IR35 Changes to legislation Effective from the 6th April 2017 for NHS Suppliers and Public Sector Workers
Government and HMRC have recently announced changes to the IR35 legislation that will affect the way people working for the NHS and other public bodies are taxed.
This will affect candidates working via PSCs (personal service company) / Limited companies.
Early indicators from clients suggest that most health and social work professionals working in the public sector will have tax and National Insurance deducted at source when they are paid.
This is a significant change for workers operating through a PSC / Ltd who currently manage their own tax and NI payments.
What is IR35 Legislation?
IR35 is the name given to a tax legislation in the UK that is designed to ensure workers supplying their services to clients via an intermediary, but who would be an employee if the intermediary was not used, are taxed in same way as a general employee roles that fall within IR35 are subject to PAYE income tax and National Insurance contributions. There are a few important things you should know about the coming changes:
For NHS Workers
The NHS trust will determine whether or not your role falls within IR35. Based on the guidance the Government and HMRC have made available, it appears that all medical professionals will fall within IR35. Medical professionals fall under the direction, supervision and control of the hirer, have no effective right of substitution, and fail a number of other main IR35 tests.
- For roles falling within IR35, it will be necessary to deduct tax and NICs at source, prior to payment being made to your PSC (Similar to PAYE).
- These changes will apply to all payments processed on or after the 6th April 2017, regardless of when the work took place.
Subject to each Trust’s agreement, you will still be able to be paid via a PSC (limited company), but most of the current tax benefits will be lost.
Firstly we want to reassure you that you don’t have to transfer to a trust or local authority's payroll, bank or permanent staff and you can continue as a contractor or locum.
For Limited Companies
If you are working as a limited company, you can continue to do so; however the agencies will be deducting tax and NI from the payments before paying you. However additional information will be available in this budget on 8/3/17 of how those “deductions” will be treated as at the time of preparing your company’s tax return. Those deductions might get available to be offset against your corporation tax liability; however this cannot be confirmed yet.
- You can continue to work in the private sector and be unaffected by the changes depending on the strategy adopted by your agency.
- You can continue to operate via your PSC / Ltd; however your payments will have Tax and NI deductions made when you work in the NHS and public sector
- You can transfer to a compliant umbrella company; however in that case you might have to pay the same tax and NI and additional admin charges on top of the payments. Therefore, you will have to carefully review status of Umbrella Company before choosing this route.
Private Sector working
If you are currently working on assignment at a Private Sector client i.e. a Private Hospital or Service Provider then these changes will not affect you and you may continue to be paid via your PSC and receive gross payments on which you are responsible for accounting for taxes to HMRC.
What comes next and processing of time-sheets closer to the new legislation
The new legislation comes into effect on the 6th April 2017. We strongly encourage you to submit your current outstanding timesheets as soon as possible. Any invoices processed and paid after this date, from the 6th April will be under the new IR35 rulings. (Regardless of when work was completed)
What is CWP doing?
We are awaiting final clarification on the new rules from the Government and HMRC. In the meantime, we are working hard to understand how this will impact you and what we can do to minimise that impact.
It is likely that, for many professionals, these changes will increase tax and National insurance liability and could therefore significantly impact their pay.
We expect that, in the current climate, many trusts will apply a blanket IR35 rule labelling all workers and some trusts may no longer be willing to accept candidates working as limited companies. Instead, they may only accept candidates they can guarantee will have tax and NI deducted at source. We will continue to monitor the situation and keep you updated.
Please be aware that this legislation will affect every NHS trust and every agency supplying staff to the NHS. If you have questions about your specific situation with relation to IR35, we recommend seeking a formal advice from our office.