IR35 – a practical guide to HMRC compliance

Since 2017 practices have been responsible for deciding whether contractors fulfil IR35 status. This, potentially confusing, piece of legislation is causing headaches for practices and locum GPs who are unsure of the rules. To help clarify your position Practice Business spoke with finance expert James Gransby, head of healthcare at chartered accountants MHA MacIntyre Hudson, to explore what you need to know to stay on the right side of HMRC

IR35 is legislation which focuses on the employment status of workers who are not paid via the payroll; it is used by HMRC to obtain employer’s National Insurance Contributions (NIC), as well as PAYE, plus employee’s NIC from such workers – including locum GPs – in cases where HMRC deems that they should be taxed as an employee.

Essentially, IR35 looks to rebalance the tax savings that can be achieved by self-employed locum GPs or locums who use a limited company to provide their work. It’s a confusing area that can cause concerns for those caught in its web – including GP practices.

Who does it apply to?

In the past it was down to the locums themselves to assess whether or not they were caught by IR35; however, since 6 April 2017 it has been the GP practices that have needed to assess the position.

How do I check whether our locums are caught by IR35?

There is an online status checker which practices can use to assess the employment status of locum staff.

Working through the checker there are a series of questions that explore the relationship between the practice and the locum; depending on the answer to each question, further questions are then asked in an attempt to determine the employment status of the contract.

The output of the checker will show one of three outcomes: ‘unable to determine the position’, ‘classed as employed for tax purposes’, or ‘classed as self-employed for tax purposes’.

If a sessional GP or locum providing their services via a limited company is deemed to be employed by the practice then the practice must deduct tax from the payment to the locum GP’s company and pay that money to HMRC. The rate is 32% and comprises basic rate tax at 20%, plus employee’s NIC at 12%, together with any employer’s NIC.

The worker then gets credit for the tax deducted at source when declaring their taxes. The ultimate result is that employer’s NIC is paid to HMRC and taxes are paid at personal tax rates rather than the lower corporate tax rates.

What evidence should I keep of the result?

A print out of the result of the online checker, signed by both parties, would be sufficient evidence provided the questionnaire was answered accurately. The website says that, ‘HMRC will stand by the result given unless a compliance check finds the information provided isn’t accurate’.

Being inside IR35 sounds like a headache; how do I ensure that the locums are outside of IR35?

Ultimately, the decision as to whether or not a worker is inside IR35 rests on the facts. The key questions from the online checker are:

• Q: If the worker’s business sent someone else to do the work (a substitute) and they met all the necessary criteria, would the end-client ever reject them?

If the practice would accept the substitute then it is much more likely that the contract would fall outside of IR35.

• Q: What does the worker have to provide for this engagement that they can’t claim as an expense from the end-client or an agency – eg. materials, vehicle, equipment, other expenses – ?

If the answer is that the practice supplies all the items they need then it increases the likelihood that the contract would fall within IR35. By contrast, insisting the locum brings their own, fully-equipped, doctor’s bag and uses their own car for home visits increases the likelihood the contract will fall outside of IR35.

The practice cannot contrive a position by which the contract falls outside of IR35 just because this is more convenient; the decision must be based upon the facts of the engagement in question.

If a practice genuinely changes their stance – for example, from not allowing a substitute to allowing one – this may be sufficient to change the result; the practice would then, naturally, have to stand by this if the situation ever arose.

What happens if I don’t check the status?

If HMRC assesses that workers at the practice are inside IR35 but tax payments are not being deducted then, since April 2017, the back tax due would fall upon the practice rather than the worker – so it is of paramount importance that practices check the IR35 status of every worker not on the payroll.

What should I do today?

If you have not already done so, the online checker should be used for any contracts in place and any new ones in the future. This is a complex – and potentially costly – area and so expert advice should be sought if there is any uncertainty.

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