New rules were introduced in April 2017 affecting the amount of tax and National Insurance locum doctors pay. Find out more about the rules and whether you are affected.
What is IR35?
IR35 legislation which is also known as the ‘intermediaries legislation’ is a set of rules that aid in the determination of the tax and National Insurance a doctor working through an intermediary should pay, based on the substance of that working arrangement.
What has changed and why?
These rules were originally introduced in April 2000. HMRC has estimated that there is widespread non-compliance and that only 10% of personal service companies who should apply IR35 to their working arrangement actually do so. To ensure greater compliance they have changed where the responsibility for applying these rules sit from the intermediary to the body paying the fee of that intermediary worker.
Who decides if IR35 applies?
The decision of whether IR35 applies to the working arrangement now rests with the public body (i.e. NHS Trust or Health Board) where the work is actually being conducted. It is therefore not up to the intermediary worker to provide evidence of whether IR35 applies, but rather a decision made by the ultimate employer.
If IR35 applies, how is that decision made?
There is a set of specific rules in the IR35 legislation that the public body applies in making this decision. In simple terms IR35 applies if a worker is providing services to a client under circumstances that, if not for the involvement of the intermediary, would be viewed as employment (regardless of contract length). HMRC have an online assessment tool to aid with the determination of whether this legislation applies to a working arrangement.
It is important to note that the decision of whether to apply these rules to a working arrangement solely rests with the public body.
Who does this impact if the rules are deemed to apply?
These changes impact any NHS locum doctors (whether paid by an agency or through any NHS Direct Engagement (DE) arrangement) who are not currently being paid via PAYE. If you receive a payslip each week that clearly shows that tax and National Insurance have been deducted from your earnings then you are a PAYE worker and IR35 does not apply to you.
If you are being paid through any of the following arrangements, this change affects you;
- You work through your own personal service company (PSC)
- You work through an intermediary for an umbrella company
- You are paid gross as a self employed worker.
What happens if these rules are deemed to apply?
NHS Trusts and Health Boards are responsible for informing locum agencies and candidates if the role required falls within or outside IR35 legislation. If a role is deemed to fall within IR35 and the rules apply, then the relevant tax and National Insurance are withheld from payment to the intermediary and paid over to HMRC on their behalf (note, that this is not the same as PAYE).
Revised guidance from NHS Improvement
You may have seen that NHS Improvement has issued some revised guidance regarding intermediaries providing services to the NHS. The guidance states that IR35 should be applied on a case-by-case basis by NHS Trusts and Health Boards. More information is available here.
What action should I take?
If you are not currently being paid via PAYE, we would strongly recommend that you contact your accountant or umbrella company for advice on how the changes impact you. Your accountant is in the best position to understand your particular situation and how the rules affect you, as well as giving you advice on the cumulative impact of other changes that have been introduced. These include prohibiting personal service company or umbrella company workers from claiming tax and National Insurance relief on travel and subsistence expenses for an ordinary commute from home to work, and recent dividend payment restrictions.