affects workers who are engaged off-payroll, but the changes proposed have huge consequences for the take home pay of all locums in the NHS which could make those extra shifts a lot less attractive from a financial perspective if not tackled appropriately.
What does the Government want to change?
The main change relates to who must consider IR35.
Currently, the IR35 “liability” sits squarely with the locum. If the locum gets their IR35 status wrong then it is their limited company or LLP which is liable for additional tax and national insurance contributions on their income (rather than paying the lower rate of corporation tax).
There has been a lot of criticism of the IR35 legislation for making locums liable for employers National Insurance Contributions as this would usually be paid by the employer, or NHS client of the locum. There is also concern that lower paid locums in some sectors are being unreasonably forced into working through their own limited company so their public sector clients can save money by not employing them.
How does the Government want to change it?
On the basis of all of these arguments; to increase the tax yield of off-payroll workers under IR35 and to ensure the public sector is doing all that it can to ensure all works are taxed appropriately, it is planned that the IR35 law will be changing from April 2017 and NHS locums will be the hardest hit.
Where IR35 applies to a locum, the public sector client (be it an NHS Trust, NHS Primary Care facility etc) will be responsible for deducting tax and NICs before making any payment to the locum where the locum worker is working in the same way as an employee (ignoring payment for holidays, sickness etc).
It is important to note that HMRC have not been consulting on whether these changes should take effect, they are going to happen! HMRC are only consulting on how to ensure this happens effectively.
What does this mean for Primary Care practices?
Where the NHS body pays the locum’s company directly, it will be responsible for carrying out an IR35 assessment to ensure that it deducts tax and NICs at source where it is appropriate to do so. Not all locums will fall within the scope of IR35. Indeed lots of GPs and Consultants are unlikely to be affected where they are not controlled in the services they perform. However, it is key to understand the tests which are to be applied to each role to ensure the practice does not fall foul of this change in the law.
What does this mean for locums?
These changes will mean that locums must ensure that they continue to work as genuinely self-employed consultants in order to continue to receive the level of income they are used to receiving. Support from the practice may help with this and now is a good time to start having conversations about how locums will be taxed in 2017.
How Brookson can help
Brookson have vast knowledge in helping off payroll locums, agencies and end user clients to manage and mitigate risk throughout the supply chain with experience specifically in the Public Sector and the current commitments under the HM Treasury Off Payroll Workers Compliance Directive 07/2012.
We expect to receive further information after the Government’s Autumn Statement and Brookson will be on hand to provide practice support to locums, Primary Care facilities and NHS Trusts. If you would like to hear more about the changes, understand the IR35 tests and the possible impact of these changes to your practice, Brookson can assist your business. Please contact us on 0345 058 1499