New tax rules which come into force on 6 April will force many GP surgeries to put locums on to the payroll and mean higher tax bills for doctors who currently operate through a limited company, with wider implications for those who are self-employed.
The changes to the IR35 rules are designed to ensure that public sector workers who have regular work with the same practice or hospital pay tax at the same rate as employees. However, they will place an extra burden on GP practices, which will now be responsible for assessing workers’ employment status and paying tax and National Insurance contributions if appropriate.
Medical practices need to review their arrangements with locums and other professionals they use and decide on their status. Here is our guide to the changes and the measures you will need to put in place.
Who will be affected?
The rules relate to any ‘off payroll’ staff who operate through a limited company – by engaging directly with the practice or hospital, through an umbrella company or an agency. The focus on employment status may also affect ‘off payroll’ staff who are self-employed.
Therefore the changes will apply to many doctors, consultants and other independent health professionals who are working regularly at the same practice or NHS organisation. They could also affect newly-qualified doctors working within a hospital while waiting to secure a training contract. They do not apply to genuine self-employed people working on an ad hoc basis.
However the biggest impact of the changes will be on GP practices and public bodies which will effectively have to take responsibility for policing the IR35 rules.
What exactly has changed?
The IR35 rules were introduced in 2000 to deter those in regular employment from benefiting from the more generous tax arrangements available to private companies and freelancers. However until now it has been up to the individuals themselves to decide whether the rules apply to them.
From 6 April, it will be the organisations which pay them that will take responsibility for this. Therefore GP practices will have to decide whether an individual should be considered an employee and if so, to deduct tax, NIC and any pension contribution, if appropriate.
What do GP practices need to do?
Practices need to identify all the professionals they pay to provide services and decide whether the IR35 rules apply. They should also review the status of any professionals they are paying on a self-employed basis. This in itself creates a new and challenging burden – determining employment status is an issue debated in the courts for many years.
However HMRC has published an online toolkit, the Employment Status Service (ESS) which provides guidance on each case and has stated that it will stand by the response generated, unless the information provided was inaccurate. HMRC has warned that where information is manipulated to affect the outcome, it will be treated as evidence of deliberate non-compliance, which will attract a higher penalty.
Practices should answer the questions generated by the toolkit, print a copy and keep it on file so they can produce evidence in the future if required. As an additional safeguard, they might also consider putting legal contracts in place with locums to ensure that information provided is correct.
Where a worker is considered to have employee status, the practice must deduct basic rate tax at the usual rate of 20% plus NICs at 12% and also pay employer’s NICs. However the worker would only be considered an employee in the eyes of HMRC and it would not affect their status in terms of employment law.
Even where a practice is using locums through an agency, it would still have to decide their employment status. The agency will request the information from the practice, which would then have 31 days to respond, after which time it would be responsible for deducting and paying over tax and NICs.
Finally, practices need to consider the additional resources, time and cost of having greater numbers of people on the payroll.
What do locums need to do?
Locums and consultants need to discuss their employment status with the GP practices or NHS bodies they work for and provide relevant information as required. Those who are considered employees will need to be aware that their invoices will no longer be paid in full. They will also need to keep track of any tax and NICs deducted at source and record this on their annual tax return.
How will the new rules work in practice?
It remains to be seen how different organisations will apply these rules, however there are indications that some NHS bodies will take a conservative approach and treat all health professionals as employees for tax purposes.
In general, the issue of employment status is complex and the rules contain many grey areas. Therefore it is likely that there will be legal challenges in the future both by and against HMRC and it may well be some time before clarity is achieved.