From April 2017, the tax legislation known as intermediaries’ legislation (IR35) was updated.
These updates will ultimately influence the taxation of agency workers within the public sector, including healthcare professionals employed within NHS trusts.
In general terms, IR35 legislation was introduced to minimise disguised employment in the form of contractors working as disguised permanent employees. IR35 was introduced to prevent contractors from maximising the tax saving advantages of a private company, whilst also receiving benefits associated with traditional employment.
The changes made to the IR35 tax legislation
Prior to the latest updates, it was the sole responsibility of the worker to correctly report if they were inside or outside of IR35 rules. If it is deemed that the worker was inside IR35, then appropriate tax was applied.
As of 6th April 2017, it became the responsibility of the organisation or agency employing the worker to assess IR35 and apply the appropriate tax contributions. For example, the NHS trust or practice which you regularly work for as a locum now checks whether your arrangement falls within the IR35.
If you fall inside IR35, then the practice is responsible for deducting PAYE and employee’s national insurance contributions to pay the enforced tax invoice. The financial penalties for an incorrect assessment of IR35 are severe. For this reason, some NHS trusts have been accused of enforcing a blanket approach, whereby all contractors are automatically assumed to fall inside IR35. Workers who are included in this approach, but do not actually fall inside IR35 will experience a significant deduction to their net pay.
Who is affected by this alteration in legislation?
It is worth noting that currently only the public sector is affected by the latest alterations to IR35 legislation. As mentioned earlier, this means that healthcare professionals within NHS trusts are affected, although you should be aware that not all of the NHS is affected. The legislation applied to this refers to public authorities.
Within the NHS, these authorities include:
- NHS England
- Strategic health authorities
- NHS trusts and foundation trusts
- GMS or PMS practices
- Community health councils
Frequently asked questions
- Where do I access the HMRC assessment tool?
Although it is now the role of the NHS trust or practice to assess IR35 status, the HMRC assessment tool can be accessed here: www.gov.uk/guidance/check-employment-status-for-tax
- Does working for multiple agencies affect IR35?
You can still work for multiple agencies with no impact on IR35. Deciding if IR35 applies to this working arrangement is reviewed on a case by case basis. Each engagement is reviewed independently. Taxes and National Insurance contributions are also only deducted for the seperate contract which they are applied to.
- A number of locum doctors are looking at operating as a limited company. Is this something I should consider?
Currently, large numbers of doctors are choosing to register and work as a limited company. It is worth noting that this specific route is still impacted by changes to the IR35 legislation, however, is an option many individuals still select to allow more effective tax planning. It may also be worth considering your take-home pay by working through an umbrella company.
- What is an umbrella company?
An umbrella company acts as an employer to agency contractors working under a fixed term contract assignment. This option is the major alternative to a limited company. They serve as an intermediary and take responsibility of arranging payment, including necessary tax and national insurance deductions
- What is a personal service company?
There is no legal definition pertaining to a personal service companies, they are generally regarded as UK registered limited companies, whereby, the contractor is the company director and manages the business accounts
- Should I set up a limited company or work for an umbrella company?
It may be worth consulting with a professional accountant to discuss the most tax efficient way of working. An accountant will be able to advise on the latest updates to tax legislation and which method of working may maximise your earning potential.
As a result, to the changes in IR35, there is no legal obligation to work for an umbrella company. The most effective way to work as a locum will largely depend on your individual circumstances. It is certainly worth discussing this with Gorilla Accounting.
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