New rules are being introduced from April 2017 which can affect the amount of tax and National Insurance locum agency workers pay. Find out more about the rules and whether you may be 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 candidate working through an intermediary should pay, based on the substance of that working arrangement.
What is changing 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 are thus changing where the responsibility for applying these rules sit from the intermediary to the body paying the fee of that intermediary worker.
When do these changes come into effect?
The changes that HMRC are proposing to the Intermediaries Legislation will take effect from 6 April 2017. The legislation is still in draft format, which means that there might be some further changes to this.
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 will apply 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 will release 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 will solely rest with the public body.
Who will this impact if the rules are deemed to apply?
These changes will impact any NHS agency workers (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 will affect you and you will need to take action;
- 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 will happen if these rules are deemed to apply?
From 6 April 2017, NHS Trusts and Health Boards will have new responsibilities to inform 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 will be withheld from payment to the intermediary and paid over to HMRC on their behalf (note, that this is not the same as PAYE).
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 are likely to impact you. Your accountant is in the best position to understand your particular situation and how the rules will impact 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.
We are already seeing signs that NHS Trusts and Health Boards are starting to build compliance with IR35 into their selection processes and as we move closer to the implementation date of 6 April, this will become even more evident. The sooner you have a sound understanding of your own position, the better placed you will be to continue to work uninterrupted.