IR35 ‘intermediaries legislation’; it has been heavily criticised across board, deemed overly complex and has caused some public sector contractors to go private, as well as public sector employers to increase pay rates to compensate for lost remuneration and attract skilled locums. We take a look at what you need to know
IR35 ‘intermediaries legislation’ – which affects how people work through limited companies – is nothing new, but in April 2017 it received a shake-up. Changes to the rules saw responsibility for determining IR35 status of contractors working through intermediaries, usually a public-sector companies (PSC), shift from the PSC to the public sector employer – so, from GP locum to GP practice.
Pre-2017, if a locum had their own limited company then, usually, they would have said that IR35 didn’t apply to them – their company would bill the practice for their services and then pay their salary, tax and national insurance (NI) through their private limited company.
It’s now the practice that must assess whether a locum should be regarded as an employee of the practice for tax purposes and, if they are, the practice must deduct PAYE and NI, as well as any associated income tax and employers NI. NHS Improvement recommends a fact-specific check – that is fair, accurate and takes into account all relevant factors – be carried out on a case-by-case basis to determine whether the PSC is employed by the practice, or self-employed.
The HMRC’s employment status service tool is the recommended way to check employment status.
Information for GP practices
If a locum is deemed ‘inside’ IR35
If you engage a locum and the employment status service tool says that the locum falls inside IR35 then the following must be considered:
- They must be paid through your practice’s payroll and tax and NI deducted at source.
- As an employer, 13.8% employer NI for earnings above £156 p/w – in line with HMRC NI bandings – must also be paid.
- As the locum is technically employed by the practice, they must be given payslips and a p60 at years’ end – where appropriate.
- You must consider their employment terms – which should be negotiated; the locum is free to only accept the engagement if they’re satisfied with terms.
Employment protection – terms and conditions – if locum deemed ‘inside’ IR35
To be employed for tax purposes and to be employed for statutory purposes are separate legal entities – IR35 means that you are employing for tax purposes. Therefore, according to the HMRC, no employment rights are automatically conferred, and a decision of this magnitude would fall within the remit of an employment tribunal.
If a ruling is in favour of the employee and they are deemed to have statutory rights, then the employer would have to provide protection such as:
- protection from unfair dismissal;
- maternity leave and pay;
- annual leave and pay;
- redundancy payments.
Erica Dennett, employment specialist at law firm Cripps, explains how practices can accurately evaluate if locums fall inside or outside the legislation
What should a GP practice look for when considering whether a locum is inside or outside IR35?
HMRC has recently released a status tool to help GP practices and other public authorities in deciding whether a locum is caught by IR35. This can be accessed using the tool. Relevant factors pointing to the IR35 rules applying include whether the locum:
- Has to work at the GP practice
- Uses the practice’s equipment
- Is required to work specific shift patterns and
- Is in charge of leading a team or part of one.
Whether there is a right of substitution – the ability of a contractor to send someone else in their place to complete a role – within the contract between the practice and the PSC will be of particular importance. If there is such a right, the locum will, most likely, fall outside IR35 being instead deemed to be self-employed.
It is important to remember that the IR35 deemed employment rules themselves haven’t changed, only the responsibility for making the decision – it now falls with the GP practice, rather than the locum.
Nonetheless, the changes impact any locums who are currently not paid via PAYE. If locums want to ensure they continue to receive their expected level of income without deduction of employment taxes they should make sure they are working as self-employed consultants. This can be aided by ensuring written contracts are in place and that they contain appropriate substitution clauses.